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TGIF – Market Ends Week on a Rough Note

Wheeee – this is fun!  

As you can see from JackDamn's index chart, the Russell Small Caps have now given up ALL of their gains for the year and, even a little bit lower and we won't be looking at a small correction anymore.  Generally, we like to "short the laggard" – or the index that has fallen the least but the Nasdaq is a strange animal and all of it's outperforming gains are due to Apple (AAPL) - and we think AAPL deserves to be at $160, so we don't see it as particularly overpriced compared to the Dow or S&P, though there are certain components in the Nasdaq (AMZN, NFLX, TSLA) that have ridiculous values and those may correct and drag the index down with them.  

As you are well aware, we've been discussing options hedges and futures shorts all month so I hope you enjoyed yesteray's dip as much as we did.  Our two key shorts in our portfolios are the Ultra-Short Russell ETF (TZA) and the Ultra-Short Nasdaq ETF (SQQQ) and the Nasdaq is 4.5% off the top and the Russell is 7% off.  By the way, we have the SQQQ hedges, not because we thought the Nasdaq would drop more but because our biggest long position is AAPL – so it gave us the best protection to lock in our gains.  

In fact, we just did a review of our Options Opportunity Portfolio, which is up an impressive 211% as of our two-year anniversary (8/8/15 was our start date with $100,000) and it is, by far, the best-performing portfolio in the Seeking Alpha Marketplace.  That portfolio has the following AAPL position that, if successful will, by itself, make us $180,000 by Jan 2019.  

Our net entry on the trade was a $5,600 credit, mostly in June and, though the short puts obligate us to buy 2,000 shares of AAPL for $130 ($260,000), which would use $130,000 of ordinary margin, AAPL is already far enough out of the money where the net margin requirement in the short puts is just $20,000 – so it's a non-issue in our now $311,000 portfolio.  

The Bull Call Spread pays 60 contracts x 100 options per contract x $30 at $170 and that's $180,000 so, if this trade works out well, we will have a net profit of $185,600 (as we had the net credit) just 18 months after we started.  The trade is now a net credit of $2,200 so we're up $4,400 (78.5%) in just over 2 months but that's only "on track" to our goal and it's still a great trade if you could use an extra $182,200.

Of course, we didn't start with a trade this large, we reinvested profits from older AAPL trades and this is the posiiton we worked our way up to.  Notice that we sold $65,000 worth of calls to protect our investment (as we think AAPL is short-term toppy) and, as I mentioned, we have our QQQ hedges because, even though we can afford it – we really don't want AAPL to be 20% of our Portfolio – especially if it crashed back below $130 for some actual reason (as opposed to being dragged down with the Nasdaq, which wouldn't bother us).  

We have a similar trade in our Long-Term Portfolio but that one is for PSW Members only.  That portfolio is also up almost 200% (193.2%) but it's 18 months older and tends to be more conservative.  As you can see from the AAPL spread – it's really not that hard to make good money in a bull market but that's why a market like this is unsustainable.  What if we turn $0 cash ($5,600 credit) and $20,000 of margin into $185,600 every 18 months?  What if the market never goes down and we take that $185,600 and re-inverst 1/3 and then turn $60,000 in to $550,000 and then reinvest $150,000 and turn it into $900,000, etc?

While it sounds nice, it means that we can be much richer than Warren Buffett after getting returns like this for 40 years and where is that money going to come from?  Where is this wealth being created except on stock market paper and what if all of us wealthy traders decide to cash in our paper gains?  Where is the cash from economic activity to back it up?  That's why markets like this become bubbles – at a certain point, financial physics do kick in and the gains simply can't be sustained.  

Meanwhile, we're happy to play the game for as long as it lasts but we have on hand firmly on the exit door at all times and we ALWAYS have our hedges – just in case days like yesterday happen.  What's the point of making 78.5% in two months if you don't lock in your gains?  That's what hedging is – insurance for your portfolio.  Aside from our short-term Futures shorts (and you don't even want to know how much profit you missed if you didn't read our Morning Report yesterday), we use index options to hedge as well.  For example, in our Monday Morning Report, we suggested re-using our 8/8 trade idea, which was:

We've been talking about hedges and a good way to hedge the S&P, other than simply shorting /ESFutures with tight stops above, is a bear put spread on SPY options, which we can accomplish with the following:

  • Buy 20 SPY Sept $247 puts for $2.50 ($5,000) 
  • Sell 20 SPY Sept $242 puts for $1.35 ($2,700) 
  • Sell 5 TEVA 2019 $20 puts for $4.40 ($2,200) 

That spread is net $100 and pays $5,000 (up 4,900%) if the S&P drops below 2,420 (2.5%) into Sept expirations.  You have an obligation to buy 500 shares of TEVA for $20 ($10,000), but that's a stock we really love at this price so, essentially, free money for promising to buy it.  Ordinary margin on the short puts is just $900, so it's a very margin-efficient way to raise cash but you can use any stock you REALLY want to own as an offset.  

The $247 puts finished the week at $5 ($10,000) and the $242 puts jumped up to $3.13 ($6,260) but TEVA got worse and those $20 puts are now $5.10 ($2,550) but that's still net $1,190 for a $1,090 (1,090%) profit for the week and THAT, my friends, is how you hedge!  The S&P may not stay down and, if it doesn't – then we don't need the hedge money but we're thinking this is just a bounce – as we predicted would happen in Friday morning's report, when we flipped bullish (so the above trade was cashed but can be re-entered on the bounce).  

SPY pulled back to $243 yesterday, just short of our goal and ahead of schedule.  The TEVA puts are now $5 ($2,500) for a $300 loss but the bear put spread is now $2.42 ($4,840) so net $4,540 is up $4,440 (4,400%) for the week and well on the way to the full $10,100 payoff.  You're welcome!  

