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Fabulous Friday Finish – Markets Make New Highs

GE (GE) dropped guidance by 33%.

Not sure why I bother mentioning it, it's only a $200Bn leading industrial company so why shouldn't the Dow be up 100 points pre-market?  Makes perfect sense, right?  GE is a Dow component but it's stock is only at $23.50 so a 6.5% drop to $22 is only $1.50 and that's just 14 Dow points vs a 10% drop in IBM being $15 and adding 127 points the other day.  Get it?  No, nobody does, but it's still our leading market indicator so just play the game and don't ask too many questions.

We have been long on GE since June 27th and we have 2,000 shares at $27.40 in our Long-Term Portfolio but we sold the 2019 $25 calls for $3.75 and the $28 puts for $3.10 so our net entry on 2,000 shares was $20.55 but, if we get assigned another 2,000 at $28 (seems likely now), we'll have 4,000 shares at an average of $24.275.  Of course, then we will sell another round of calls – the 2019 $23 calls are now $2.40 so hopefully we'll get more like $3.50 for the 2020s when they come out.  That will keep our basis around $20 while we collect GE's fat 0.94 dividend so, as long as they don't cut it, we're happy to accumulate down here.  

Image result for dow jones original 12Either GE is going the wrong way or the Dow is and, this morning, we shorted the Dow Futures (/YM) in our Live Member Chat Room at 23,200.  If it turns out the Dow SHOULD be up 28% for the year, then I have to believe GE will find a way to reverse their 20% decline over the same period.  It's not just unusual that GE would diverge from the Dow by over 40% (almost 50% now) – it has NEVER happened, in the entire 121-year history (1896) of the Index (GE was one of the original 12 companies).  Never is a long time, folks – this time sure is different, isn't it?  

As we discussed in Wednesday's Live Trading Webinar – we're not "bearish" on the market, we're simply looking for a nice 5-10% correction that will make us feel better about picking up some longs but we don't have to wait when companies like GE go on sale – especially off an earnings report that shows $7Bn in cash flow, even after $1.8Bn in restructuring impairments.  Revenues were also up 14% and, don't forget, GE just merged with Baker-Huges (BHI) and mergers often lead to rough quarters.  Our theory is that the new CEO is "kitchen-sinking" the quarter – getting all the bad stuff out so he can appear to have a more positive impact going forward.  

As to us going forward, let's never forget what a great long-term investment stocks tend to be.  Here's a really good chart that illustrates the Dow's first 121 years and the events that shaped them:

Kind of makes you embarrassed to talk about our recent "crash" – especially to our Grandparents, who lived through the Great Depression – THAT was a crash!  Is Donald Trump the 21st Century Herbert Hoover?  Time will tell and we will ALWAYS have our hedges but there's no point in having hedges if we have nothing to hedge – so we'll always have our longs as well though, at the moment CASH!!! is King (have I mentioned how much I like CASH!!! lately?).

We don't need to use a lot of CASH!!! to make a lot of money.  Our IBM earnings play was just net $750 on 10 contracts and already it's up to net $9,400 for a gain of $8,650 (1,153%) in 3 days and yesterday, in our Live Member Chat Room, we called an earnings play on Sketchers (SKX) as follows:

SKX/Lunar – Ah, an old favorite.  They are certainly good for $1.50-$2/share so $24.25 is very reasonable.  Q3 last year was slow (0.42) so they should be up from there but they missed last Q by 13%, which is scary.  

I think they've already been punished enough and the way I would play them is to sell the 2020 $20 puts for $3.20 and buy the $25 ($6.25)/$35 ($3.25) bull call spread for $3 and that nets you in for 0.20 on the $10 spread and you should be HAPPY if they tank earnings and you get to put $2.50 in to roll them $5 lower and widen the spread but, if earnings go well – you'll be on track to make $9.80 on 0.20.

10 contracts there obligate you to own 1,000 shares of SKX at net $23 but that's unlikely to be an issue as they are up 27% this morning and passing $30 for what will certainly be another 1,000% gain on an earnings play.  Two in one week is a good start to earnings season!  Notice we make these plays using 2020 LONG-term positions, not short-term bets.  The long-term positions, if properly structured, can be just as rewarding as short-term plays but with the added bonus of giving us plenty of time to recover if things go against us (like GE, so far).  

A schedule of upcoming earnings releases by week

If you would like to get these earnings calls live, during trading hours, you can join us by clicking HERE and selecting either the Trend-Watcher, Live Chat or Premium Membership levels.  

As you can see from the earnings chart, next week is the height of earnings season, with 30% of the S&P 500 (150) companies reporting but there's still plenty of action for the whole month ahead.  Remember though, we are not short-term traders – we are long-term FUNDAMENTAL investors who use options for hedging and leverage and we concentrate on buying undervalued companies that have a good chance of turning around in the near future.  Earnings just happen to be one of those times when people do realize companies have become undervalued.  We do, however, also make short-term trades while we wait for our trades to mature – especially in the the Futures.

Heck, you could have paid for your whole Membership with just yesterday's Morning Report call on Silver (/SI) with a long call on the Futures at $17.  Silver contracts pay $50 per penny and /SI blasted up from our moning line all the way to $17.30 for gains of $1,500 per contract.  Natural Gas (/NGV8) also made a nice move, jumping 0.02 for $200 per contract gains on the day.  

This morning we have another chance to short the Russell (/TF) Futures at 1,510 but we need tight stops above as it's a crazy options expiration day.  I mentioned above we are shorting Dow Futures (/YM) at 23,200 but also tight stops above as Trump is poised to announce a new Fed Chair (or maybe the same one) and anything could happen.  We also got another short at shorting Gasoline (also from yesterday's report) at $1.65 (/RB) and that's a fun one over the weekend if you are brave (and rich enough to laugh off a potentially nasty loss).

