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Wednesday Watch List Update – Stocks We Like for 2018

Related imageIt's very important to have a Watch List.

I like to have about 24 stocks I keep a close eye on so that, when something happens and they go on sale, I'm ready, willing and able to pull the trigger in an instant.  We did that in November, when Macy's (M) announced their earnings and we thought they were just what we wanted yet the market sold them off after the opening pop.  That gave us a window to act and, because we follow M closely – we KNEW it was time to act and I issued a Top Trade Alert, identifying it as our top contender for Stock of the Year for 2018 (replacing LB, another retailer who has already flown higher).  

We issued our 2017 Watch List back in March and in May we picked 13 out of 24 for action, including M as well as BMY, ESRX (still cheap), FCX, GE (cheaper), GILD, LB, PSA (still cheap), QCOM, TGT, GCI, FMCC and SEE (still cheap).  So, out of 13 picks we had been watching and pulled the trigger on, 10 are winners, 2 are flat and one (GE) is down.

This is the key to understanding our system.  GE was our only non-winner out of 13 picks (the flat ones make money too using our "Be the House – NOT the Gambler" system) and is still very manageable but, since they cut the dividend, we're not jumping back in yet – other than short puts.  

Image result for real investingIn order to become a real investor, you have to break out of your "winning" and "losing" mind-set and that's very difficult because your broker – who wants you to TRADE, not INVEST, gives you a daily scorecard with minute-by-minute updates to encourage you to thing of your portfolio as something that should constantly be fiddled with to improve your "score".  They even highlight your losers in red – so they bother you and further encourage you to dump slumping stocks by raising the margin requirements on them – making them even harder to hold onto.  

Imagine if you ran a baseball team that way – constantly cutting players who were having a bad month and hiring players who just had a good month.  Would you have a winning team or a team in constant turmoil?  Babe Ruth batted .290 and hit just 25 home runs in 1925 and people said it was over for him – the next year he batted .372 and hit 47 home runs, the year before setting the 154-game record of 60 home runs in 1927 with a .356 batting average.  Should he have been cut?  There were plenty of "better" players in 1925 who were far cheaper

That's not how we do things when we are trying to build a team and your portfolio is like a team you are building – one which should stand the test of time and that's not watch time or even calendar time but DECADES of your life kind of time!  You want a team that will carry you through retirement – one you can count on for DECADES to come – not one you are going to dump and replace every 6 months.  

I'm not saying there are not dogs.  If the company changes in such a way that they are no longer a good investment, then of course cut them but the history of the market shows that is not that often the case – especially with solid blue-chip stocks over long periods of time, where the Dollar Cost-Averaging gurus reign supreme.  

Image result for ge cash flow 2017GE has made a lot of changes and has sold off divisions, raising $78Bn worth of cash but that's also lowered revenues and profits and, because they have maintained an $8.8Bn annual dividend payment, cash flow was -$9Bn in 2016 (not including debt repayments ($58Bn) and stock buybacks ($21Bn).  It will take GE a while to move back to being cash-positive and management has cut the dividend to 0.48 (2.7%) so cash flow will improve.  

We don't really care whether GE goes up or down, as long as they don't go bankrupt but, since we're really in them for the dividend, we don't need to actually OWN the stock since we can simply sell the 2020 $18 puts for $2.40, which is 5 years worth of dividends!  That makes our worst case re-entry owning the stock at net $15.60, a 13% discount to the current price

In our $500,000 Long-Term Portfolio, we have $50,000 allocation blocks so we can own 3,200 shares of GE at $15.60 but we don't want to fill the whole block in one shot.  If GE drops to $9, we'd be screwed and down $20,000(ish) but, if we sell 15 short $18 puts for $2.40 we collect $3,600 against just $2,618 in margin and all GE has to do is stay over $18 two years from now and we make 100% of that money.  

On the other hand, if GE drops to $9, we would be assigned 1,500 shares at net $15.60 ($23,400) and we'd turn around and sell the $10 calls for about $1.50 and the $10 puts for $1.50 and that would drop our net to $12.60 and down just $5,400 or 10% of an allocation block or 1% of our portfolio.  So the risk is VERY manageable and we're pretty sure we'd be very happy to double down on GE at $9 and, even if we did that, we still wouldn't fill a whole allocation block.  

In our $500,000 Long-Term Portfolio, we look for short put opportunities like that every month that pay us $4-5,000 so that we're collecting 10% a year simply for promising to buy cheap stocks if they get even cheaper!

Without further adieu, here's a list of stocks I like for this strategy going forward BUT – keep in mind I'm expecting a broad-market correction and I don't think between now and Feb is a good time to add things so very small, conservative entries if you must but this is for a WATCH LIST and the trade ideas are not for immediate action but so we have a benchmark to know when there are bargains down the road.  

The origninal date of our calls (if any) are in brackets after the stock symbol but the options we're discussing reflect the currrent positions.  If I bold something in blue – it means I like that trade idea right now.  Also, for more color commentary on our older picks – go back to the original Watch List links.  For allocation purposes – I'm talking about what I'd put in our $1M+ Long-Term Portfolio with $2M+ in buying power as an initial allocation (and we're always willing to DD from there).  If you have a $100,000 portfolio, you might want to divide by 10 to determine the appropriate amount!

AAPL (1/3/18) – It pains me when we don't own AAPL but, at $172.26, I'd rather wait for a pullback.  AAPL was our Stock of the Year in 2012, 2013 and 2014 but, in 2015, they opened at about $130 and we thought that was high and we waited all the way until August, when they poked down to $100 (20%+ correction) to buy them again.  So, from $175, we're looking for an entry at around $140 and we could sell 2020 $140 puts for $9 but they'll be closer to $20 if we get a correction so I'd rather be patient on this one.  

ABX (1/3/18) – We HAVE to get them before they get away.  Short story on ABX is they have 100M ounces of gold in the ground (proven reserves) and, at $1,300 an ounce, that's $130Bn but you can buy the company, at $15.20, for $18Bn.  There is, of course, the cost of extraction but, for ABX, that's generally around $900 so $400 is profit ($40Bn) but, more importantly, if gold goes up $100 – that's ALL profit for ABX so it's a highly levered way to invest in gold and, worst case, you end up owning a best-in-class mining operation.  

In the LTP:

  • Sell 20 2020 $15 puts for $2.25 ($4,500) 
  • Buy 40 2020 $13 calls for $3.90 ($15,600) 
  • Sell 40 2020 $20 calls for $1.50 ($6,000) 

That's net $5,100 on the $28,000 spread so the upside potential, at $20, is $22,900 (449%) and the margin is just $3,026 so this is a fantastic play for the OOP.  In the LTP, the margin isn't even an issue as we'd really, Really, REALLY love to own 2,000 shares of ABX for $35,100 two years from now and we'd be happy to double down if it's lower.  

In the OOP:

  • Sell 10 2020 $15 puts for $2.25 ($2,250) 
  • Buy 20 2020 $13 calls for $3.90 ($7,800) 
  • Sell 20 2020 $20 calls for $1.50 ($3,000) 

That's net $2,550 on the $14,000 spread with an upside potential, at $20, of $11,450 (449%) and the margin is just $1,513.  What a fantastic way to make $11,450!  That's one trade, using $1,513 in margin that returns 11.5% of the portfolio in two years if all goes well.  This is why we are disappointed with 20% annual returns…  

ALK (1/7/18) – My favorite airline and a great operator who just took over Virgin US.  Too cheap to ignore at $73.74 and even cheaper if we sell 5 2020 $60 puts for $6.20 ($3,100) in the LTP, so we get paid to watch them for a better entry on a bull call spread.

BBBY (1/7/18) – One of my picks for a retail survivor and they are making $2.50 per $21.34 share, so lots of room to grow.  This one is approprate for both of our bullish portfolios:

In the LTP:

  • Sell 20 BBBY 2020 $17.50 puts for $2.80 ($5,600) 
  • Buy 30 BBBY 2020 $17.50 calls for $6.60 ($19,800)
  • Sell 30 BBBY 2020 $25 calls for $3.50 ($10,500) 

That puts us in the $22,500 spread for net $3,700 so $18,800 (508%) upside potential at $25 and the risk is owning 2,000 shares at $17.50 + 1.85 cash per share we put in ($19.35) is a 10% discount to where we are now as the worst case. 