That's why we LOVE the dips in the market.  If they last, then we get to use the cash our hedges make to buy more stock while it's cheap – it's a system that effectively enforces the entire concept of buying low and selling high.  

On August 2nd, in our PSW Morning Report, our hedging idea was even better as we focused on shorting the Dow as it tested 22,000:

Dow 22,000 is our shorting spot (predicted last week) and we hit that that yesterday after Apple (AAPL) announced their earnings and popped $10 after hours, adding 85 points to the Dow.  This gave institutional sellers the perfect cover to dump everything else and the index is back below 21,950, despite Apple's help.  50 points on the Dow (/YM) Futures is $250 (you're welcome) but we can do much better than that and we will be taking advantage of today's pop to add to our hedges (while it's cheap) and that's for Members Only but, for you, the cheapskate reader, we can give you a new hedging idea using the Dow Ultra-Short (DXD), which is a 2x inverse ETF:

  • Buy 100 DXD Oct $11 calls for 0.45 ($4,500)
  • Sell 100 DXD Oct $13 calls for 0.12 ($1,200) 
  • Sell 5 AAPL 2019 $120 puts for $4 ($2,000) 

DXD is at $11.24 so in the money and $13 is $1.66 away or 15% so a 7.5% drop in the Dow will pay you back $2 x 10,000 options (100 per contract) or $20,000 and the net cost of the spread is $1,300.  That's a profit of $18,700 (1,438%) if the Dow drops 7.5%, and stays down, into the October expirations.  You are obligating yourself to buy 500 shares of AAPL at $120 ($60,000) so make sure you REALLY want to own AAPL if it drops 20% but, chances are your will be safe with that bet if the Dow stays up and, if the Dow falls and puts AAPL in the money, then you have an extra $20,000 to buy the shares with!  

DXD hasn't actually moved very much but sentiment sure has and the Oct $11 calls are now 0.60 and the $13 calls are 0.15 for 0.45 on the spread x 100 = $4,500 and the AAPL puts are now 5.20 ($2,600) for a net of $1,900 which is up $600 (46%) so far and still very playable as a nice market hedge with a potential gain of $8,100 (426%) if the correction continues.  

Meanwhile, the Dow Futures short (/YM) we played in Member Chat made $1,500 per contract on the 300-point drop and that's the quick money we can take off the table while we let our hedges run overnight.  This morning, we're back on our index shorts from our bounce lines, which I outlined for our Members our early morning Live Chat Room

We expect to complete the 2.5% sell-off we expected but, after that, it's up to the Central Banksters, who meet in Jackson Hole this weekend and are likely to do SOMETHING to calm the markets.  We'll see if it works.  

Have a great weekend,

- Phil


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  1. Russell looking pretty sick!

  2. More debt, more war… debt ceiling anyone? I'm amazed how many wonder why Gary Cohn doesn't leave. He's a Golden Sacks squid, has his eyes on running the Fed! So he stands there and keeps his mouth shut. Seems pretty obvious to me, how many GS alumni are in the administration again? They don't give a whit about some statues… no profit in that.

  3. Morning All,

    Phil thanks for details on RUT. I was out much earlier than 1350 but still made nice $$. I switched it to SI at 17.05 yesterday and watched it go to 16.9 ish…whaaa. Today I am happy –  Up $800. Thing about SI, putting in stops is very risky during daylight hrs as they always seem to get hit.  Look at 17.175 line about 30min ago ..that was ME! Bastards.  I bought back in 17.205…going to 17.5 and get out I hope.  Hope miners do well today

  4. Here are some ideas to #MAGA but are not on the list right now:

    This list of policies is eclectic. It draws on ideas from multiple ideologies, from social democracy to free-market neoliberalism to industrialism. It contains some items that are supported by Democrats, and others that Republicans like. It leans toward support for those at the lower end of the socioeconomic ladder, but if enacted it would probably lift incomes for all classes. And many of the policies, like more jobs, less lead pollution, housing for the homeless and universal health care, would have positive social benefits in addition to their economic effects — reducing crime, increasing dignity and creating a healthier, happier populace.

  5. Wow, bought 15 TZA and 10 SQQQ calls on Wed, looked like the bounce was done. Sold at close yesterday, 126% in one day. Sold my SPXS calls too… reload on the bounce, if we even get one.

  6. Good Morning.

  7. mkuc – which calls were you looking at? Strike.duration?

  8. Latch – Stops – If you are using TOS you can use a "Custom Order" which stays on the TOS system until it triggers.

  9. CMG – New yearly low.  Rats & contrary Ackman investing prevail.

  10. Good morning! 

    Big Chart – If the Dow and Nas fail their 50 dma's, we have a long trip back to the 200s.  

    GS/Mkucs – You said it.  All they care about now is keeping the free money flowing for as long as they can.  Cohn's main job has been convincing Trump that Yellen is doing the right thing – something he didn't believe 6 months ago.  Good job on those hedges.

    /SI/Latch – That's why I don't generally play /SI unless it's from a spot where I have conviction to stay in.  Way too volatile otherwise.  

    Speaking of volatile, oil testing $47 again but it's all about /BZ $50 holding.

    The $3.75 spread right now is super-wide and not likely to last.  Our guys got rid of a huge amount of contracts yesterday – only 96,000 left, so not in too much trouble so I don't think even $46.50 will break to the downside and not even $47 today unless Brent falls hard, which is also doubtful.

    Economy/StJ – Sounds like a lot of liberal spending to me!  

    CMG/Albo – I think the shorts are simply flooding their press flacks with every incident at a Chipotle.  This is NORMAL stuff in restaurants but people are blowing CMG out of proportion – and they are more vulnerable because they use fresh, local ingredients.   Even so, check out MCD:

    Did their stock drop?  No.  It barely even gets press, nor do thousands of other incidents each year.  Unfortunately, perception can change into reality if people start staying away due to a health scare:

  11. CMG – Good points.

  12. Phil – "Big Chart – If the Dow and Nas fail their 50 dma's, we have a long trip back to the 200s.?… it's a great party as long as it lasts but you'd damned well better be ready for the day the music stops."