The Senate passed Trump's budget last night with all 48 Democrats and Rand Paul voting against it.  Trump's tax cuts are projected to add $1.5Tn to the deficit but those are just Trump's projections – outside auditors are warning the minimum danage will be $3Tn and closer to $6Tn more debt foisted on the working Americans in order to give more money to the Top 1%.  Nonetheless, it's a market-booster – because little people don't own stocks (or not enough to matter).  

Senate Democrats used this week’s budget process to force Republicans to take politically painful votes that highlight studies showing the tax framework unveiled so far would probably add Trillions to the deficit while mostly benefiting the wealthy. Republicans say the studies are incorrect because final tax brackets and credits haven’t been announced.  In one vote, the Senate defeated 51-47 an amendment by Democratic Senator Heidi Heitkamp of North Dakota that would have barred tax increases for people earning less than $250,000 a year.  Only 2 Republicans voted with the Democrats to prevent ordinary citizens from being victimized by the tax bill.  

Senate Republicans signaled their intentions on dealing with contentious issues in a tax plan by rejecting Democratic amendments that would bar raising the deficit, prevent any middle-class tax increases, and block tax breaks for the top 1 percent. The votes indicated that Republicans will try to rewrite the tax code with mostly — if not exclusively — GOP votes. It’s a gamble that they’ll succeed where they failed on replacing Obamacare.

As noted earlier this week by Steve Mnuchin, if they don't get this done, the market is headed for a Hell of a correction.

Have a great weekend, 

- Phil


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  1. We might be only a couple FU away from a decent entry in GE! Sorry Jabo…

  2. Facts vs. fiction:

    Since Nov. 9, 2016, many journalists have referred to the “Trump trade” as being the cause of the stock market’s rise. According to this narrative, President Trump’s promise of improving the economic environment for business has caused profit expectations to rise and hence the stock market to soar.

    Such journalistic practices have been an absolute gift to a president who has demonstrated an uncanny ability to market his brand successfully throughout his business career. Recently the president tweeted “Stock Market has increased by 5.2 Trillion dollars since the election on November 8th, a 25% increase”

    The fact that the S&P 500 grew 17% between February 2016 until the election, only marginally lower than the Trump trade of 19%, has been conveniently ignored as it does not fit the fantasy analysis.

    Given that the basic valuation equation – the dividend discount model – is dependent on expected future cash flows, which is driven by profits, it is curious that journalists have ignored the fact that profit growth jumped in Q2 2016 and has maintained strong growth ever since. Instead they have cited President Trump’s utterances to explain the stock market boost.

  3. If you can't win elections – stop people from voting. It works:

    If Trump doesn't win Wisconsin, he loses the election. Thanks Scott Walker!

  4. Good Morning.

  5. Somebody shoot me when the VIX hits 0 please.

  6. Phil / Portfolio Updates – Did the emails go out on this?

  7. Doing better than expected here; GE looks strong.  What's the deal with AAXN and the SEC?

  8. GE / Phil – Your view on the Dividend – do you think a cut is the future?

  9. Good morning!  

  10. Phil,


    Before I start messing around with GE, is there anything you want to change from yesterdays adjustments?  Thanks

  11. retail kicking butt but SVU getting kicked again

  12. Tempted to fade this move up.

  13. 19-Oct-17 08:11 ET


    Supervalu downgraded to Neutral from Buy at Northcoast  (17.09)



    19-Oct-17 06:06 ET


    Supervalu target lowered to $39 at Pivotal Research Group — Lots of opportunity despite continued noise around TSA  (17.09)

    Pivotal Research Group lowers their SVU tgt to $39 from $42. Despite some obvious headwinds, SVU continues to be a deeply misunderstood stock. This view is further validated by the 12% selloff on the latest results. The earnings were well received initially, but the stock seemed to capitulate following commentary regarding the financial impact of the Albertson's TSA for FY19. Firm believes that some investors are now under the impression that co will absorb a 20% hit to EBITDA in FY19 as a result of the TSA wind-down. In fact, the earnings impact will be spread over FY19 and FY20. Firm expects roughly a $40 million drag from the Albertson's TSA in FY19 (not that different compared to FY18). Unfortunately, the positive takeaways related to the 2Q18 earnings beat and the Associated Grocers acquisition were completely lost as investors again headed for the exits. Firm feels there is still a very good story to tell investors and firm hopes their mgmt field trip on 10/30 will result in some valuable insights as Supervalu repositions itself in a rapidly changing envm't.


    18-Oct-17 13:48 ET


    Supervalu Correction: Co beats on EPS; revs in line; lowers FY18 net earnings guidance; reaffirms adjusted EBITDA guidance  (17.50 -1.88)

    Reports Q2 (Aug) earnings of $0.46 per share, excluding non-recurring items, $0.09 better than the Capital IQ Consensus of $0.35; revenues rose 35.5% year/year to $3.8 bln vs the $3.78 bln Capital IQ Consensus.

    FY18 Outlook : Supervalu currently expects net earnings from continuing operations to be in the range of $31 million to $50 million from $51-70 mln prior guidance. Adjusted EBITDA, including the contribution from Unified Grocers, is expected to be in the range of $475 million to $495 million (reaffirmed from prior guidance).

  14. Good morning!

    Nice dip in the Dow (/YM) to get us started but reversing already.  Still, quick profits ($200/contract) beat no profits.  You know me though, I've still got the /TF, just 3 @ 1,510.36 at the moment.

    Big Chart – Watch the Dow at the 10% line (23,100) and the RUT at the 5% line (1,512) – if both are over – it's bullish and bearish if both under for now.  

    Woops, GE made a big comeback to $23 already. 

    Voter supression/StJ – Also caused by lack of Obama to vote for but, obviously, not the reason for the whole drop.  

    Updates/Batman – No, was too hectic and forgot.  After the LTP today, I'll do a post with the full summary.  