In the OOP:

  • Sell 5 BBBY 2020 $17.50 puts for $2.80 ($1,400) 
  • Buy 10 BBBY 2020 $17.50 calls for $6,60 ($6,600) 
  • Sell 10 BBBY 2020 $25 calls for $3.50 ($3,500)

In this case we have a $7,500 spread and we're paying $1,700 to be in it.  Our assignment risk is just 500 shares at $17.50 ($8,750) plus the $1,700 we laid out is $10,450 or $20.90 per share, not much of a discount if we end up owning them but, on the other hand, not much risk to our allocations either so it's more or less a free play.

BX (1/7/18) – BX has been very good to us but I want to get into them again AFTER a correction since they are kind of a proxy for the market.  Since they pay a fat, 5% dividend, I don't mind owning them at $33 so, in the LTP, let's sell 10 of the 2020 $30 puts for $4 ($4,000) to pocket a bit of cash while we keep tabs on BX. 


CAKE (1/7/18) - Making about $2.50 per share makes CAKE reasonable at $50.21 and, in the LTP, we had sold 10 April $40 puts for $2.75 and THAT would be a great price (net $37.25).  Currently, we can promise to buy the stock in July for $45 and collect $2.05 for the July $45 puts, which would net us in for $42.95, not as good as last year but still a nice price so let's sell 5 of them in the LTP to remind us to keep an eye on them (and pocket $2,025).

CBI (1/7/18) – The most believable promise Trump made was to push infrastructure as it's something that badly needs doing in the US but, so far, no luck.  CBI had a rough year in 2017 but should be back on track in 2018 to make at least $1 per $18 share and possibly closer to $2, which would make them a huge bargain.  Huge option premiums make this fun for both our long portfolios:

In the LTP:

  • Sell 20 CBI 2020 $20 puts for $5.50 ($11,000) 
  • Buy 30 CBI 2020 $15 calls for $5 ($15,000) 
  • Sell 30 CBI 2020 $25 calls for $1.75 ($5,250) 

This is an aggressive spread where we're selling puts at a higher strike than the stock currently is at.  Our worst-case is owning 2,000 @ $20 = $40,000 and they were just at $10 in Aug so this is a risky play but it pays $30,000 at $25 against a net $1,250 credit so $31,250 upside potential is a risk we can afford in the LTP.

For the OOP:

  • Sell 10 CBI 2020 $15 puts for $2.80 ($2,800) 
  • Buy 10 CBI 2020 $15 calls for $5 ($5,000) 
  • Sell 10 CBI 2020 $25 calls for $1.75 ($1,750) 

Here we're laying out $1,450 but our assignment risk is owning just 1,000 shares at net $16.45 ($16,450) and, since we feel CBI COULD go back to $10, our mental risk is about $8K trying to make $10K at $25.



CDE (1/3/18) – Another miner that gets no respect despite completing a nice turn-around and hitting record production numbers.  At $7.97 we certainly don't mind being assigned at $7 and we can sell the 2020 $7 puts for $1.45, which makes it pretty much free money we can buy a spread with.  In the OOP, which has $20,000 allocation blocks, we have no fear of owning 1,500 shares for $10,500 – especially since the 2020 $7 calls can be sold for $2.70, which would then drop our net to $4.30.  So, our trades are:

For the LTP:

  • Sell 30 CDE 2020 $7 puts for $1.45 ($4,350)  
  • Buy 50 CDE 2019 $7 calls for $2.00 ($10,000)
  • Sell 50 CDE 2019 $10 calls for 0.85 ($4,250) 

That's net $1,400 on the $15,000 spread that pays off in just 12 months (though we'd still have the short puts) for a $13,600 (971%) upside potential at $10.  Margin on the puts is just $1,975 so it's a super-efficient trade. 

For the OOP:

  • Sell 10 CDE 2020 $7 puts for $1.45 ($1,450)  
  • Buy 20 CDE 2019 $7 calls for $2.00 ($4,000)
  • Sell 20 CDE 2019 $10 calls for 0.85 ($1,700) 

That's net $850 on the $6,000 spread with an upside potential of $5,150 (605) and less than $500 of our margin used.  

CHK (1/3/18) – Very unloved but I love natural gas as a long-term play and CHK is crazy cheap at $4.10 considering they will be making about 0.80 per share for a p/e of 5.  It's a good energy fit for both portfolios – especially with the huge option premiums we can sell.

In the LTP:

  • Sell 50 CHK 2020 $4 puts for $1.20 ($6,000) 
  • Buy 50 CHK 2020 $3 calls for $2 ($10,000) 
  • Sell 50 CHK 2019 $5 calls for 0.70 ($3,500) 

That's net $500 on the $10,000 spread and we have a year to roll the short calls, so hopefully we can widen it to $15,000 (at $6) if things go well.  The upside potential is $9,500 (1,900%) and the margin is just $1,919 so it's a great place to park a little cash.

In the OOP:

  • Sell 25 CHK 2020 $4 puts for $1.20 ($3,000) 
  • Buy 25 CHK 2020 $3 calls for $2 ($5,000) 
  • Sell 25 CHK 2019 $5 calls for 0.70 ($1,750) 

That's net $250 on the $5,000 spread with the same year to roll and about $960 in margin to make up to $4,750 (1,900%) without rolling.  Keep in mind $4,750 is 5% of the portfolio and we'll have about 20 trades like this!  


CIM (11/12/17) – Is an old favorite that's cheap enough again at $17.87.  It's a REIT that pays a $2 dividend, which is 11.2% at this price – so you know we like that. What we don't like is very crappy options, which is why we don't often play them but a Powell Fed should keep rates low and the cash flowing for CIM so I'd go for 1,000 shares at $17,870 and sell 10 of the June $17 calls for $1.10 ($1,100) and 10 of the June $17 puts for 0.85 ($850) to net in for $15,920 which is an 11% discount in 6 months, so pretty good and the $1,000 dividend makes it 16.5% off in 6 months and any stock that pays us back 33% of our outlay each year is certainly worth owning, right?  

CLF (1/7/18) – I still like this US iron ore producer in an age of tarrifs and trade wars.  In the LTP, let's sell 20 of the 2020 $10 puts for $3.70 ($7,400) to remind us to keep an eye on them.  It's aggressive with the stock at $8.13 but the entry is net $6.30, which is 22.5% off the current price and only $12,600 if assigned and you can sell the 2020 $7 calls for $3, which would drop our net to $3.30 and just $6,600 – what's not to like?

ETE (11/12/17) – Energy Transfer Equity is another way to play Natural Gas – through the transport pipelines.  All that shale drilling has to be transported and ETE is a leader in that space.  It has had some erratic swings, however so, rather than buy the stock for $17.47 and hedge to collect the $1.18 annual dividend, I'd rather just sell the 2020 $15 puts for $2.60 so we collect 2 year's dividends (in advance) and worst case is netting into the stock for $12.40 and THEN we sell puts and calls to lower the basis.

F (11/12/17) – Still reasonably priced at $12.01 and paying a nice, reliable 0.60 dividend (5%) already makes them attractive but also nice option premiums.  2020s aren't out yet and I'd wait but, for example, you can buy 2,000 shares of the stock for $24,020 and sell 20 of the 2019 $12 calls for $1 ($2,000) and 20 of the $12 puts for $1.35 ($2,700) to net in for $19,320 ($9.66/shar) and then you get $1,200 in dividends too!  We added F to the LTP and OOP on 1/2/18)

FNSR (1/3/18) – This is a great way to play growth in telecom/internet without owning one of those dreadful phone companies that go nowhere.  FNSR hasn't gone anywhere in 2017, despite earning $250M against a $2.5Bn market cap at $21.20.  This one is good for the OOP and LTP:

In the LTP:

  • Sell 20 FNSR 2020 $17 puts for $3.20 ($6,400) 
  • Buy 30 FNSR 2020 $15 calls for $9 ($27,000)
  • Sell 30 FNSR 2020 $25 calls for $5 ($15,000) 

That's net $5,600 on the $30,000 spread with $24,400 (435%) upside potential at $25 or better.  Margin requirement on this stock is $3,271 so a great way to make $24,400.  

In the OOP

  • Sell 10 FNSR 2020 $17 puts for $3.20 ($3,200) 
  • Buy 10 FNSR 2020 $15 calls for $9 ($9,000)
  • Sell 10 FNSR 2020 $25 calls for $5 ($5,000) 

In this case we're netting in for just $800 in cash and that gives us $9,200 (1,150%) upside potential at $25 and our margin will be $1,639 so a very good use of cash and margin to make a nice return.  