    Since 07/25 both MID and RUT down -7%; no problem right?

    It's all good the SP500 is near all time highs, but appearances are deceiving: 

    17% of SP500 are -20% from recent high

    38%  of SP500 are -10% from recent high

    65% of SP500 are more than -5% from recent high

    less than 50% of headline SP500 stocks are trading above 50 DMA. 

    Somebody already slowed the music down, should we get ready for this?  TBD.

  13. Phil    TCAP  Has been hammered. Pays 13% div,but very few options. Bot yrs ago for 12. Is it time to buy some more?

  14. FTR WTF???

  15. Good opinion pieces by Noonan and Henniger of the WSJ

    Trump’s Tangle of Rhetorical Inadequacy

    The Politics of Pointlessness

  16. IBM under 140 again !!!

  17. Yesterday I mentioned my armchair play with STWD and today again the play looks good to me.

    buy the stock and sell the 22.5 Mar straddle for 1.85, you are looking for a combined return of 1.91% per month.

  18. McD/Phil

    Difference between them and CMG is you go into McDonalds expecting to get hepatitis or E Coli.  You actually are surprised you don't get charged extra for it as a side item.

  19. The craziness of future trading.

    Today I opened up my paper account and thought to give Phil some competition in future trading.

    Looking at yesterday’s dip I did expect a rebound. So I entered a long buy on /ES and /YM.

    I was stopped out once or twice, and finally with great Cohones I just left the plays by them self.

    Only on one contract I was down some 500 $ on both plays, 1000$. I just left it, you would never do this with real money, I just closed both with a combined credit of 325$.

  20. ~~ Mitt Romney Pens Powerful Message Calling On Trump To Apologize For Charlottesville Remarks.

    I'd be surprised if Trump does that, but it might lead to the firing of Bannon.

    Think that if he's fired, it will be positive for the market in the short run.

  21. Sorry guys, LTP is a nightmare but almost done. 

  22. The bullets dipped in Pigs blood takes great attention here in Europe, said by the great leader.

    How low can you go?

  23. Bannon/Albo

    Market rebounded because it's expected Bannon will be fired shortly.

  24. Rustle – Thanks.  I could see him doing that, but would his inflated ego allow him to apologize ?  It would be a surprise if he did.

  25. rustle,

    How would the market react on the firing of an employee of a deranged leader?

    I feel the market today is on a rebound from yesterday's dip.

  26. Bannon/Yodi

    not my opinion, was news alert with that fact.

  27. Just anything to spook the market

  28. Long-Term Portfolio Adjustments (LTP):  This is not a full review as I don't have time and we don't really need one, since not much is changing.  We're at $1,466,221 this morning, which is up 193.2% but down $110,286 (7%) from our 7/24 update, mostly due to FU stocks.  Most of that money was made up in the STP (as it's supposed to be) and I'm not looking to get more bullish so staying even makes me happy and we've already got $1.2M in CASH!!! – so we don't need any of that either.  

    The only change we made since 7/21 was selling 5 ALK puts and the only Aug position we have is short AAPL calls but we'll make a big change to AAPL to make it more like the OOP version, as our position in the LTP ($100/130) is way too deep in the money.  

    So, keep in mind, I'm only going to make notes on the positions we're changing (or need a comment) – the notes from the prior review stand otherwise.  

    • PSO – Just sold their education unit today and lost $21M for the Q on $2.6Bn in sales.  We only have 1,000 shares so let's add 1,000 more for $7.75 and sell March $7.50 calls for 0.85 and $7.50 puts for $0.65 so our net on this 1,000 is $6.25 + $12.25 original is net $9.25 half-covered and, if we're assigned 1,000 more at $7.50, we'll end up with 3,000 at an $8.666 avg ($25,980 – still half an allocation) which is great if they stay over $7 as we can make up the rest with a few call sales.    We still have lots of room to DD, so we can also sell more puts if we feel so inclined. 

     Earnings History

    • ABX – Those calls are leftover from a spread – we need to remember to take profits on a good pop.

    All the short puts look good, about $55,000 (more from current gains) worth and we'll be looking to sell more as we're usually in the 24-36 range and now we only have 16.

    • OIH – I meant to kill and forgot.  Now it's a salvage and we can roll the Jan $22s ($1.45) to the 2019 $18s ($4.80) and sell the $24 calls for $1.80 (leave the short Jan calls to die) so we spend net $1.55 ($3,100) on top of the $5,000 we lost puts us in the $12,000 spread for $8,000 and we'll know by Q1 whether oil companies plan to spend a bit more next year or if we should give up.  
    • CG – I want to cash out the stock at $20.88 ($20,880) and pick up 10 March $20 ($2)/$22.50 ($1) bull call spreads for $1 ($1,000) to protect the short calls but hopefully they sell off a bit before we're done.  I like CG but over $20 is way past our 2-year goal.   

    • GME is at a nice low so let's buy back the short $23 calls ($2.35) and wait for a bounce to sell more.  

    AAPL – Well, we have to buy back the short $130s for a loss but we may as well redo this because it's too far in the money so it's a cash out, other than the short puts, which are fine.  As a  new play let's do this:

    • Buy 50 AAPL 2019 $150 calls at $23.50 ($117,500)
    • Sell 50 AAPL 2019 $180 calls at $11.25 ($56,250) 
    • Sell 30 AAPL Sept $145 calls at $14.20 ($35,500) 

    So just net $25,750 on the $150,000 spread gives us just under $125,000 (500%) upside potential at $180 less the puts we sold for $12,750 too!  Why are we not doing the OOP play?  Because they already made good money on their calls so we'd be chasing (net $10,000) and I'd rather use the $10,000 to roll down and widen this spread later – if AAPL goes lower.  If AAPL doesn't go lower – then we just make the $125,000 as a consolation prize.  