    AAXN/Baron – Review of financials.  Happens sometimes, hopefully just routine.  

    Taser maker Axon says SEC is reviewing its financial reports


    Axon said that officials only just became aware of three letters from the SEC asking for information about the company’s financial disclosures. The letters, which began on Aug. 10, said the SEC wanted to review Axon’s 2016 financial report and its quarterly report for the period ending March 31, 2017.

    Such letters are routine but it is unusual for a company to not respond. The letters can be seen on the SEC website.

    An SEC spokesman, Ryan White, declined to comment. Axon spokesman Steve Tuttle did not respond to emails seeking comment.


    In its third letter to Axon’s chief financial officer, Jawad A. Ahsan, dated Sept. 20, the SEC told Axon that its inquiries were “outstanding and unresolved, and absent a substantive response, we would act consistent with our obligations under the federal securities laws.”

    That most recent SEC letter added: “As you have not provided a substantive response, we are terminating our review and will take further steps as we deem appropriate.”

    It did not elaborate on what steps it would take.

    Axon, which changed its name in April from Taser International Inc, said it was “in the process of providing the SEC with information responsive to their comments and intends to respond to the SEC within the next seven days."

    "The company is actively working with the SEC to resolve these matters as expeditiously as possible," it said.

    The SEC’s Aug. 10 letter asked questions related to the company’s revenue recognition practice and an increase in its backlog.

    It noted that the company’s “backlog increased substantially during 2016,” and asked for clarification on how the backlog was calculated. The letter also asked Axon to disclose “the amount of backlog attributable to each reportable segment, and disclose the amount of total backlog expected to be realized in the next year.”

    The SEC also took note of the Taser 60 program the company introduced in 2016. Taser 60 allows police customers to buy electroshock weapons over five years for $22 to $36 a month, including a range of accessories and training. The company sells the plan to police, saying it allows them to avoid large capital outlays and it includes a warranty.

    The SEC’s Aug. 10 letter asked Axon to disclose “the amount of revenue related to this program that you recognized during the periods presented.”

    It also asked the company to “explain how the extended payment terms under this program impact your ability to estimate the provision for doubtful accounts, your determination that collectability is reasonably assured, and your liquidity.”

    GE/Batman – It doesn't look like they need to.  Cash flow is still over $2Bn and they are selling off $20Bn (10%) of underperforming divisions so, if anything, they may be doing a special dividend down the road if they don't have use of that cash (not to mention $35Bn they have overseas, which is 15% the market cap, with another 20% in local cash).  

    This is why I love GE – same as AAPL and CSCO, who have $65Bn overseas against just $169Bn market cap.  GILD has $30Bn too!  

    GE/Baron – As a new trade, I'd sell 10 2019 $23 puts ($2.25, $2,250) and buy 20 of the 2019 $20 ($3.90)/$25 ($1.35) bull call spreads for $2.55 ($5,100) so you net in the $10,000 spread that's $6,000 in the money for just $2,850 so this trade makes $7,150 (250%) in 15 months if GE just hits $25.  Even if that seems conservative, better to just buy more of these than go for a more aggressive spread with such excellent returns (and you can sell calls on a pop for more income). 

    SVU/Baron – Every time they buy another grocery store they get killed.  SVU management sees a bargain and the analysts think it's good money after bad but SVU is morphing into a distribution model so they are buying future customers – I like it!  

    SUPERVALU Acquires Associated Grocers of Florida In A $180 Million Deal

    A Look at SuperValu's Rollercoaster Day on the Stock Market

    The key is, do you think it's worth owning a company for $15 that just reported 0.46 earnings for Q3 and beat estimates by 0.09 (26%) and do you trust that management team to take your $15 and make good decisions going forward.  Other than that – F what the analysts say or what other traders think (as noted by price) – YOU are investing in a company in expectations of that company making money.  

    Fading/Albo – Got even so back to 2 short /TF at 1,510ish.  Not willing to make a heavy bet today.  

    /KCH8 back to $128.50 – you know I like that.    About 4 cheaper on the front-month. 

  15. Good on /TF.  Still watching.

  16. /RB looking toppy?

    Got out of /TF yesterday at 1492 — got bit on the jump last nite, but clawed it all back between it and YM on the drop this morning.  In /TF at 1512 with 2

  17. Baron – "Somebody shoot me when the VIX hits 0 please."

    With a 68% confidence level, a less than 10% up or down movement over the next year isn't good enough for you? LOL. Talk about perfectly sedated investors, Nurse Ratched would be proud and Out.

  18. Long-Term Portfolio Review (LTP) Part 1:  $1,677,795 is up just $70,912 since last month and I say just because the hedges in the STP lost $56,347 so, as intended, we're essentially treading water yet still collecting about $14,000 net for our troubles.  The S&P is up 60 points (2.4%) since our last review – it just seems like more as it's up every single day – literally there have been only 2 down days since 9/25.

    As I noted in the Webinar, I went to CASH!!! (actually money-markets) in my kids' 529 College Plans on Wednesday's pump because they are not easy to hedge and I don't see the sense of risking a year of college (20%) on earnings when we're already well past our goals.  

    We can and do hedge our other portfolios, so there's not any urgency to get to CASH!!! (and we already have $1,170,090 in cash anyway, which is 70%).  Our real concern then is margin – what are we required to buy in a downturn?  So, if we're going to take things off the table – we're mainly going to be killing naked puts to lower our risk into earnings.  