FTR (1/3/18) – We love them as a turnaround story but no one else seems to.  Their heavy debt load scares people away but we like them and who doesn't love a 35% (no kidding) dividend of $2.40 on a $7.27 stock?  We assume they will cut it in half but that's still huge and maybe 1/4 but still a nice 8.5% dividend if they do that so why would we not want to have some cash in this stock – especially when we can discount it further with options?

We already added this on 1/2 as such:

  • Buy 2,500 shares of FTR for $7.16 ($17,900) 
  • Sell 25 2020 $8 calls for $1.25 ($3,125) 
  • Sell 25 2020 $8 puts for $4 ($10,000) 

Here we're spending just $4,775 in cash for a stock that will pay us $6,000 a year in dividends if they don't cut it.  Getting called away at $8 is $20,000 so another $15,225 (318%) in upside potential if they don't go lower but really, on this play, we'd rather they go lower so we can DD at a lower price than "just" make $21,225 at $8+ in 2020 as this is using barely any of our allocation.

For the OOP, I want to do the same trade but with 1,500 shares and 15 short puts and calls.

As a new trade today, I also like this set-up (either one but not both, of course)

  • Buy 5,000 shares of FTR for $7.27 ($36,350) 
  • Sell 50 2020 $8 calls for $1.25 ($6,250) 
  • Sell 50 2002 $5 puts for $2 ($10,000) 

We're spending just net $20,100 so just over $4/share net, which makes the $2.40 dividend 60% of our cash outlay!  If they keep the dividend, we'll be collecting $3,000 per quarter while we wait to see if we get called away at $8 for a 100% gain ($20,100) 2 years from now.  If FTR goes lower, we'll end up with 10,000 shares at about $4.50 but then we'll sell more calls for $1+ and drop our net to $3.50, which is half of the current price and still comfortably within an allocation block.  


GCI (5/9/17) – Despite being up 25% since our entry in May, I still like Gannett and their 0.64 dividend (6.29%).  We pulled off a net $6.60 entry in May   Indications are that GCI should make just under $1 this year and next so the p/e is about $10 so we can buy 2,000 shares of the stock for $10.18 ($20,360) and sell 20 of the April $10 calls for 0.90 ($1,800) and 20 of the April $10 puts for $1 ($2,000) for net $16,560 ($8.28), which is not bad considering the Aprils are less than 6 months out.  We can expect 2 dividends of 0.16 ($640) so, in 6 months, we're down to $15,920 and we just have to hope people are still reading newspapers by then.

GE (1/7/18) – People are really out of love with this one but I can't NOT buy GE for $18.54 – it just seems silly.  The dividend has been cut to 0.48 so we don't need to own the stock for now.  

In the LTP:

  • Sell 20 GE 2020 $18 puts at $2.20 ($4,400) 
  • Buy 40 GE 2020 $15 calls for $5 ($20,000)
  • Sell 40 GE 2020 $20 calls for $2.35 ($9,400)

Here we're in for net $6,200 on the $20,000 spread with $13,800 (222%) upside potential if GE is up less than 10% in two years – so not a very ambitious way to play but it should be an easy $13,800 – and that's nice to have.

In the OOP:

  • Sell 10 GE 2020 $20 puts for $3.30 ($3,300)
  • Buy 20 GE 2020 $18 calls for $3.30 ($6,600) 
  • Sell 20 GE 2020 $25 calls for $1 ($2,000) 

Here we're netting $1,300 on a much more aggressive $14,000 spread with an upside potential of $12,700 (976%).  Why the more agressive spread?  Because, if we did 1/2 the more conservative LTP spread, we'd net $6,900, which is nice but we're using an allocation spot in the OOP, where we only have 10, whether it's assigned at $18 or $20 – it's the same while, in the LTP, the assgingment of $36,000 worth of GE is inconsequential as we have NO realistic expectation that it will drop more than 50% – so our worst-case scenario is not very worrying.  In the OOP, we won't have the luxury of riding things out for years while waiting for comebacks, so each allocation block needs to be working hard for us.   Should GE go lower, we'd put money into rolling the $18 calls to the $15 calls ($1.25 or less) and, at some point, we'll sell some calls for income. 






GILD (2/17/17) – Though it's much higher than our initial entry, GILD pays a reasonable $2.08 dividend per $73.77 share and we loved them at $65 and you can sell the 2020 $65 puts for $8.10, which nets you in at $56.90, effectively raising the dividend to 3.6% but it's 7.1% if you get called away without ever actually buying the stock – nothing wrong with that!  

GNC (1/7/18) – GNC is restructuring and has a lot of debt to deal with and MIGHT go bankrupt, so it's too risky for the OOP but, in the LTP, we can sell 20 of the 2020 $5 puts for $3.10 and collect $6,200 to keep our eye on the stock at $3.57 when your net is $1.90 – so let's do that.  Our worst case is owning 2,000 shares at net $1.90 ($3,800).

GPRO (1/7/18) – They are back where we liked them last year for similar reasons (job cuts) but the company has a habit of re-evaluating and pairing back projects that aren't working.  In this case it's their drone division.  While the market is taking it harshly, I was never happy that they weren't concentrating on the high-end camera market, where the big money is.  With the stock back at $5.95, we can sell 20 2020 $8 puts for $3.75 ($7,500) in the LTP and 10 in the OOP for $3,750 and our worst case is netting in for $4.25/share.  


Image result for robot accountantHRB (2/17/17) - Replacing their workers with Watson in the next few years, so a good long-term play.  Simplification of tax code may make them a good choice for more people (bad for accountants) and they are still cheap at $5.25Bn ($25.08) though that's up 25% from when we came in.  We're just lucky they pulled back from $30 so 1,000 shares at $25,080, selling 10 2020 $23 calls for $5.25 ($5,250) and 10 of the 2020 $23 puts at $4.20 ($4,200) is net $15,630 ($15.63) and that's already 38% off and another $1,920 in dividends over 2 years is net $13,710, which is 45% of our money back in 25 months – how can you not love a stock like this?  

IMAX (1/2/18) – I can't believe they are still $23.20 after the success of Star Wars.  Coming up this year is Maze Runner, Black Panther, Tomb Raider, Pacific Rim, Ready Player One, Avengers, Han Solo, Deadpool, Incredibles, Jurrasic World, Ant Man, Mission Impossible, Alpha, Venom, XMen, Fantastic Beasts, Spider Man, Aquaman and others in between – seems like the makings of a good year to me!  We will drop IMAX in the LTP and OOP at these prices as follows:

In the LTP:

  • Sell 10 June $23 puts for $2.10 ($2,100)
  • Buy 15 June $21 calls for $3.70 ($5,550)
  • Sell 15 June $26 calls for $1.30 ($1,950) 

That's net $1,500 on the $7,500 spread so the upside potential, at $26, is $6,000 (400%) in 6 months.

In the OOP:

  • Sell 5 June $23 puts for $2.10 ($1,050)
  • Buy 10 June $21 calls for $3.70 ($3,700)
  • Sell 10 June $26 calls for $1.30 ($1,300) 

That's net $1,350 on the $5,000 spread so the upside potential, at $26, is $3,650 (270%).  The OOP is a $100,000 portfolio so we don't want to risk too large of an assignment (especially as this is an aggressive put sale) and we're putting up more proportional cash on the spread – as that requires no margin.  


LB (2/17/17) – $50 was where we first liked them and they got cheaper and I made them my Stock of the Year pick at $35 but, since we don't officially make a pick until mid-November, they have sadly gotten away from us (like IBM did last year).  I would have skipped them but they pay a $2.40 dividend and I can't ignore that.  We can take advantage of the fat 2020 premiums buy buying 1,000 shares at $49.66 ($49,660) and selling 10 of the 2020 $45 calls for $11.50 ($11,500) and 10 of the 2020 $35 puts for $5.20 ($5,200) to net in for $32,960 which makes the $2,400 annual dividend a 7.2% return while you wait.  You can also sell 5 (1/2) Jan $53 calls for $1.90 ($950) and 10 sales like that plus $4,800 in dividedns over 2 years will drop your net by $14,300 to $18,660 – what's not to like.  It's easy to see how, by 2022, you can recover 100% of your cash outlay on this one!  