    • AAXN – Let's buy back the short 2019 $30 calls ($1.60) and we'll re-sell on a bounce.   
    • BBBY – Another retail panic.  Fortunately, early entry so let's buy back the short 2019 $40 calls ($1.35) and roll 5 short $40 puts ($12) to 10 short $30 puts ($6.10) and roll our 10 $30 calls ($3.40) to $22.50 ($7.10) and see how things go from there (no short calls for now).  
    • CBI – Hopefully this is the bottom.  Our 15 short 2019 $25 puts are $15.50 ($23,250) and we can roll them down to 30 of the $15 puts at $7 ($21,000), which uses $2,250 of the $7,800 we sold the $25s for.  That nets us into 3,000 shares of CBI for $39,450 ($13.15).  Given that's getting close to a full allocation block (though the portfolio has tripled, so we can afford much more), we don't want to spend too much on the calls so we'll roll the 20 2019 $15 calls ($1.85) to the $7.50 calls ($4.30) and sell the $15s to some other sucker for net 0.60 out of pocket ($1,200) to put is in the $15,000 spread that's back in the money.  We lost $5,500 so $6,700 net cost means our upside at $15 is still $8,300 (123%) despite all the FUs – plus the $5,550 we still hope to make on the short puts!   

    This is the key to understand these patience plays.  We started out selling $25 puts in Sept, when CBI was around $30 and now it's $9 and we can still make $13,850 if they just make it back to 50% of where we originally planned to enter and, if not, then we'll own 3,000 shares at $13.15 – MUCH lower than the $25 we planned to buy 1,500 for!  

    It's taken just under a year to get to this point and it will probably take more than a year to get back but so what?  As long as our companies don't go bankrupt, there's almost no trade that can't be turned around if you are willing to stick with it and no, we don't really have a better use of $4,000 in net margin than making $13,850 in 16 months so we're not "wasting time" with bad positions and CBI is a company I'd love to own a lot of long-term (assuming their debts don't swamp them).  

    • CHK – Down $10,000 is 20% of an allocation block.  They haven't even missed earnings but they are being killed so it's time to add more.  The 2019 $5 calls are 0.85 and we can roll down to the $2 calls at $2.20 for $1.35 ($6,75) and DD there ($11,000) to 100 $2 calls and let's not sell short calls and see if we get a bounce.  The short $5 puts are a $3,500 loss but it's still a good target, so no reason to change those.  I'd ideally like to sell 50 (1/2) the $7 calls for $1 if we get a good pop.
    • CM – Let's buy back the 3 Sept $85 calls for $1.50 ($450) and sell 5 March $85 calls for $3.60 ($1,800) to pocket $1,350 and, more importantly, move this trade out of the unbalanced pile and back with the other dividend-payers.  
    • CMG – While it's falling, we don't want to commit too much but the 2019 $320 calls ($51) can be rolled to the $280s ($71) for $20 ($20,000) and that puts us deep in the money and allows us to sell short calls on the bounce (if ever).  The real problem is the short Jan $400 puts, now $90 and what we'll do is buy those back ($45,000) and buy back the 7 short 2019 $300 puts for $39 ($27,300) and we'll sell 10 of the $350 puts for $66 ($66,000) so a net cost of $6,300 but 2 less short contracts and we still have $47,575 we sold the original puts for so net $41,275 on 10 contracts means our break-even is below $310 on the puts – again, despite being tragically wrong on our 2/17 entry.  If CMG fails to hold $300, the Jan $300 calls are currently $35 so even a half sale would put another $17,500 in our pocket to spend on more rolls.

    • DIN – This was a first poke and now I'm pretty sure they've bottomed so time to press it.  Also, March calls are out now.  I'm not off my $45 target for Dec but we can roll the 10 short Dec $45 puts at $7 ($7,000) to 15 short March $40 puts at $5 ($8,500) and pick up $1,500 – so why not?  Worst case is we get 50% more shares at net $35.20 ($52,800) vs our original commitment to buy 1,000 at net $41.20 ($41,200) so $10,600 more for 500 more shares is a very good deal ($20/share).  The Dec $40 calls ($3.20) can be rolled to the March $35 ($6.75)/$45 ($1.90) bull call spread at $4.85, so we're spending $1.65 ($1,650) to be in the lower, longer $10,000 spread (and we'll leave the short Dec calls to expire).  We spent $3,900 on the original spread (not counting the short put money) so we're in for $5,550 on the $10,000 spread now and the upside is $4,450 and, if the short puts expire, another $5,300 there.  
    • EWZ – Cash out.  Same as STP.  
    • FTR – They are still paying a $2.40 dividend, so it's hard to walk away from at $13.54.  Let's add 2,000 more at $13.54 ($27,080) to bring our average on 4,000 down to $19.89 and we'll see how things go.  At least the dividend is more than 10% while we wait.  
    • IBM – We'll certainly sell 5 more 2019 $135 puts for $11.75 but that's it as the rolls are too expensive ($3.50 for $5) on the long calls but let's buy back 5 (1/4) of the short $150 calls for $6.35.  
    • IMAX – Going to call a bottom here.  March is out so we can roll our 25 Dec $29 puts ($10.20) that we sold for $3 (ish) to the March $26 puts at $7.50 so we'll spend the $3 but pick up $4 of position on the roll.  The Dec $28 calls can die on the vine and we'll roll our 20 Dec $23 long calls (0.50 = $1,000) to 30 Dec $17 ($3.30)/$22 ($1.20) bull call spreads at $2.10 ($6,300).  The spread pays $15,000 if all goes well and we'll be pretty much even at $22.  