    • ABX – I have to remember to move that call down to the rest of the group.
    • BRK.B – Berkshire is the S&P, actually it's the best of the S&P as Buffett has hand-picked the winners, either for his portfolio or as companies they buy in whole.  I wish they had gone down and we could have bought them but they didn't.  There's pretty much no way in hell these go in the money so silly to buy them back and, in fact, they are an easy way to raise cash even now.  
    • CAKE – Well these puts are all stocks I wish I could buy, I suppose.  We just added CAKE on the dip and they are recovering already so no reason to worry there.  Still good for a new trade.
    • DNKN – Comfort food theme here (Berkshire owns plenty as well).  Also good for a new trade.
    • ESRX – Got our wish here as they got cheaper.  2020 is out so let's roll our 5 short 2019 $65 puts ($9.20) to 10 short 2020 $52.50 puts ($5.30) for a $1,400 credit.  We'll put the cash to good use and buy 20 2020 $57.50 calls for $10.50 ($21,000) and sell 20 of the $62.50 calls for $8 ($16,000) for net $5,000 – $1,400 – the $3,750 we collected originally puts us in this $10,000 spread for a net $150 credit.  Keep that in mind when I am THRILLED to spend $10,000 ($5/contract) to roll us down to the $47.50 calls (now $17) if ESRX goes lower because then we'd be in a $20,000 spread for $4,850 with a break-even 20% below the current price.

    If you enter your positions correctly, you should WANT the stock to go lower so you can buy more at a lower price.  Make sure you read our article on scaling in in the strategy section – we are always going in with about 1/4 of what we intend to spend if the stock gets cheaper.  More often than not, the stock doesn't get cheaper and we just run out our small positions.  Once in a while, they go 20-40% lower and, assuming we still like them, we load up!  

    In the above case, we took a very small 5 short put entry on ESRX to remind us to keep an eye on them and now they are cheaper so we are upping our buy commitment to 10 contracts (at a 20%lower strike than we started with) and we're adding a bull call spread at a price we couldn't get when we started (but HOPED we would). 

    Even so, we're only 50% committed on this one so far.  Our worst-case is owning 1,000 shares at $52.50 which would take up $26,000 of our $3.4M in ordinary margin (0.76%).  If ESRX drops $20 (35%) and the short puts go to $25, our loss would be $25K – the same 0.76% of our portfolio so that, realistically, is the risk on the position.  As I said – a small commitment.  

    • FCEL – Nice pop on these but we REALLY do want to own them for net 0.97, so we can leave it.
    • GPRO – Another small one that's safe. 
    • INFN – Earnings are 11/8, why risk it?  Let's cash these.  
    • RH – No sense waiting until 2019 to collect the last $1,750, we can cash these too.   Anyway, we just added WSM, which is essentially the same space.  
    • SBUX – Very small and we'd LOVE to own SBUX for net $44.95 so we can stay with these.  
    • SEE – Not worried about their earnings so let's hold. 
    • SPWR – `Was doing great but now back down.  We regretted not owning more when they were up so let's redesign the trade and buy back the 30 short 2019 $10 puts ($4.40) and instead sell 25 of the 2019 $7 puts for $2.25 ($5,625) and buy 50 of the 2019 $5 ($2.40)/$10 (0.95) bull call spreads for $1.45 ($7,250) so now we're in for net $1,625 less the $1,050 profit from the original puts is net $575 so we're essentially committing to buy 2,500 shares at $7 ($17,500) on the downside vs a potential profit of $24,425 (4,247%) at $10 if all goes well.  

    On that trade, we went form making $14,250 at $10 to $24,425 while also drastically lowering our commitment from 30 at $10 ($30,000) to 25 at $7 ($17,500) – this is why it's good to always review your trades and think about if there's a way to do it better.  

    • THC – Back at the lows but I like them.  Good for a new trade.  
    • TLRD – In good shape, not worried. 
    • VZ – At the money and I don't trust them so let's cash out.  
    • WATT – It's too good of a deal to sell (net $7.40).

    • ARR – Pays a very nice dividend but too deep in the money so it will be called away.  Hopefully it will dip again and we can buy it some time down the road.  
    • CG – On track.
    • F – Love them, not worried.  
    • FNF – Right at our target (set in Nov 2016) and paying nice dividends. We will decide in Jan but probably we'll roll for another year or two. 
    • GCI – Can you believe papers still exist?   Paying a 7% dividend is hard to let go of and it's a pretty small position so let's keep it and roll the short Oct $7.50 calls ($2.15) to the Apr $7.50 calls ($2.40) and sell April $10 puts for $1.40 too.  At this point, if we were assigned more, it would be so cheap that we wouldn't mind doubling down.

    • GE – Well, we should have doubled down on the dip.  Let's just leave them and see how things go for now. 
    • GNC – Keep in mind here we are in for net $2.70 unless the stock is under $7.50 in which case we own 12,000 at a $5.10 avg but, either way, we're deep in the money at $8.19 and it's great for a new trade as the paper loss is gigantic – despite the fact that it's "on track".  
    • HOV – Another one where we aimed low and we will be called away at $1 with a ridiculous profit.  

    So far, so good – but it's a 3-parter so many more trades to discuss (38 more). 

  19. /RB/Latch – They hit their $1.666, which they love to do (manipulators get bored at work too) and now I have confidence in the short into the weekend though, of course, things do sometimes blow up over the weekend.  

    Image result for nurse ratched

  20. Phil – RB – Are using RBZ?

  21. How much do you distrust VZ?  If sold the $38 puts instead of $50 and they are up 50% currently would you still sell?

  22. T/Phil – earnings next week.. wait or good BTFD level today?

  23. All/SGYP

    SGYP was up big early Oct on presentation of Trulance target market share.  Since then right back down, but my money flow type indicator shows big lot buying.  I am inclined to add to my longs here.  Any thoughts?

  24. Quietly MSFT now close to $600B in market cap! Ballmer getting richer since he left.

  25. Phil – Malawi Vampire Killings – Did a double take on this one. I thought it would be about some guvmint or bloodsucking banker types getting killed by mobs of roving dispossessed Malawi's.  Boy was I disappointed to find out, they are actually killing their own suspected of being real life Vampires. Some of the vampires were in possession of strange electronic gadgets and even jumper cables, which could assist in bloodsucking activities. If one is going to be ignorant by practicing superstition, the least they could do would be to get it right.  The sad thing is these vampire vigilantes are lynching and burning the "vampires" on the street in broad daylight.  Perhaps to atone for his Richards-like diatribe, Marc Faber might visit Malawi as an UN ambassador of good will? This comes to mind and Out.