M (2/17/17) – As I said in Feb "We like M for a recovery story and, if not, as a real estate story.  They have 900 big-box stores and a $9Bn market cap so $10M per store is not a lot to pay and, at $9Bn, it's a good size to be acquired by a foreign company looking to have a presence in the US.  Meanwhile, they made $1Bn last year and maybe $900M this year so not like SHLD, who are losing $1.5Bn a year AFTER selling off land and brands yet still, for some reason, hold a $1Bn valuation."  I was 33% too early with that call but NOW they are my top contender for Stock of the Year for 2018.  M pays a whopping $1.51 dividend against a $19.98 price so I'd go 2,000 shares at $39,960 and sell 20 of the 2020 $22 calls for $3.50 ($7,000) and 20 of the 2020 $15 puts for $2.50 ($5,000) to net in for $27,960 ($13.98/share).  $6,400 of dividends are coming (11.4%/yr) and that would drop the net to $21,560 or $10.78/share so, even if assigned 2,000 more at $15, your average on 4,000 would be $12.89 ($51,560), which is 35% below the current price.  That's your worst case!  While I think it's too early to sell short-term calls, Jan $22 calls are 0.80 and even the Jan $25 calls are 0.30 so I would sell 10 (1/2) Jan $25 calls for 0.50 ($500) if it pops as 10 sales like that return another $5,000 to you without too much worry the stock will pop 25% in 2 months (though I am slightly concerned they get bought out at this price ($6Bn), possibly for $9Bn so $30 would mean you have to give $5,000 back to a short $25 caller but you'd make $16,000 on your longs at $22+.  

NLY (11/12/17) – Is the same management team as CIM, so my other favorite REIT – maybe more so as NLY has 2020 options to sell.  Here we can buy 3,000 shares at $11.24 ($33,700) and sell 30 of the 2020 $10 calls for $1.40 ($4,200) and 20 of the $10 puts for $1.40 ($2,800) for net $26,700 ($8.90/share) and we'll collect $6,000 in dividends TWICE by Jan 2020 to drop our net to $20,700 which is $13,000 (38.5%) back in 2 years and, keep in mind, we'll get those 38% returns – FOREVER – long after all the outlay is back in our pockets.  THAT is how you build a retirement portfolio!  

PSA (3/5/17) – Back in March I said "I generally don't like $226.61 stocks but this one pays an $8 dividend and is a good value at $220, so I am interested.  $200 should be a very solid floor so not much risk in selling Sept $210 puts for $9 because your worst case is owning them at net $201 and, if they head higher – $9 by Sept is far ahead of the dividend anyway.  I like this space as they are a REIT but no single tenant can break them and more people renting apartments means more need for extra storage space (plus retirees who can't let go of their stuff when they downsize)."  Well, nothing has changed and the stock is now $211 so, having collected $9 for doing nothing, now we can collect $9.50 more selling the June $200 puts and we many never end up owning the stock – but 10 years from now we will have collected enough to buy it!  

SKT (11/12/17) – Is not a REIT but they own malls and Retail might be dying but the need for good space where people congregate doesn't die so easily.  Also, though they may lose a JCP, big box stores tend to have very cheap deals with more than their share of parking and they are replaced by tenants who pay much more per square foot.  SKT runs very nice malls and tends to use them as event spaces for their towns to attact more shoppers – a strategy I really like.  They are a bargain at $24.27 but, sadly, options only go to June so far.  You can buy 1,000 shares for $24,270 and sell 10 June $25 calls for $2.50 ($2,500) and 10 June $25 puts for $3.70 ($3,700) and net in for $18,070, which makes the $1.37 dividend 7.5% while we wait for longer options to sell.  

SPWR (1/3/18) – This is a very easy way to invest in energy's future.  Sunpower is in an investment cycle and will be rolling out their INefficient energy panels this year.  SPWR makes the most efficient panels (23%) on the market but they are expensive and commercial power plants tend to favor less-efficient, cheaper panels – as they usually have plenty of land to deploy them on.  SunPower's new P19 panels have just 19% efficiency but are made to be price-compteitive with 17% Chinese solar panels.  At $8.97, it's certainly worth grabbing some now – especially with these great option prices:

In the LTP and the OOP:

  • Sell 20 2020 $7 puts for $2.50 ($5,000) 
  • Buy 30 2020 $7 calls for $3.70 ($11,100) 
  • Sell 30 2020 $12 calls for $2.05 ($6,150) 

This spread works out to a net $50 credit and uses just $1,440 in margin on the $15,000 spread so the upside potential is $15,050 (30,100%) and, like the solar panels, a wildly efficient trade!  We'll do the same amount in the OOP because the downside is just owning 2,000 shares at $7 ($14,000), which we're comfortable with as that's better than a 20% discount to the current price as our worst-case against the upside of gaining 15% on the entire portfolio with a single trade!




TGT (2/17/17) – Hasn't gotten away yet and you've got to love a $2.48 dividend (4.18%).   Earnings are certainly holding up at $4+/share and guidance has been in-line going forward but no exciting growth.  At $61.40 I have no objections to buying the stock so let's say 500 shares for $30,700 and sell 5 of the 2020 $60 calls for $8.50 ($4,250) and 5 of the 2020 $55 puts for $7.25 ($3,625) and that's net $22,825 ($45.65/share).  That brings the dividend up to 5.4% and 2 years of those will be $2,480 so, in 25 months, we'll have recovered $10,355 (33.7%) of the $30,700 stock purchase price - not bad!  Keep in mind that's without any call sales.  If TGT were to look toppy at $62.50 and certainly by $65, I'd want to sell at least 2 (40%) of the Jan $65 calls, now $1.35.  That would be $270 and it doesn't seem like much but that's for 68 days out of 796 – so a solid 10 sales to look forward to is $2,700 – that's more then the dividend!  

THC (1/7/18) – Hospital stocks are a great long-term demographic play and THC also operates urgent care centers, which are growing in popularity.  Runaway expectations sent the stock up to $21 and now they are back at $15.44 and the volatility has driven up the options pricing so shame on us if we don't take advantage.


In the LTP:

  • Sell 20 2020 $12 puts for $3.75 ($7,500) 
  • Buy 30 2020 $12 calls for $7.10 ($21,300) 
  • Sell 30 2020 $20 calls for $4.10 ($12,300) 

That's net $1,500 on the $24,000 spread and we'll be able to sell, for example, 10 Feb $16 calls at 0.85 ($850) using 40 of our 740 days so let's say we make 8 sales like that and make $6,800 while we wait to see if we make $22,500 (1,500%) at $20+.  

In the OOP:

  • Sell 10 2020 $12 puts for $3.75 ($3,750) 
  • Buy 15 2020 $12 calls for $7.10 ($10,650) 
  • Sell 15 2020 $20 calls for $4.10 ($6,150) 

That's net $750 on the $12,000 spread and we'll be able to sell, for example, 5 Feb $16 calls at 0.85 ($425) using 40 of our 740 days so let's say we make 8 sales like that and make $3,400 while we wait to see if we make $11,250 (1,500%) at $20+.  


WPM (1/3/18) – Last year's Trade of the Year hit our goal of $22 right on the nose and I still like them, especially if they pull back to $20.  Since I'm POSITIVE I would like to own them at $20, there's no reason not to sell the 2020 $22.50 puts for $4 – as that nets us in for $18.50 and selling 10 of those in the LTP puts $4,000 in our pockets against $2,251 in margin and reminds us to keep an eye on one of our favorite commodity stocks.  

WHR (1/3/18) – We're still low in the home-buying cycle but record employment in Europe and low unemployment in the US bode well for durable goods and WHR is nice and cheap at $167.99 and we can promise to buy them for just $130 by selling the 2020 $130 puts for $11.20.  In the LTP, we can sell 5 of them and collect $5,600 and there's another stock we'd like to own if it's cheap that they'll pay us to watch.  





I'll be working on this all week. so I am willing to take requests in comments if you have any good ideas (or want to remind me of my ideas if I haven't gotten to them)!  






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  1. 2018 looks like a continuation of 2017 – insanity! We have a president who brags about the size of his nuclear button (might be too big for his little fingers though) and markets don't seem to care! 

  2. Busy morning Phil – some good ideas there! Just need patience now.

  3. phil, i was hoping /NG would hit 3.2 before pulling back…what are your thoughts at this level?

  4. Ideas / Phil – On the REIT side, I still like STWD and I think that they could weather any rate hike a bit better than the other guys.

  5. Morning, All! Happy 2018!

    We’ll be picking up with our webinars next week.

  6. Dominion Energy to buy Scana Corp in $7.9 billion deal

  7. Again from Tuesday's post this morning on European news are rumors that Apple is looking to purchase Netflix!!!!

  8. Happy New Year to all!  Phil, hope you are feeling better.  Was going to remind you how cold it was here, but did not want to spoil your vacation.