    • LB – I think, perhaps, this will be my 2018 Trade of the Year if they stay this low.  Meanwhile, we sold 10 2019 $55 puts for $11.75 and they are now $21.30 ($21,300) so we'll roll them to 20 of the $40 puts ($9.65 = $19,300) for $2K out of the $11,750 we collected so now we have $9,750/20 contracts is roughly $35 for break-even and the stocks at $36 so what's the problem? cool  Now we look to the OPPORTUNITY on the call side and we have 20 2019 $45 calls, now $3.30 ($6,600) and we can roll them down to 40 of the $32.50 ($7.60)/$45 ($3.30) bull call spreads at $4.30 ($17,200) so we're spending $10,600 (less the net $9,750 collected on short puts) for the $40,000 spread that's $4 ($16,000) in the money DESPITE LB's horrific sell off since our 2/1 entry.  

    • M – No-brainer to roll the 2019 $23 calls ($2.15) to the $18 calls at $3.70 as we're buying $5 in position for $1.55 and widening our spread!  
    • SKT – Probably another retail overreaction and this was our first poke.  The 5 short Dec $30 puts ($6.30) can be rolled to 10 short March $25 puts ($3) about even and the 10 Dec $25 calls at $1 ($1,000) can be rolled to 20 of the March $22.50 calls at $2.50 ($5,000) for $4,000 + the $1,700 loss puts us in the $10,000 spread that's 80% in the money for $5,700 less, hopefully the $2,350 we collected on the short puts.  
    • TEVA – Priced like they are going BK.  Our 15 2019 $37.50 short puts are $20 ($30,000) and we can roll them down to 30 of the 2019 $25 puts at $9 ($27,000) so -$3,000 and we collected $14,000 originally so net $11,000/30 is $3.666 so our break-even is $21.333 – seems reasonable.  The 10 $25 calls are $1.45 ($1,450) and we can roll those down to 30 of the $17.50 calls at $3.60 ($10,800) and I'd rather not sell calls for now.  We have a $9,000 loss from before so we're in for $20,000 on 30 $17.50s less net $11,000 collected on the short puts is $9,000 or $3/contract and that means over $20 we start making money (over $22.50 because of the puts) and at $25 we'd suddenly have $22,500 for a $13,500 profit despite the hard fall.  Meanwhile, we have plenty of room to add more cash if we have to.

    • UNG – No point in staying in it if we don't roll the calls.  We have 40 of the 2019 $6 calls, now $1.40 ($5,600) and the $4 calls are $2.60 so let's spend $1.20 to pick up $2 in strike that's in the money, right?  If we could then sell the $9 calls (0.50) for $1 or better, I'd be happy with the spread – so that's our plan.  

    This is what we have CASH!!! for – to put it to work.  We'll see how our stocks do into Q3 – probably back to nothing to do on the next rollover as we are now well-positioned for success if the market keeps going up and, if not – we have our STP hedges.  

  29. Bannon gone, market running

  30. So now we're turning around because Steve Bannon is out?  How silly!  Did that make oil pop $1.50 too?

    Let's keep these bounces in perspective though:

    Just an excuse for the normal expiration day BS. 

  31. rustle – Bannon a link ? 

  32. Supposedly Bannon resigned on 8/7 supposed to be effective 8/14.  Probably why he gave that interview recently contradicting Trump's views.

  33. thought the market would be excited…perhaps they know Trump really is the only one who listens….to himself.

  34. CBI – the 2019 BCS 7.5/12.5C plus selling 7.5P nets at $0

  35. I'm sure this will hurt some of Trump's base especially if Breitbart now goes negative on him.

    Meanwhile, almost every movie I see is produced by Steven Mnuchin, he produced 46 movies in the last 3 years and most of them were the blockbuster movies.

  36. Phil,

    For the suggested new AAPL play in the LTP review, could you share the next couple moves re the short Sept calls?

  37. Apparently another WH aide to leave today in addition to Bannon – Friday massacre!

  38. S&P/Naybob – That's what I've been saying for ages, not much participation in the rally shows weak foundations.  

    TCAP/490 – I don't follow them but they seem nice enough and they pay a fat dividend.  

    FTR/Jabob – Just another normal day for them.  Remember, we originally planned to DD at 0.80, which is $12 – still not there yet.  

    IBM/Yodi – Wasn't sure we'd see that again. STWD I like, was an old Vegas play.  

    MCD/Rustle – Good point.  At $10 for a burrito, I do expect better.  

    Futures/Yodi – Very tricky but, on the whole, we're just getting the moves we expected:

    August 18th, 2017 at 7:15 am | (Unlocked) | Permalink

    Of course, today is expiration day, so it's crazy to guess what will happen though I'm certainly glad I told Latch not to be greedy and take /TF off the table at 1,350 – hopefully he listened.

    This is the whole point of the 5% Rule, we KNOW where the bounce lines are likely to be and, therefore, we know where it's a good idea to set our stops.  It doesn't work every time but it's a great guideline and the rest is simply learning to control your own greed and realize a 1.25% correction for one day in an index is a lot and 2.5% is highly unlikely and 2%, as the RUT was down yesterday, is the weak bounce line from a 2.5% drop (that didn't happen yet), so of course it's going to be some kind of support – especially if it's held up for a while.  

    So, for the day, the RUT was down 2% at 1,350 from 1,380 and the -2.5% line is 1,345(.50).  

    The 2.5% drop is 35 points so 7-point bounces to 1,352 and 1,360 (round to whole numbers if reasonable).

    1,350 is already a firm long-term support, so it's very unlikely we break it without a bounce first.  

    1,380-1,350 was a 30-point drop so the weak bounce there is 1,356, which is right between 1,352 and 1,360 so clearly that is the zone of contention we will pay attention to today.  