  26. COST – ripping up into the gap to fill..

  27. Nat – when you put vampires and Faber in the same post, this comes to mind?.

  28. USG – My hurricane play instead of HD and LOW breaking out to the upside, on light volume.

  29. Margin Debt….

  30. Margin Debt as a percentage of growth….

  31. Margin debt as credit balance….

    margin debt in the larger context that includes free cash accounts and credit balances in margin accounts. Essentially, he calculates the Credit Balance as the sum of Free Credit Cash Accountsand Credit Balances in Margin Accounts minus Margin Debt. The chart below illustrates the mathematics of Credit Balance with an overlay of the S&P 500. Note that the chart below is based on nominal data, not adjusted for inflation.

  32. Phil- What money market did you trust and use for the cash?

  33. /RB/Bulls – No because by Thanksgiving there should be a big boost.  

    VZ/Tangled – No, the $38 puts are miles out of the money.  I just don't know where they will be for the next few months in the $45-55 range.  

    T/Scott – Well VZ got off lucky because they sold FTR TX, CA and FL so they missed the storm.  T I would wait for earnings but then buy either way (hopefully cheaper).

    SGYP/Baron – I'm just waiting and seeing.  They SOUND like they have something but I'm not qualified enough to know whether it's BS or not.  

    Ballmer/StJ – Gates is making so much money he gave half away and he's still the richest person on Earth.  

    Vampires/Naybob – We're about one re-election from that happening in the US!  devil

    COST/Scott – That's why we stayed bullish in the Butterfly Portfolio – silly low.  

    USG/Albo – Good one.  

    Margin debt/Pharm – Scary.

    Money Market/Rvn – I just told them to put it in a money market, don't even know what one they used.  He knows it's just for a few months at most and I wasn't looking to shop around as they all pay crap rates.  Now, if you mean for real money (not just the kids' funds) – then I go with GS, JPM, etc. as they are least likely to bust in a crisis.  They, in turn, tend to favor TBills or Tax-free Munis but it's not worth the risk on tax-free in the tax-exempt 529s or with IRA money. 

  34. SGYP….folks, either you believe and we shall see…or you don't.  Their drug is superior to IRWD, but there is another coming to the market in a year or so.  Looking at the competition, they are in the same bucket, maybe slightly better.  IBD constipation area is heating up, so SGYP is not for the faint of heart.  If MrM is in it…get out!  What say you MrM?  :+)

  35. GE is even getting a bid! 

  36. CHL perking up today

  37. Pharmboy/GE

    You know everyone figured on a fade as people sold GE.  There is no place to hide from the Bull!

  38. Pharm – Margin Debt – like Phil said, wait until some downside volume shows up, and margins get called, few buyers show up, and panic sets in.

    The ETF's and weighted index funds have no backstops, and the math, and assumptions these VAR models are based upon be slightly lackin.  There isn't a central bank big enough to stop what will happen.  You could roll up 29, 87, 00 and 07, this thing would dwarf it. Now here's your moment of Zen…. 

    Remember, the VIX is based upon a variance swap rate, not a volatility swap. Why? A variance swap can be perfectly statically replicated through vanilla puts and calls, just like Phil does. Static hedging is one thing, whereas a volatility swap requires dynamic hedging, and constant rebalancing for delta is no simple feat.  

    That subtlety should not be lost, with volatility in this case, being the square root of variance, or standard deviation.   In other words, the volatility measure gauges the volatility of a variance, which is an estimate of market volatility based upon out of money options.  As in, within 68% confidence, meaning 32% of the time, you could be F'ed in the A?  Pun intended, now don't be sad cause this comes to mind and Out.

  39. Long-Term Portfolio Review (LTP) – Part 2:  Now we come to the more complex spreads.  This week, we'll be considering whether or not we're comfortable with the stock if it drops 20% on us.

    • AAPL – Short calls are right on the money – that was an amazing way to make $15,000 fast.   Now we are free to sell something to cover us into earnings so let's sell 20 (1/3) of the Jan $155 calls at  $8.35 ($16,700) keeping in mind that we just pocketed $15,000 so we won't mind rolling the 150s lower if they miss or warn.  $30,000 is $6 per long and for $6, we can roll the 2019 $150 calls ($22) to the 2020 $140 calls ($33) for just net $5 per long ($25,000) and then we'd be in the $140/180 with a $200,000 payoff and still a bonus year to roll!   See, now you're hoping they miss and drop 10%, right?  
    • AAXN – SEC investigation is making them cheap again ($23 now) but let's let them settle down before adjusting.  
    • ABX – Very happy with this one and it's still good for a new trade.
    • ALK – Right on track.
    • AMGN – The whole sector looks toppy but we're only at $9,000 out of a potential $21,000 so no reason to change this as it's just "on track" despite already being up 200% from $3,000 so far.  
    • BBBY – These guys are stupid cheap.  We took our lumps on the initial entry but now is time to re-invest and roll our 10 2019 $30 calls ($1.25 = $1,250) to 20 of the 2019 $20 calls at $5 ($10,000) and we'll sell 20 of the 2020 $27.50 calls for $3.40 ($6,800) so net $1,950 to double down at a 25% lower strike seems like a good deal, right?  Our 10 short 2019 $30 puts are $9.80 ($9,800) and we can roll those to 15 of the 2020 $25 puts for $7 ($10,500) and that's another $700 off the roll cost.  