    ~~A series of reports by Teva Pharmaceutical Industries Ltd. to the US Securities and Exchange Commission (SEC) include the holdings of senior managers and directors in company shares. Story link: {NSN P1Z6BXBE5TS1 <GO>}

    * Teva has never reported these figures in the past, because it was not obliged
      to do so, but from the beginning of 2018 Teva is classed as a US domestic
      issuer, and is now required to report them by law.
    * Teva lost its status as a foreign private issuer when the SEC reviewed its
      status in June last year and found that as a result of the acquisition of
      Actavis in 2016, more than 50% of Teva's assets are located in the US. It was
      therefore determined that Teva could no longer be regarded as a foreign
      company and had to report as a US company.
    * Under US securities law, a company cannot be defined as foreign if more than
      50% of its shares are held by US residents and in addition one of the
      following conditions is fulfilled: more than 50% of its directors and senior
      managers are US residents; more than 50% of its assets are located in the US;
      or its business is managed from the US.
    * The consequence of the switch to reporting as a domestic US company is that
      Teva now has to file full reports with the SEC and more frequently, such as
      yesterday's report on directors and senior managers' holdings.
    * Last year, when Teva reported that it would not be able to continue to be
      classed as a foreign issuer, it stated that its board and management would
      continue to operate from Israel and that its business would continue to be
      mainly managed from Israel as well.

  9. Netflix / Yodi – I saw that this morning but doesn't make a lot sense given the valuation difference between the 2 entities – one trades at a reasonable multiple, the other not so much! Can they pay a premium on top of the premium already built-in? On the other hand, great for NFLX as they would have no trouble funding new shows for sure!

  10. Car Sales to Top 90 Million Globally for First Time

  11. SJL — yesterday you posed the YTD scorecard.  Which website did you pull that from?  thanks

  12. Good Morning!

  13. STJ agree but still expected a bit more reaction on NFLX but 2$ up!

  14. Watch list/Phil – excellent! Any big pharma such a LLY, MRK, GSK, PFE?

  15. GM Phil// The trades that are mentioned for LTP and OOP, are they to be in a watch list or dip your toes (with a smaller allocation) with a thinking of scaling in and then add more when the market corrects?  Thanks.

  16. Rookie, as Phil said in this mornings blog, " If I bold something in blue – it means I like that trade idea right now. "

  17. F/Phil:  Happy New Year!  I am looking around in the 1/2/2018 post and I can't seem to find the F trade for the LTP and OOP.  Perhaps it was posted elsewhere?

  18. Kink:

    Look in Phil’s main post (at the beginning).

    Buy 1,000 shares of F for $12.49 ($12,490) 

    Sell 10 2020 F $12 calls for $1.50 ($1,500) 

    Sell 10 2020 F $12 puts for $1.50 ($1,500) 

  19. Phil re: the new portfolios…   let's say we only have a $100K portfolio to work with, and no futures trading.  Given margin requirements, and a goal of making 25% a year, does it make sense to just have an OOP?  Or start building a new Butterfly from scratch?  Or devote $50K to each and try to halve all the quantities on each trade?

  20. Tom this seems to be a simple answer. If you have a 100K you adjust your trades accordingly.

    Phil's Portfolios are ONLY demos, everyone has to make their own decisions accordingly to risk and pocket.

  21. F/dclark:  Oops, thanks for the info.  I totally didn't notice it in the main post.  

  22. Tom

    I don’t what your experience level is, but for simplicity I’d say just do the OOP. Things can get messy if you have multiple “styles” of trading in one account and you aren’t experienced at balancing it. If you are comfortable with butterfly’s and OOP type trades then you might pick and choose. I’d say keep it simple. 

  23. Good morning! 

    My original plan was to get most of this list done on New Year's day but my flu threw that way off.  

    Markets are continuing to go straight up, have to go with the flow and just add positions for now. 

    Yet another chance to short /YM at 24,850.

    As long as NYSE is over the Must Hold line on the Big Chart, there's nothing to be bearish about – technically. 

    Patience/StJ – It's amazing there are still stocks left to buy at this point.

    /NG/Lunar – I really hope you stopped out at $3, pure greed to keep raising targets just because you had a nice run.  We were looking at the weather maps last week and we knew the cold snap wouldn't last so neither will this price run.

    /NG/Jeff – No, it's up and down for not much reasons.  Often sells down into weekends and Mondays.  

    /NG/Grass – Well I'm back to 6 @ $2.78 after reducing to 4 on the move up and I'm happy to go to 10 (/NGV8) as it's a long-term hold but I'd have be to adding around $2.60 at this point to make it interesting (as in reduces my net below $2.70).   /NGV8 is running about 0.07 over /NG.

    As I often have to remind people – if you're not going to buy things when they are low – when are you going to buy them?  

    STWD/StJ – One of our old favorites and I still like them and they are nice and low but they have crap options to sell – only out to June and the $20 calls are just $1.55 so 0.30 premium and the $20 puts are 0.40 – pointless to sell.  That's why we haven't been in them lately.  

    Oh that's right, no Webinar today as we're transitioning to a new provider and they're not ready yet.  

    NFLX/Yodi – What nonsense.  NFLX market cap is an insane $87Bn, AAPL could buy DIS (and Hulu) for $169Bn – that would make much more sense.  

    Cold/Seer – I'm mainly recovered but it is pretty cold for a change (first time in years). 

    Pharma/Scott – I simply haven't gotten there yet.  Today I was mostly going over picks that we dumped from the OOP in Dec that I still liked.  Then moving on to LTP and then I'll get back to a sector by sector scan to round out the list.

    Trades/Rookie – The blue trades above are ones I want to enter now.  Though I think it's stupid – the market does keep going higher every day so we need to hedge our cash with a few stock positions.  Most of the Watch List (and it's not done) will be ones we hope get cheaper. 

    And what Mkucs said! 

    F/Kinki – It was FTR, not F that we pulled the trigger on.  My mistake.  

    F/DC – Thanks but was not an official portfolio trade yet, though I see no reason not to add them.

    New/Tom – The Butterfly is more conservative and less volatile but also more labor-intensive, you won't make 50% but you're not likely to lose it either – that's the main difference. 

    Speaking of losing it, /YM blasted up to 24,875 already.  Oil flying to $61.40, /RB back at $1.80 – can't short anything – markets just running wild. 

  24. There is actually a lot in the red today, so I cannot see the indexes staying up.  I'm short IWM.

    STWD -  I have shares and cannot find anything to do with them either.

  25. Phil

     ADD LABU ,  NVS, ABBV   to watch list please 

  26. Well I had to take a poke at /RB short at $1.7985.  I can see Iran affecting oil but not so much US gasolne, which we're exporting a ton of.

    LABU/QC – I do like to play them when they are down, which they are now not.


  27. 2nd time is more charming on the /YM shorts.  

  28. Ford, GM Sales Beat Estimates

  29. Phil – email on oil … thoughts?

  30. Phil,

    I just signed up yesterday so still sorting this all out. RE: the CMG LTP trade from yesterday…How did you determine the position size? I know we want 20 allocation blocks and we have 1M purchasing power on the LTP portfolio. So an allocation block is $50K. How much of a 50K allocation block does this position consume and how do you calculate that figure?


    On the site Phil says "never use market orders". Also, when creating new positions, he seems to routinely take the bid/ask midpoint for computations. I'm hoping someone can point me to a thinkorswim 'how to' video showing how best to incorporate those two principals (no market orders, bid/ask midpoint) when placing spreads like the LTP/CMG trade from yesterday. Questions I'm seeking insight about are:

    1) Do you just execute 3 single option trades and place a limit price on each? If so, what if some of the legs fill and others don't?
    2) Is it better to construct a custom spread within the TOS platform and if so, do I somehow set a single limit price for the aggregate trade?

  31. Phil, since many of us have IRAs with restrictive or no margin, is there any way you could either have an IRA portfolio, flag the recommendations that might be best in an IRA or point out ways to make your recommendations with an IRA-friendly option? More than half of my are in IRAs.

  32. /NG/phil, thanks.  yes i rode it all the way to 3.05.  i was actually hoping to short the near term contract around 3.20.  if it made it there.  i'm a little more reluctant here at 3, which looks like the middle of the range to me.

  33. PCLN – On a run.

    Up 90 points in the last two trading days.  Sweet.