    Keeping in mind that 1,360 is the strong bounce, if our theory that we're still on the way to the 2.5% line is correct, then 1,360 should absolutely fail today.  Unfortunately, it's expiration day and the trade action will be very manipulated which means it will be hard to take a breakout seriously but a failure – especially if it looks like they were trying – would be significant.

    Anyway, from a getting back short perspective, if we cross back below 1,350 we get back in with tight stops at 1,352 (the long-term weak bounce), if we fail at 1,356 we get back in with very tight stops OR we can play for the $400 loss with conviction up to 1,360 but super tight stops above that.  

    Now we have a pop with a positive catalyst and we have to take that into account but, overall, we're still stuck in the predicted range.

    So kids, this is where (1,360) we short /TF and I'd say it's good to go if /YM stays below 21,750, /ES 2,435 and /NQ 5,825.

  39. AAPL/JMD – They are just a hedge to protect the position.  The breakeven is $160 so I have a bit of a downside bias to AAPL here but only sold $30 because, if we're wrong and AAPL pops to $175 and the calls go to $30, we can add 10 more long spreads and then roll the 30 Sept $145s to 2x the Jan $165s (now $7.50) for about even and we'd still have the $35,000 we collected so net $6 per short call pushes our Jan break-even to $175 and over $175, our spread is $150,000 in the money so we're not likely to cry if we have to give 60 callers $5 ($30,000 at $180) or even $10 ($60,000 at $185) more than we collected from them, right?   

  40. Oh, and meanwhile, we wouldn't do that because if AAPL were at $185 and we owed the $165 callers we sold for $6 $20 back – we'd only buy back 30 (half) for $60,000 ($25,000 out of pocket) and then roll the remaining 30 to 2x much higher.  

  41. Rustle – Munch the Producer – Hollywood won't miss him.

  42. Phil, do you think oil's pop is done?… Was this because selling pressure had eased as a lot of investors have rolled over to the next contract…  now the ST reversal is done – back to fundamental trends..  your thoughts?  

  43. Phil as much as I can understand your AAPL Sep 145 caller sale I feel for an extrinsic value of 1.45 it has little value. Sure if they go back to 145 you got 3 asses in the hand. I inclined to go for 150. And only 1/2 of the BCS

  44. Phil-- what do you think TEVA could be worth now?

    I know your adjustments make you break even around 21. 

    But I think you had mentioned before that some completed asset sales and a CEO announcement could pop it to 25?

    Was that because it was trading above 20 at the time?

    I am wondering what could make it reverse or if you think it will take years before the recent damage gets undone? 

  45. It seems to me that sellers and the brokerage firms have crushed it.

    Also, Cramer keeps saying to stay away too.

    But if this is trading like its going BK, then where should it trade when the attacks relent and TEVA finally has some positive news?

  46. TEVA/Jabo/Phil – does look like the selling pressure has subsided for now with trading volumes back to normal, also seems to be finding a level (bottom?) here at $17. Been considering an entry now (don't currently have a position) in my own OOP with a 2019 $15 / 22.50 BCS, Selling $15 puts for approx. $80 per contract. Any further thoughts at this time? Thx.

  47. FTR Phil these guys paying 17.65% per year surely this is impossible this smells worse than the most terrible FU play

  48. I put this in to my armchair calculator FTR would give me just under 7% per month with a Jan18 14/12 stangle!!! I do not have plays like this Phil!

  49. FTR – just sold 5 2019 10 puts for 3.25………betting/hoping on a turnaround from here. :)

  50. Yodi--either that yield drops or they cut the dividend again.

    I hope it isn't the latter.

  51. I have seen 18% return in the good days but this is not possible, you can not run a business like this.

  52. Jabo – here is today's Teva press release.

    08/16 Citi doing an about face on Teva, cutting target price from $32 to $19.

    08/17 There was substantial CALL options volume this week.

    08/17 Here is a "contrarian" view, he likes the Oct CALL strike $20 at 0.48 cents.

    Enjoy and Out.

  53. Why would the market rally today – it's going to be a clusterf@ck in DC:

    Bannon friend says Breitbart ramping up for war against Trump. "It's now a Democrat White House," source says.

  54. TEVA/Naybob – thx for the additional info & have a great weekend! Cheers!

  55. Butterfly Portfolio Update:  $332,229 is down $24,245 from our 7/20 review but we knew that would happen as we had a silly $38,928 gain, which was a bit much for a month in a conservative portfolio.  This is actually our 4-year anniversary so 50% a year is way ahead of goal and the bigger the portfolio gets, the more these small fluctuations in the VIX can impact it.  

    The VIX is up about 30% since 7/20 and, since the Butterfly Portfolio is all about selling premium – of course it does poorly when the VIX pops.  We'll see how the actual positions are doing – all that really matters is whether we're on or off track – the casino game takes care of itself over the long run as we make our premiums off all the people who come to gamble at our casino.  

    2020 options come out over the next few months and we are always anxious to decrease our Theta (time) decay on our long positions, so expect adjustments there. 

    • AAPL – We're about break-even on the short Sept calls and I'm not thrilled to be fully covered but, on the other hand, this portfolio is not about gambling but let's buy them all back and sell something with more premium, like 40 Oct $155 calls at $8.50 ($34,000).  That gives us room to roll if AAPL goes higher or room to sell 20 more Oct $140s (now $20 for $40,000) if $150 fails to hold.  
    • COST – Not much of a bounce so far but I'm glad we stayed uncovered.  Earnings are 10/5 and I think they'll be good so let's roll the 5 short Jan $170 puts at $12.80 ($6,400) to 10 short 2019 $140 puts at $7.20 ($7,200) about even and let's cash in our own 2019 $160 puts at $15 ($7,500) so now we're playing more bullish but too bullish.  Our Jan $170 calls are adequate protection if we sell 10 Jan $160 calls for $6.60 ($6,600) and that's premium that WILL expire.  Overall, we're in the position for a net $3,000 credit and now we sold $6,600 more premium – that's how we make our money…
    • CTSH – Nice pullback and we're even on the $65 short calls.  Let's sell 10 of the Oct $70 calls for $2.20 ($2,200) and just 5 of the $67.50 puts for $1 ($1,000).  
    • DIS – Went from being too high to being too low.  Let's buy back the 20 short Jan $110 calls as we're up over $25,000.  I'm not worried about the short Jan $90 puts and we'll sell 5 of the Jan $100 calls for $5.10 ($2,550) as we're deep in the money with our longs and they are well-covered.
    • GIS – We went bullish and it worked!  No reason to be greedy so now we can sell 15 of the Jan $57.50 calls for $2.30 ($3,450).   