    • BX – Well over our target and we'll let ourselves get called away and get back in if they ever pull back. 
    • CBI – Another one with low expectations that were exceeded.  Still good for a new trade as it's a net credit on the $15,000 spread but that's with the aggressive put sale (that I'm fine with).  
    • CHK – On paper, we're down $4,000 but, if we hit our $5 goal, $50,000!  Net is now $11,500 so $38,500 left to gain.  I like that!  

    • CLF – On target but still good for a new trade.  
    • CLNS – Too low to cover but not low enough to DD.
    • CM – We'll probably be called away. 
    • CMG – So volatile!  We're in for a net $32,000 credit on this $140,000 spread so upside potential is $172,000 if CMG is over $420 in 15 months (now $325).  Currently net $0 so still nice for a new trade if you don't mind only making $140,000 – a bit less than $10,000/month.  

    • CSCO – On track. 
    • DBA – Disappointing but very small loss and we'll roll it out next month.  The 2020s just came out.
    • DIN – Just starting to take off and this is one of those that I wish they had gone lower first so we could have bought more.  Well, we did buy the bull call spread on the dip – that's why we're up so much – because we followed our plan to scale in!  

    • DIS – Anyone with kids knows you don't bet against DIS.  Still under $100 and possible stock of next year if it stays that low.  On track for our conservative spread for now.  
    • FCX – I love this one, so cheap!  Again, our conservative spread is miles in the money.
    • FNSR – We got more aggressive last month and it's paying off so far.  Have to remember to sell calls at about $26.

    • FTR – If they don't go BK, this will be amazing.  There's no sense in leaving the short 2019 $15 calls open when we can buy them back for a 75% profit so let's buy those back for $1 (no more) and there's 10% of our loss erased with those profits.  Now, we KNOW we will end up doubling down at $10 to drop our basis to $15 but we can already sell 40 2020 $10 puts for $5.30 ($20,600), so there's really no reason not to do that, is there – as it's a net $4.70 entry AND it immediately drops our long basis to $14.59.  That then means that we can sell the 20 (1/2) of the 2020 $12 calls for $2 but, as I write it, I feel we're giving it away so let's hold off on that leg.  

    So, with FTR, we just took back $23,000 of our $33,000 loss on the long stock.  If we can do that with a disastrously wrong-way entry like we had on FTR – don't you think you should be entering all your trades with these kinds of spreads?  When we enter positions where the worst case is we double down to a 50% allocation at a 20% discount and then we can go in for the rest at a 40-50% total discount on a full allocation block – isn't it obvious we're rarely going to have any serious losers?  

  40. CHL/Scott – The only Chinese stock I jump on when it's down.  

    CHL should be in the STP, but I forgot to update that one:

    Submitted on 2017/10/06 at 12:56 pm

    CHL/Scott – $50 is where I always love them.  $102BN in revenues, $17Bn in profits, $205Bn market cap at $50 so p/e of 11.7.  1st half revenues were up 5% so chugging along and they just made a massive order for optical equipment – so I guess they are pushing fiber service too.  They also pay a 5.5% dividend!  

    It's a good time to take a shot in the LTP but, sadly, options only go out to March so in the STP, let's sell 20 CHL March $50 puts for $1.70 ($3,400) and see how it goes.  If it goes well (as previous put sales have), we just keep the money and, if it goes poorly, we have a cheap entry point for the LTP.  It's like we can't lose!  

    GE green – so cray cray….

    F in the A/Naybob – Well put!  

    Image result for south park ass fuck animated gif

    This one is the one I was looking for but too X rated – DO NOT CLICK THIS LINK!  

  41. well RB ruined my weekend….again

  42. Did you update the Butterfly already and I missed it somehow?

  43. tangled, butterfly was in Tuesday's comments

  44. Latchdaddy, Did you play RBZ or RBX?

  45. RB X7

  46. I was about to jump on an RBX short before lunch and I got distracted by a meeting. I don't know why the hell it is going up

  47. Phil – DO NOT – OMG, Garrison, Amyl Nitrate, holy shit I'm ROFLMAOWPIMP.  Thanks Chief.

    Billy, Chessie, Harding, Taber, Sefelt, Fredrickson, Bancini, Sorenson, Ellis (Christ), Ruckly and The Colonel are all just lookin for Candy and Sandy.  It was the best of times, it was the worst of times, McMurphy and Martini Out.

  48. I just wish to comment further to Phil’s comment this morning on GE.

    I took the decision to initially only buy the 20 Jan 2019 call and partially financed the purchase by selling the Jan 2019 23 put. I held back selling the caller, as I felt the down draft was overdone.

    Even the same day I have gained on the long call and the short put, holding back on the caller for a better day.

    Just some different Idea same game.

  49. Long-Term Portfolio Review (LTP) – Part 3:  Wow, this is a lot of positions to review.  Hopefully in November, I can just cut and paste these as I doubt there will be much to change.  At least, so far, almost all of our changes have been happy adjustments – no real problems to speak of.   

    • GILD – Hard to believe they were ever a problem.  Deep in the money now and we're fortunate to have an aggressively long position.  Still, it's a good opportunity to teach you a fun trick:  Our 20 2019 $60 calls are $23 ($46,000) so we can sell them and roll out to 20 of the 2020 $65 calls at $24 ($48,000) and we can pay for the extra $2,000 by selling 10 Jan $85 calls for $2.50 ($2,500).   Now we're a bit over-covered but we have 2 years to roll the short Jans and we can always buy more longs but hopefully they don't go over $85 and we're in great shape.  Down the road, we can put additional call sale money into rolling down our longs to lower strikes.  Also, the 2019 $65 puts are $3.50 and we can flip those to the 2020 $70 puts at $8 and there's another $4,500 in our pockets so +$5,000 and we gained a year in exchange for $5 in position – very fair!  
    • GM – So far over target we have to do the math.  $35,000 is the max payoff and currently we're at $28,555 so 25% more to gain is kind of dull and I think GM is toppy so let's cash in our 2019 $28 calls for $18 ($90,000), which is $11 more than the spread pays.  So, with the extra $11 ($55,000), we can roll the short $35 calls ($11.20 = $56,000) up to the $45 calls at $5.05 ($25,250), where they are 100% premium.  We can then buy back the 20 short $32 puts for $1 ($2,000) and sell 20 of the $40 puts for $2.90 ($5,800) so even if the stock doesn't fall, we still have an extra $28,050 against the short $45 calls AND the $35,000 we expected to win on the spread.  If these short calls end up expiring worthless, we will have made a bonus $28,050 (80%) and, if they don't, we will cover with a 2020 spread and start the cycle all over again.  