  34. jelutuck/IRA port – Phil made one of those years ago, and it was pretty boring – but after running it a while he and indeed the rest of us concluded that the IRA prevents one from doing so much that the tax savings are insignificant, and we closed that portfolio with the advice to move money out of IRAs to an account where one could really do something. Just so many restrictions for outweigh any tax benefits.

  35. VRX breaking out. I like VRX TEVA GILD in a biotech/pharma portfolio of 3

  36. VRX… crying So long ago, in a galaxy far, far away…

  37. STWD / Phil – I agree, the options are frustrating. I wish they would have longer ones. Tough to cover and sell puts. But I still hold some shares and the dividend is nice so we'll see. I guess we need to be patient and sell puts or calls depending on the situation.

  38. Thanks, Snow.  Yeah, I hear you on that. I am moving money out but in limited amounts as I'd rather pay minimal taxes on the withdrawals if I can avoid it. Now I am just doing covered calls and selling puts with a deep OTM put cover to reduce margin.  It's working ok but I'd love to do better.  

  39. STWD  I hold them in an IRA and have been doing OK waiting until they get close to a strike price to maximize premium , then selling puts.  Not sure it is worth the effort vs. just collecting the dividend and they seem stuck around $21 – $22 and the options have no premium.

  40. BDC, Pharmboy…  VRX couldn't agree more… but I got lucky still holding on from mid-teens. 

    I still think VRX is good for new 2020 positions…. 

  41. Email/BDC – I'm about 2 weeks behind!  Just looked and will get back to you after I make a few calls.  It's actually called gravity, not density – that's a different thing.  The problem is, for example, all of Texas produces just 1Mbd of oil between 30-40 and most people aren't that picky so this would be a process to identify and test a specific amount in quantity and, from my past experience with Chinese buyers – no one is going to do any business with them without an iron-clad letter of credit (or cash) that can be drawn before it's put on a slow boat to China.  Chinese companies are notorious for late payments and chasing them down is a nightmare and these guys can already sell every drop they can produce for cash on demand.

    CMG/Dhall – Welcome!  It always starts with how many shares am I willing to risk owning.   In the case of CMG, 500 shares at $270 is already $135,000 and that would be painful, even in a $500,000 portfolio but I take into account how risky I think that level is (not too risky) and then I consider that the Jan (this month) $335 puts are $35 and the 2020 $270 puts we are selling are $35 so, in all likelihood, the 2022 $210 puts will be $35 and the 2024 $160 puts…  So, as long as CHK doesn't actually go bankrupt or drop more than 20% every couple of years, we're not likely to be in much danger on the short puts.  

    Once we decide how much "free" money we can get from a trade, we then pick a nice, realistic target and look for the best combination of calls that we don't pay a ridiculous amount of premium to buy vs short calls where we do collect a ridiculous amount of premium to sell.  

    Since CMG is currently at $304, the $280 calls are $24 in the money so we're paying $41 in premium for those but we're selling $68.50 worth of premium for a net of $27.50 in premium that will, for an absolute fact, be worthless in Jan of 2020.  That is the advantage we hold on this position ($27.50) and, since we are carrying a credit of $3,500 against 500 shares at $270, we don't begin to lose any money until CMG is below $264, about 15% below the current price and anything over $280 is a profit.  

    So, in a $500K portfolio with $1M in buying power, getting assigned CMG would constitute $135,000 or 2-3 $50,000 blocks but we don't, REALISTICALLY, believe that will happen so we'll count it as a single block and be prone to take action quickly if CMG does creep down near our put strike as we don't REALLY want to own the stock.  

    As to execution, when we do the Webinar next week, remind me to discuss/demonstrate.  Personally, I like to pick up each leg at the price I ask/offer, which is usually more aggressive than the ones I post.  If you are doing a 5/10/10 spread like that one, I'd offer to sell 2 puts for $33 and buy 4 calls for $62 and sell 4 calls for $53 and see which one fills first (as each has a $2 benefit) and then see what looks realistic for the other fills and adjust and then, when that set is done, I start again until I fill the set.  I'm a very patient guy though, I will wait weeks to get my prices.  If the stock gets to a new range before I fill – I either adjust or walk away.  If I can't get a good price on my legs – why should I bother?  You will pretty much never get a good price when you bid on a spread, you have to go for each leg – though you can always offer a low price and see if you get lucky. 

    IRA/Jet – Well, in a an IRA, stay away from short puts and naked short calls.  Otherwise, it would be the same trades.  Another good trick for an IRA is to execute the bull call spread in the IRA and sell the naked puts or naked calls in a regular account.  If you make money in the regular account – put it into your IRA.  If you lose money in the regular account – it's tax deductible!  

    And what Snow said.

    /NG/Lunar – I don't flip short on something I'm long on generally.  I prefer to play when I have conviction to stick with it.  There's also the idiot factor, which is – how much of an idiot would you feel like for stopping out at $3.05, shorting at $3.20 and then getting burned to $3.50?  That feeling is not worth risking to me!  

    PCLN/Albo – What an amazing company.  Crazy stock though.  

    STWD/StJ – The trick is to wait until it moves towards one of the strike prices and then do the sale.  Still, for the purposes of our portfolios and education – too tedious. 

    /TF slouching but /YM back to 24,841.  /NQ in space at 6,577, /ES 2,708.  /RB still hovering.  

  42. Any updates on Oil outlook? Still expecting a drop by April? seems little geopolitical events keep bumping it higher and higher.

  43. IRA and short puts.   If you are looking for a cheap way into a dividend stock, why is selling puts bad in an IRA (as long as you can cover the assignment)?

  44. dhal3000

    One good rule to follow here is don't get into a hurry to fill Phil's recommendations.  Sometimes it takes days or weeks to complete the positions, sometimes not at all, remember these are virtual portfolios. Ultimately, you should use your own judgement about what to trade. If Phil likes XYZ stock and you dont, then leave it alone.  In the long run you will be much happier.  Also, this is a teaching site, not a tell me what to trade site.  You should concentrate on the how as much as on the what.  Hope this helps.   Also, no politics or sports during market hours.   Welcome to our community. 

  45. IRA and short puts – One thing I have done in the past to sell higher strike puts is to buy a lower strike put to offset the cash required. For example, if I wanted to sell the Jan 2020 $70 put in C (~$8) I would also buy the $40 put (~$0.85). I would lose out on $0.85 but the cash I have to put up is only $30 per share instead of $70. Your mileage may vary…

  46. Phil / HMY

    Happy New Year Phil and PSW'rs.  Speaking of miners, is HMY still favorable or not?  I'm down about 25% but they sport a 3.6% dividend.  I'm looking to add if you feel they are worth the toss.


  47. Phil

    Would you trade UNG with a put spread?

     sell the march sell the 6 buy the 3 6/3 puts spread on UNG or?


  48. Oil/Crs – Hard to say now with this Iran thing.  Good excuse to jack up the prices and the closer we get to the Aramco IPO, the more motivated the Saudis will be to do anything to raise prices.  If they have to start a revolution – so what?

    Puts/Tangled – I agree, it's still a good way to enter a position but people don't like that the IRA takes the full margin, as if you own it already.  

    Put spread/Daveo – Good advice for IRAs on that one!  

    HMY/Jeddah – I like HMY but, at the moment, they are not in a good part of the cycle as their old mines are depleting and now they have to buy new mines after gold has popped 20% in the past year, so they are not likely to get good prices.  So, at the moment, I'm not loving them but $1.92 is still pretty cheap and they have great options to sell.  If you are down 25%, I'd give them until earnings to get back over $2.  Meanwhile, if you are buying the stock or own it, you can sell the 2019 $1.50 calls for 0.60 and the $2 puts for 0.55 and that drops your basis by $1.15 while you wait.

    UNG/QC – I'm not a fan of that ETF or put spreads, for that matter.  I think you are saying sell March $6 puts for 0.47 and buy the $3 puts for 0.01?  I can't even imagine why I would do that?  I know you hope to make 0.46 if UNG is over $6 but do you really think they'd fall to $3 (-50%) in 3 months?  I wouldn't even spend a penny on that bet.  

    On the other hand, you can sell UNG 2020 $6 puts for $1.20 and buy the Jan $5 ($1.40)/7 (0.55) bull call spread for 0.85 and that's a net 0.35 credit and potential $2 upside.   