    • MSFT – We'll let the Sept calls play out a bit.  The nice thing about MSFT is that it's not prone to violent moves.  
    • PG – A bit high in the channel so let's buy back the short Sept $87.50 puts (0.10) just to clear the slot and let's cash our Jan $85 calls with a nice profit at $8.50 ($8,500) and replace them with 15 2019 $95 ($4.30)/$105 ($1.40) bull call spreads at $2.90 ($4,350) so half off the table and still very good coverage for our short calls.  
    • TGT – I still like them long but we shouldn't be greedy.  Let's sell 15 of the 2019 $60 calls for $4 ($6,000) to lock in our profits on the $50 calls but leave some room to run (1/4) and let's sell 7 Jan $57.50 calls for $2.60 ($1,820).  I'd rather sell none but it's our job to collect premium, so we're selling 1/3.  

    • TXN – On track.  
    • VLO – We got a nice pullback to lets buy back the 15 short Jan $67.50 calls at $3.10 ($4,650) AND the 20 short 2019 $75 calls at $3.05 ($6,100) and we'll sell 10 Jan $60 puts for $3 ($3,000).  Lower oil prices tend to be good for the refiner at first as gas prices take longer to fall (so their spread increases) and Q3 sales are looking strong per inventories.  
    • WMT – Seems toppy so let's close the short Jan $55 puts at 0.15 ($150).  We'll also close our Jan $65/72.50 bull call spread with a nice $8,000 profit about $21,000 and that leaves us with just 25 short Sept $72.50 calls.  We'll cover those with 25 2019 $80 ($6.20)/$90 ($2.60) bull call spreads at net $3.60 ($9,000) so half the bullish money off the table but still $15,000 of upside protection on the short calls.  

    • WYNN – Another toppy one.  Let's cash out the 2019 $120 calls at $31 ($62,000) and replace them with the $145 calls at $17.50 ($35,000) and rolling the $145 calls we have up to the $160s at $12 for net $5.50 ($11,000) so, overall, we're taking $16,000 off the table by rolling our bull call spread higher.  That's good since the entire net of the position was a credit to start so now we've banked $16K.  

    A busy month for our butterfly portfolio but, on the whole, the positions are very strong and now we've sold a lot more premium so we should be in great shape next month. 

  56. Oil/Learner – Well, as I said this morning, too crazy to bet on.  They got rid of a lot of contracts and this is their reward.  Did you see my chart?

    Simple enough, right?  

    AAPL/Yodi – Into this uncertainty, I'd rather have the protection.  

    TEVA/Jabob, Airvine – I think they are certainly good for $3 a share so, eventually, $30 is still cheap.  No change in overall value but we still take advantage and lower the basis when we can.  These downturns can take ages to unwind, especially if Cramer and his jackals are attacking to drive the price down for his hedge fund buddies – that's the game.  

    FTR/Yodi – They are a telco so they have massive up-front investments in infrastructure and then they coast for 10 years and then it's time to invest (and borrow) again.  At the moment, they are just finishing the borrowing and investing cycle and I'd like to have a large position for the 10 years of coasting.  

  57. /RB is getting to be a tempting short at $1.625, could easily drop 0.025 on Monday for $1,000 per contract gains but we have the holiday weekend coming so the last gasp for "summer driving season" is what's keeping hopes up. 

  58. Thanks Natt / Phil

  59. thanks Phil, re: Oil 

  60. Wynn – Let's cash out the 2019 $120 calls at $31 ($62,000)  


    Just making sure you meant $31?  Seems high

  61. mkt looking weak

  62. imax is at a 52 week low.. 

    i feel like gartman

  63. WYNN/Tangled – $31 was 9am, it's been going down as people are dumping but there's no emergency to sell – ask for your price and wait and see if it gets filled.  

    IMAX/Jabob – On sale!  

    Movie Theater Stocks: Due for a Turnaround or Dead in the Water?

  64. WYNN – sorry to be a pain but not sure I am getting this one right.   When all is done the WYNN positions will be:   short $130 calls as before, long $80 puts as before,  long $145 calls , and short $160 calls?

    What make me unsure is the new long position so much above the current price

  65. Not looking good at the close and the war between Trump and Breitbart is starting. Could be an intersting Monday for a change.

    After declaring “WAR” following news of White House chief strategist Steve Bannon’s ouster, Breitbart News’ senior editor-at-large wrote that President Donald Trump risked becoming “Schwarzenegger 2.0.”

  66. WYNN/Tangled – We cash the $120s.  No change on the $80 puts or the short Jan $130s.  Then we're basically buying back the 20 short $145s and buying $20 $145s for ourselves and then selling the $160s so we end up with the 2019 $145/160 spread (20) and 20 short Jan $130 calls and 10 long 2019 $80 puts. 

  67. LOL, one of those fake call center people is trying to scam me into "testing" my computer for them (so they can steal info) and I said "sure" almost an hour ago but then I told him my laptop was updating so hang on and, ever since then, I keep telling him "10%"  "13%"… "gosh this thing is slow"…  I'm just curious to see how long he'll stay on the line.  I guess they don't get many suckers to actually do it.  Once I'm done counting I'm going to tell him it needs to restart and then say "Oh darn, it's doing another update!  1%…"  

    All telemarketers should burn in Hell!!!!  