    • GME – Still too cheap to sell puts.
    • HBI – Blasted over our target, didn't get a chance to go big. 
    • IBM – Well over our target now. 
    • IMAX – I've been waiting for June to come out but I'm worried it will pop.  Still, We have more long calls than short and aggressive short puts, so we can leave these as they are. 
    • LB – Was going to be my Stock of the Year for 2018 but going up too fast now.   We have a good amount of these because they did take a dip that let us double down.  

    • M – $20 is a great floor and we're well-positioned. 
    • OIH – Doing well despite the low oil prices but off the highs.  I still like the trade and thank goodness we double-sold the short calls!  
    • PSO – Finally took off this month.  Now we're too conservative but not much we can do about it.  Maybe when June comes out we will adjust.  Great save for a stock that first dropped 30% on us!  

    • QCOM – What a bargain down here.  I'm happy with our spread and it's not cheaper so we shouldn't buy more but I like it as a new trade as it pays $15,000 at $55 and just net $7,000 – even though the stock is already at $52.  Aren't options fun?  
    • SKT – Still languishing but I like them.  We'll have to see how earnings go.  
    • SVU – I was worried we wouldn't get a chance to buy more of these but they keep getting cheaper!  Let's roll our 7 2019 $13 calls at $4.70 ($3,290) to 15 of the $10 calls at $6.40 ($9,600) and we'll buy back the short $25 calls ($1.20) just to clear the space and we will roll our 7 short $27 puts at $12.70 ($8,890) to 15 short $18 puts at $5.50 ($8,250) so we're effectively doubling down and uncovering for net $6,110 – effectively buying 8 2019 $10 calls for $7.63 – not too bad with the added bonus of improving our other 7 calls by $3 ($2,100 value) and uncovering them – so now we're set up for new call sales. 

    I know this is an UGLY chart but it's a small position and we'd be happy to DD again and they just announce earnings this morning and they were 0.46 for the Q so $2/share for the year is a p/e of 7.5 vs 19.4 for KR and 10.6 for SFM or, if you want to compare them to the wholesalers they are becoming – UNFI is 14.9 and SYY is 19.8 so this valuation is STUPID!   We don't buy charts – we buy companies!  

    • TEVA – Another ugly chart but at least it's calming down and another stupidly low valuation on a perfectly good company facing some short-term challenges.  Well, that's what makes a market but we already got aggressive with them and 2020 isn't out yet – so we wait.  
    • TGT – Hit our target already!  
    • TWTR – On track and another one we added to on the way down.
    • UNG – 2020s are out here so we can adjust.  The 40 2019 $4 calls are $2.60 ($10,400) and we can roll those to 80 2020 $5 ($2.15)/$8 (0.95) bull call spreads at $1.20 ($9,600) and we can sell 30 Jan $7 calls for 0.33 ($999) because, if we collect $1,000 per Q just doing 1/3 covers, we pretty much pay for the spread and the rest is just a bonus (up to $24,000).  That's great as a new trade!  Our 30 short 2019 $9 puts are $2.70 ($8,100) but we sold them for $2.15, so no big loss.  Let's take that loss ($1,650) and sell 40 of the 2020 $7 puts for $1.10 ($4,400) and all is well again.
    • WPM – This is the second round for our 2017 Trade of the Year and also going like gangbusters.  Right on track, plenty more to gain and the old Jan puts will expire worthless – love it!  

    What a healthy portfolio!  Of course it's like shooting fish in a barrel in this market but wow – no dogs at all!  Not bad for a portfolio we only adjust once a month.  Instead of not working Mondays anymore – maybe I should just show up on expiration weeks from now on? cheeky

    PS – While I was writing this review, the balance punched up to $1,682,603 – up $5,000 for the day.  This market is NUTS!  

  50. /RB/Latch – Happens every Friday:  

    October 20th, 2017 at 7:58 am | (Unlocked) | Permalink

    Oil dipped to $50.87 but back to $51.15, /RB $1.635 after bottoming at $1.63, both should get a push into the close (2:35) – it's rollover day, so things should be crazy.

    We also got another short at shorting Gasoline (also from yesterday's report) at $1.65 (/RB) and that's a fun one over the weekend if you are brave (and rich enough to laugh off a potentially nasty loss).

    October 20th, 2017 at 12:23 pm | (Unlocked) | Permalink

    /RB/Latch – They hit their $1.666, which they love to do (manipulators get bored at work too) and now I have confidence in the short into the weekend though, of course, things do sometimes blow up over the weekend.  

    One thing you can count on is it's never easy.  /RBX7 is popping because people are dumping out of V7 and rolling to the new month.  

    Butterfly/Tangled – Sure, ages ago (Tuesday).  

    Good way to play Yodi.

    Have a good weekend everyone, 

    - Phil

  51. Phil, I have a question.  Maybe it's a stupid one.  But above you wrote:

    Our 30 short 2019 $9 puts are $2.70 ($8,100) but we sold them for $2.15, so no big loss.  Let's take that loss ($1,650) and sell 40 of the 2020 $7 puts for $1.10 ($4,400) and all is well again.

    I thought the IRS wash rule prevents you from deducting a loss if you buy the same security again within 30 days. Does that not apply to options?