  49. Good morning all, and my best wishes for this 2018 that looks more complicated and risky.

    Phil, Unilever and Nestle or Archer Daniels are companies with decent dividends, and call my attention that you never choose food companies in the watchlists. 

  50. Phil

    Thanks UNG

  51. Thinking about IRAs today, I wonder if anyone has tried to do an arbitrage-type play with one position in an IRA and an opposing position in a taxable account, with the highest probability that the IRA account wins and the taxable account loses. This would effectively transfer assets from the taxable account to the non-taxable. It seems like it would be fairly easy to set something like this up.  Something like buying a long strangle in the IRA and selling the same strangle in the taxable.  Would the IRS frown on this? Of course it could backfire and end up moving funds into the IRA if the stock moves a lot. Any thoughts?

  52. From Briefing Trader :

    ~~"Secondly, we are now past the small contango part of the curve that had survived into December. That means all the rolls in oil futures are now going to be backwardated (unless the curve flips dramatically) for quite some time. That means the USO ETF should now start to outperform oil futures around contract rolls. This will be the first time that's true in many years."

  53. Ummm, jelutuck? Phil just talked about that very technique: "IRA/Jet – Well, in a an IRA, stay away from short puts and naked short calls.  Otherwise, it would be the same trades.  Another good trick for an IRA is to execute the bull call spread in the IRA and sell the naked puts or naked calls in a regular account.  If you make money in the regular account – put it into your IRA.  If you lose money in the regular account – it's tax deductible!  "

    Or maybe I'm misunderstanding you.

    It left me feeling a bit silly because I didn't mention it, and it's the very technique I use.

  54. Could get interesting as Trump and Bannon are at war it seems! Grab the popcorn now…

  55. UL/Advill – Not companies we usually play but I'll take a look on the weekend (if you remind me!)

    IRA transfer/Jet – Very valid strategy like, for example, buying an AAPL 2019 $150 ($31.50)/$170 ($19.50) bull calls spread for $12 in the IRA with $8 (66%) upside at $170 and selling AAPL 2019 $200 calls for $8 and the $150 puts for $7.50 so you have a net $3.50 credit between the accounts but have a good chance on winning each set.   TOS says net margin for the short strangle is $710 per $1,550 collected – very reasonable and, of course, no margin at all required in the IRA to make 66% betting AAPL is not lower a year from now.  

    USO/Albo – I'll believe it when I see it.

  56. What is pounding the REITs today?

  57. Ripple Climbs Past $3, Hits All-New High

  58. Big Oil Investors Rethink Their Bets

  59. REITs/Tangled – The Fed minutes indicate at least 4 hikes this year.  People were leaning towards 3.

  60. FOMC minutes show rising concern with asset prices, yield curve

    • There aren't any huge surprises in the minutes from the FOMC's December meeting - at which rates were hiked by another 25 basis points.
    • The minutes do show the committee beginning to take notice of the flattening yield curve, though the current shape isn't yet too unusual by historical standards.
    • A "couple of participants" are wary of the combination of perky stock prices and non-existent volatility.
    • Still, the majority of participants remain in favor of continuing the slow pace of rate hikes. Fed Funds futures are pricing in a heavy chance of another Fed move at the March meeting.

    Retail Sales in Hong Kong See Highest Growth in Nearly 3 Years

    • Hong Kong retail sales rose 7.5% Y/Y to HK$38.7B ($4.95 B) in value terms or 6.9% Y/Y in volume terms on strong consumer demand and 7% rise in tourism.
    • "The near-term outlook for retail sales remains positive as the jobless rate is low, asset market continues to grow and as inbound tourism continues to recover.
    • Source:

    U.S. slaps final duties on Canadian lumber

    • The U.S. imposes final duties on Canadian softwood lumber, following failed talks to end the decades-long dispute between the two countries.
    • The U.S. Department of Commerce announces slightly lower initial duties for Canadian producers West Fraser Timber (OTCPK:WFTBF) and Canfor Corp. (OTC:CFPUFOTCPK:CFPZF), with combined anti-dumping and countervailing duties of 23.6% and 20.5% respectively, and maintains rates for Resolute Forest Products (NYSE:RFP).
    • Commerce Secretary Wilbur Ross says the U.S. is confident the WTO, which may eventually rule on the dispute, would take its side; the DoC accuses Canada of unfairly subsidizing and dumping softwood lumber, a charge Canada denies.

    FDA advancing plan to streamline generic drug reviews

    • The FDA released two documents today aimed at making the generic drug application and review process more efficient, the aim of its Drug Competition Action Plan.
    • The first, draft guidance for industry on good ANDA practices, addresses the common deficiencies that delay approval, many times due to missing non-study information. An ANDA goes through an average of four cycles before approval, which the guidance aims to reduce, saving time and money.
    • The second is guidance for FDA staffers which formalizes the generic review process and provides clarity and consistency to the function. One goal is to provide more detailed feedback to applicants on the specific actions needed to get a rejected ANDA approved aimed, again, at reducing the number of application cycles.
    • Commissioner Gottlieb is making things happen. The FDA took action on more applications in the last half of 2017 than any other six-month period in its history.

  61. t-dump & bannon – It's not what is written or said, it's watching what these two losers DO that is important.

    The rest is just gossip and bullsh*t….. :)

  62. Well, what they did is conspire with Russians to influence a US election…

  63. All I'm saying is to watch the ball and avoid the noise…..

  64. If Bannon says they'll get Don Jr, chances are good they will because he know what is going on…

  65. IRA/Phil  That looks pretty good, except for massive losses if AAPL crashes or jumps too far. I guess there is no free lunch :-(

  66. Understood, but there are many more like Dum Jr. to lead authorities to the truth….

  67. My attitude is that these things take a very long time to play out and the day-to-day nonsense isn't worth bothering with.  People have no patience for a proper investigation but every single thing has to be done by the book if the end result may end up with the President of the US going on trial.  

    IRA/Jet – Well yes, nothing is risk-free but, in a real crash, you can roll the short puts and replenish the IRA's loss with the short put and call money.  If you want to set up a money pump, that can be done but with much tighter spreads though then the fees tend to take a bit – money laundering does cost money, even when you do it yourself.  cool

  68. Sorry if I'm misunderstood, but I totally agree with you Phil – I just think bannon's book had a co-author, the POTUS himself!

  69. I'm curious what the donald is willing to do at the alter of ego, knowing he has a wad of 'Get out of Jail' cards in his golf bag….. 

  70. I love how Trump says crazy stuff and then Sanders has to hold a press conference trying to normalize it.  

    Markets love it though, Dow punching through 24,900, no way we don't test 25,000 now.  

  71. She has a tough job…. :)

  72. Your Donald J. Trump Fake Tweet - Yes, the world may end in a long and painful nuclear winter (for you – I have the BEST bunker) but the biggest, most beautiful tax cuts the world has ever known will live on in the memories of the mutated soil nutrients that are left behind. Crooked H probably has no bunker.

    Image result for trump nuke north korea tweet retweet

    Image result for trump nuke north korea tweet retweet

    Image result for trump nuke north korea tweet retweet

    Image result for trump nuke north korea tweet retweet

    Image result for trump nuke north korea tweet retweet

    Image result for trump nuke north korea tweet retweet

  73. TSLA down $8, only delivered 1,550 Model 3s of which 800 were "in transit" and they pushed their goal of 5,000 a week to Q 2 – so now we have to wait 6 months for them to miss that.

    Tesla Inc. TSLA, -1.48% said late Wednesday it delivered 29,870 vehicles in the fourth quarter, of which 1,550 were Model 3 sedans, 15,200 were Model S sedans, and 13,120 were Model X SUVs. More than 800 Model 3s were in transit, the company said. Analysts polled by FactSet had expected 30,000 vehicles delivered. Tesla said it made "major progress addressing Model 3 production bottlenecks," with production rate increasing "significantly" toward the end of the quarter. "In the last seven working days of the quarter, we made 793 Model 3's, and in the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3's per week," the company said in a statement. "As a result of the significant growth in our production rate, we made as many Model 3's since December 9th as we did in the more than four months of Model 3 production up to that point." Tesla said it expects "a slightly more gradual ramp through Q1," likely ending the quarter a weekly rate of about 2,500 Model 3 vehicles. The company plans to achieve the 5,000-a-week production target by the end of second quarter, rather than first quarter as the company had previously expected. Tesla said the fourth quarter was its best yet for combined Model S and Model X deliveries, representing a 27% increase over the fourth quarter of 2016 and a 9% increase over the third quarter, a previous best. The company said it delivered 101,312 Model S and Model X in 2017, a 33% increase over 2016. Shares fell 2% in late trading after ending the regular session down 1%.