  68. Well, at least /TF shorts are paying for a nice weekend!  

    Have a great weekend all,

    - Phil

  69. Phil – thx for everything and you have a great weekend too! Nothing like "scamming the scammer" for a bit of fun on a friday afternoon!!! lol     Cheers!  

  70. LOL Phil – gotta remember that one. Although I usually have fun with these guys but yours is clearly a lot more cruel!

  71. I have to admit the Trump administration has been a real boon for me.  Best year I've ever had…sitting on a 52%  YTD return.  Suppose I should feel bad getting rich off the demise of Western civilization.  Trump was right….I'm certainly tired of winning.

  72. I would also echo Nat's shout out for Phil's talent.  I've been a member for the 6 years or so.  Got burned on a couple "value" ideas like Jabo my first couple years, but I virtually do all my own trades without following any of the portfolios.  Just stay true to the strategy I've learned over the years of selling premium, keeping the bulk of my portfolio in long-term buy writes ("armchair" trades), and a heavy dose of shorting /TF and /CL.

  73. Phil when you have a chance,

    I am holding the Jan18 AVGO 105 naked put still .40 of juice left and rip for closing or just let expire.

    Not because I like to own the 249$ stock but like the premium of the Jan19 170 put for 10.80 with a PM margin of a 1080.00 when rolled. 100% margin, extreem high? Your thoughts please. TIA

  74. Bitcoin Cash just exploded in value

  75. Phil – "All telemarketers should burn in Hell!!!!"

    Some have to start somewhere or do whatever it takes. Speaking of working one's way up from the depths…. there's even a special room for them, it's called a boiler room. Apropos and Out.

  76. Pediatricians say Florida hurt sick kids to help big GOP donors

  77. Trump’s moment of truth on trade

  78.  Phil do you think the Bannon resignation is a positive for the market on Monday? Could this give us a little bounce back perhaps or does it increase investors anxiety about How unstable  the White House is and cause us to continue down?

  79. Craig  Is a good reason to continue  down, specially after Bannon´s declarations.

  80. Monday is the big eclipse day-  the gods are angry and shall smite the philistines.

  81. StJ – as info, I have not seen an email from you.

  82. Seeing charts like this is giving me a spidey-sense that we are nearing that same point in 2008 where things move very fast.

    I'm starting to accumulate some downside protection.

  83. Phil – blockchain and oil trading.

    Maybe this shakes out all of those Fake News contracts you always talk about?

  84. Markets – Some folks are forecasting a big drop when debt ceiling negotiations begin when Congress is back in session. If it's raised like business as usual, then it's a big yawn. If it turns acrimonious, it could be the final nail in the Trump Rally and all this misguided confidence final crumbles….or just BTfD 

  85. Good morning!  

    "Ladies and gentlemen, I've looked into the future and you will not believe this shit."

    I hope everyone is having a nice weekend.  

    I have a dinner meeting tonight but will check in later and see how the Futures are looking. 

    As far as I can see, things have not gotten worse over the weekend – which is a big improvement after the month we've been having so far in Trumpland. 

    This would really be funny if I didn't have children and didn't give a crap about what happens to my country…

    52%/JJ – Very nice but please, make sure you are sensibly hedged! 

    AVGO/Yodi – Well, I wouldn't give them the 0.40 unless I needed the margin and yes, the margin is high but it's a highly volatile stock too – up or down $20 in most of the months this year so $20/month x 16 months doesn't make $170 look too far away from $250.  Also, look how the high-flyers are getting punished if they miss something on earnings – 10-25% drops in a single day.  For me, I wouldn't sell the puts because the stock is toppy and I feel it's more likely I'll be able to sell something for a much better price if I wait than I regret not collecting less than $1/month for the short $170s.

    If you have a position, I'd certainly look to cash in the longs and substitute a sensible spread rather than risk a pullback.  As you know, I was telling people I liked BRCM better than QCOM for years but now, at $106Bn and MAYBE $2Bn in earnings – I think it's a bit toppy.  

    Bannon/Craigs – I don't think it matters which clowns go in or out of the clown car – it's still a clown car.  What's more important is nothing worse has happened for about 36 hours now – so that might give the bulls some courage.  Trump gave Bannon a good ass-kissing yesterday, that should keep things calm over there. 

    Eclipse/Pstas – Well there is that.

    Fast/BDC – That's what I'm worried about.


    Oil/BDC – I just don't see how the powers that be will let the apple cart get turned over like that but, then again, Penn (& Teller) made a good point on Bill Maher saying that Trump proves there is no secret society controlling things or they never would have let Trump step foot in the White House.  I do actually feel better thinking there are people behind the scenes with real power who seek to keep things on an even keel than thinking we can elect a lunatic like Trump and send the US spiraling into ruin like Ancient Rome (who also built a wall).  

    Debt Ceiling/Latch – I think it will be passed on first draft unless the Reps put in some silly riders.  It's not a fight the Dems need to start when the GOP is imploding on its own already.  Why should they act like they are part of the problem?

  86. Jerry Lewis – 91 years old RIP –  Comic genius, epic work for MDA, a legend.  Hey Lady!

  87. If anyone has early (meaning "Start-up") non-profit experience and an imperative to help the carbon effort, let me know. I'm winding my way through irs form 1023-EZ today and tomorrow.

  88. BDC- can you give me your email address to talk about non profit start up. I have an accounting background and was involved in launching a nonprofit about 20 years ago and have been researching it again recently, so perhaps. Would like to hear more.

  89. Futures looking as flat as Jerry Lewis.

    Too soon?

  90. ;)

  91. BDC – "an imperative to help the carbon effort"

    What do you have in mind?