  52. Well I do not know how I missed that update but missing it was costly.   Going to add a new short call position for PG?

  53. Washes/Ernest – If you elect trader status with the IRS or trade through a family trust or fund, then there's no wash – just the P&L for the year (and, if you have enough money to worry about such things – you really should be doing this!).  If you trade as an individual, you do have to be careful about that stuff so make sure you do talk to your accountant if you want to maximize tax efficiency.  Some accountants will call a different option a different instrument but "take that loss" is a figure of speech, regardless – NOT tax advice!  

    PG/Butterfly/Tangled – That's why I wanted to hold the calls.  We'll see what happens next week but that dip was perfect for us.  

    October 17th, 2017 at 1:46 pm | (Unlocked) | Permalink 

    • PG – We made a little money on the short Oct $87.50 calls and I still want that protection with earnings on Friday and it's a partial cover so let's wait and see how they announce.  If we get lucky, they go worthless and we pick up a quick $5,000 and, if not, we add more longs and roll.

    We got lucky, now we see where the floor is with $5,000 (ish) in our pockets. 

  54. Good weekend to all.  Phil, thanks for the busy week.

  55. Hi Phil,

    What are your thoughts about AIEQ etf ? does it sound like an investment to get into ? 

    Thanks as always


  56. Phil/UNG

    The 2020 $7. puts are priced about $1.70.  The 2020 $6 puts are priced around $1.10. Did you mean to write the $6 puts rather than the $7 puts you wrote?

    “ Let's take that loss ($1,650) and sell 40 of the 2020 $7 puts for $1.10 ($4,400) and all is well again.”

  57. Sarah Sanders just made an absolutely outrageous argument about the media

  58. Low pay, no bonus: U.S. retailers struggle with hiring

  59. How The S&P 500 Became Expensive

  60. rustle – I am trying to  reach you via Phil. I sent him and Greg and email ie.PSW.  Please let me know your telephone#.  thanks

  61. I have been watching this Jan 2019 BCS in my portfolio.  It goes back and forth, back and forth…  And, now, the stock has dropped and the Short position of the BCS has .16 cents of premium left, sold it for $1.50.   Is there a reason that I should NOT buy back the remaining .16 cents?  My thinking is…  I should buy back the short and hold onto the long  --  take some good money off the table, and if/when my stock pops, my long can either be left alone or I can sell another Call against the position.   Hope that makes sense.  I have around a 1000 hours under my belt, so all/any feedback welcome.  

  62. Grass, yes that's generally a good idea. You would also want to look for a way to improve the position by rolling down and out and sell additional premium to pay for all or some of the roll. If you uncover and leave the long calls, you would want to cover on a pop as you are thinking to do. But, see if you can improve the spread if/when possible. If there aren't any good rolls, then wait for a pop and sell more. I've noted Phil does this but not often. He's more experienced as well, so, I've learned the hard way not to leave much uncovered for very long. 

  63. BDC/GreenCoin  I purchased some GRE in and would like to put it in a wallet.  I have a Ledger Nano S but that doesn't seem to support GRE. How would you suggest storing it?  Thanks!

  64. BDC, btw it is  not a life-changing amount (<$500) so if it is reasonably safe to  leave them at, I can do that.

  65. JeffDoc, Thank you kindly!   

  66. phil, back to sco.the easy money one.33/39 nov bull call  .looks  likely that oil may continue up so what adjustments would be appropriate here.  also the sold $35 puts roll to ?? thanks

  67. Good morning!  

    Was out all weekend looking at colleges again, hopefully Maddie is down to her final 3 so we can move on to the application process.  It's a major life decision, so I'm glad she's taking it seriously but, to me, they are kind of the same – guess I'm jaded.  Up at Amherst, we had a 5-college program, where we took classes at any of the area schools.  To me, it's all about picking teachers but I did get a chance to audit classes at Harvard and I was really impressed there with the generally excellent level of teachers.  In either case – not sure if it's worth $60,000/yr, no matter how good the lecture is!  

    Of course, I thought about it and it costs me about $20,000/yr to keep the kids here (I guess it's like keeping a prisoner!) so the net difference isn't that terrible, though they do come home once in a while and they'll probably still expect rooms and meals…   cheeky

    On the whole, I'd rather have an AirPass and $35,000/yr to spend – the books you can read on the beaches or at the lodge in between adventures.  Seriously I waver on flat-out telling my girls what a waste I think $250,000 on college is but who am I to deny them of the experience?  I get the feeling people are still judged on college – I'd hate for it to be a disadvantage.  

    AIEQ/Pat – Seriously?  I think I'd want to see it work for more than 5 days with more than $7M in assets before I started throwing money at it. The mix of holdings isn't bad though.  If this is how easy it is to get people excited about a fund's performance – we'll have $1Bn in our hedge fund in no time!  

    UNG/LTP, DC – Yeah, I read it wrong.  I'd rather do the $6 puts and stick with the $1.10, that's plenty to collect and less risky. 

    Rustle/Latch – Sorry, I was away, remind me later if you didn't hear from him.  

    Spread/Grass – Well is it no premium or no cost to buy back?  If you had a $5 spread for $2.50 and now your calls are $3.50 and the short calls are $2 with "no premium" – then buying back the short calls for $2 increases the cost of your call to $4.50 and that wasn't the point of the original trade, which was to double $2.50 at the short call's strike.  Don't turn safe investments into gambles for no reason.  On the other hand, if it's literally 0.16 and there's only a penny a month left to collect – then there is no point to leaving it open as all it does is cost you flexibility ALTHOUGH, if it's so out of the money that there's pretty much no way it will ever cost you – then it's a matter of do you need the margin more than you need $16/contract.  

    SCO/Jash – Not clear what you are asking.  Nov is a tight target but we do expect SCO to go higher as oil goes lower, I wouldn't change anything yet as I THINK we are in the top of the channel.