  74. Phil watch list.  I like the following 

    Esrx.  Has moved up but still an 85 to 90 stock.  

    Qcom. Undervalued with a tgt 

    AAPL 190 to 200 with a buy at 150.  

    M on a pullback. 

  75. Phil I also think Europe is a good hunting ground.   I bought a basic index fund but am looking for some individual picks.  

  76. Trump dissolves voter fraud commission

  77. AT&T to launch 5G in U.S. by late 2018

  78. Top selling vehicles in the US in 2017

  79. Trump Administration Seeks Curbs on Student-Loan Forgiveness

  80. Good morning!  

    24,950 on /YM – so exciting!  /NQ 6,595 is a very tempting short but why not 6,600 or 7,000?  The numbers don't seem to mean anything anymore.  /ES 2,715, /TF 1,558.


    Stock-market investors should ‘brace for a possible near-term melt-up’: Jeremy Grantham

    Stocks in new year upswing sending positive signal, as Dow nears 25,000

    Tax cuts pushed Fed to raise economic forecast, meeting minutes show

    Eurozone’s fleeting boom is an illusion – Britain won't remain the sick man of Europe for long

    /RB way up at $1.7988 but I'm still in my 2 shorts into inventories (11am) as it's silly.

    Trump to Seek Biggest Offshore Drilling Increase in DecadesThe Trump administration is poised to open the door to selling new offshore drilling rights from the Atlantic Ocean to the Arctic Sea, igniting a fight with coastal residents worried about oil spills befouling beaches and jeopardizing tourism dollars. The proposal — set to be the most expansive such offering in decades — is a response to President Donald Trump’s April order encouraging the Interior Department to auction drilling rights in Atlantic waters that former President Barack Obama ultimately ruledout after a backlash from communities up and down the U.S. East Coast.

    Massive Winter Storm Threatens Snow, Flooding for New York

    California Bill Seeks Ban on Fossil-Fueled Vehicles by 2040


    • Crude -4.992mm (-5mm exp)
    • Cushing -2.11mm
    • Gasoline +1.87mm (+2mm exp)
    • Distillates +4.272mm (+500k exp) – biggest build since Jun 2017

    That net number on Petroleum is very bearish, but it has to compete with headlines like this:

    A crisis in Iran could send oil to $100

    Dollar dove back down today, that's holding things up.  /NKD at 23,575 is the go-to short if the indexes fail their lines and the Dollar stays weak.

    Of course we have a lot of strong global data to start the year and we could be in a virtuous cycle if wages are rising and minimum wages went up significantly in a lot of states:

    Workforce is 160M so 2.5% but, as it's only raising minimum wage and average worker earns $26.55, it's going to be maybe 0.5% bump to total wages but I think it's significant for MCD, WMT, NFLX – just have to think of what someone making $7/hr would do with the money if they start making $10/hr…

    The real benefit comes in when the other 160M workers start demanding better wages because their wages are now barely above the minimum wage.  That will take a while to roll through.

    China's Growth May Surprise Again This Year. (videoFrom the strength of global trade to the resilience of domestic consumption, reasons to think China’s economy won’t slow as much as expected this year are gathering. The consensus among economists is that expansion in the world’s second-largest economy will slip to 6.5 percent in 2018 from 6.8 percent last year, according to Bloomberg surveys. Yet as the latest data show that the official manufacturing gaugeremains robust, and offshore shares had their best start to a year since 2009, there are voices predicting a better performance than that. JPMorgan Chase & Co. economists on Wednesday raised their 2018 growth forecast to 6.7 percent from 6.5 percent, citing the "upbeat external outlook."? 

    Asia Stocks Set to Open Higher After U.S. Records. Futures contracts on equity indexes in Tokyo, Seoul and Sydney advanced after the U.S. S&P 500 Index jumped more than half a percent, as Japanese markets prepared for the first session of 2018. Most Fed policy makers reiterated support for “continuing a gradual approach to raising” the key rate, minutes of last month’s meeting showed. Yields on longer-term U.S. Treasuries showed little reaction, as indeed they did for most of 2017 to prospects for Fed tightening. The dollar rose for the first time in six days. Futures on the Nikkei 225 Stock Average indicated that the benchmark will open up by about 1.9 percent off of last month’s close. Those on Australia’s S&P/ASX 200 gained 0.5 percent. Contracts on South Korea’s Kospi Index rose 0.6 percent.

    Wow, this Joe on CNBC is the most sickening kind of Republican apologist.  They invite an expert to discuss the investigation and Joe calls his facts "opinions" and says the investigation is being done by biased people.  Now he's accusing assistant FBI Director McCabe of being Obama's deep-state agent…  This guy is sickening!  

    The funny thing (well, not too funny) is that the GOP is attacking the FBI based on Emails that showed some people there thought it would be terrible if Trump won the election.  But the reason the FBI people thought it would be terrible is that they considered Trump to be incompetent, dangerously unqualified and very likely working with the Russians to undermine the security of the United States of America – so they hoped Hillary would win the election and it would be a non-issue.  

    Merrill Lynch Bars Trading of Bitcoin Fund, FuturesFirm has already denied clients access to the bitcoin futures markets.  The ban applies to all accounts and precludes the firm’s roughly 17,000 advisers not only from pitching bitcoin-related investments but also from executing client requests to trade the Grayscale Investment Trust bitcoin fund.  “The decision to close GBTC to new purchases is driven by concerns pertaining to suitability and eligibility standards of this product,” according to an internal memo reviewed by The Wall Street Journal, referring to the Grayscale’s fund’s trading symbol. 

    Macy's(M) is about to close more stores

    Intel(INTC), Microsoft(MSFT) Deal With Widespread Computer-Chip WeaknessThe world’s biggest chipmakers and software companies, including Intel Corp. and Microsoft Corp., are coming to grips with a vulnerability that leaves vast numbers of computers and smartphones susceptible to hacking and performance slowdowns.

    Children Forced To Freeze, As Baltimore Schools Open With No Heat

  81. Phil / Adjustment – Rolling question on a BA position:

    30 Jan 2020 BCS  240 ($46) /  280 ($26.50) net $19, currently at about net ($83 – $57) = $26

    covered with 12, Sep 18 $300 short calls, sold for $20, now at $28.20 (I initially had sold lower strike March calls, but ended up closing out a few, and rolling up as BA kept moving up.

    Faced with the dilemma of finding hard how BA can justify a $310 price tag (and very conscious of your recent article on how ridiculous BA's valuation is), but its price performance is simply onwards and upwards. It simply does not pullback. 

    With earnings coming up, the dilemma is how to find safety from a big move up, but on the other hand loath to give up the protection of the short covers if the move is down.

    I'm conscious of the fact that I am further out in time than I would like, and doubling down with an earnings event coming up seems rather like a coin toss. 

    Would be interested in the views on adjustments.

  82. BA/Winston – I certainly don't recall calling BA's valuation ridiculous.  I love BA, I just wouldn't pay this price for them but I wouldn't bet against them.  

    Anyway, I understand your fear but, to some extent, those 12 short calls are locking in your gains – just in case BA drops another $40 next month.  What I would do with your $40 2020 spread is take the $240s (now $101, not $83) for $303,000 because – who doesn't love $303,000?  

    Then I'd spend $18,000 rolling the 30 short 2020 $280 calls at $76 ($228,000) to 50 2020 $350 calls at $43 ($215,000) and then you can buy 50 $320 calls for $54 ($270,000) so net you're taking $15,000 off the table and you still have a $150,000 spread covering the short calls.

    If BA goes lower, I'd then sell 10 June $320 calls, now $21 ($21,000) and, if you can manage to sell $20,000 a quarter for 6 quarters, that's $120,000 but every other time you sell $20,000, I'd put $25,000 (about half) into rolling the long calls $10 lower in strike. 

    For example, if BA drops below $320 and you sell the June calls, you already sold the May calls so you then spend $5 x $50 ($25,000) to roll down to the 2020 $310 calls at $59.  

    If you do that 3 times (every other Q), you'll end up with the $280/350 spread AND $45,000 in cash!  

    Of course if BA goes back to $360, you put stops on 1/3 of your short calls at a $5 loss and 1/3 at a $10 loss and 1/3 at a $15 loss so you lose, at most, about $10,000 in an up move but an up move puts you $50,000 in the money – so no worries, right?