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Whipsaw Wednesday – S&P 2,684 (again) Gives us Another Shorting Opportunity

Are we stuck in a loop?

This morning, despite President Trump moving the Doomsday Clock up another minute by unilaterally (which means without the agreement of ANYONE else who participated) withdrawing from the Iran Nuclear Treaty, which was put together after years of diplomacy with a dozen countries – including China.  Now the World has to decide who they are going to side with – Iran, who, despite Israel's claims to the contrary, have been adhering to the agreement or Trump, who's a friggin' lunatic.  

Unfortunately, the lunatic already has A LOT of nuclear weapons and he's already stated he's not afraid to use them, so people don't want to be on his bad side.  If anything, Trump's action justify Kim Jong Un's strategy of first building the weapons and THEN negotiating – as the non-nuclear Iran has become Trump's whipping boy while Trump is arranging to meet with Kim, a consideration he has not given to Iran.

Image result for trump iran nuclear cartoonFormer President Barack Obama, who rarely comments on his successor, issued a statement describing Trump's move as a "serious mistake" that could leave the US with a "losing choice between a nuclear-armed Iran or another war in the Middle East."

Some of the US' closest allies, the UK, France and Germany, issued a statement expressing "regret and concern" about the decision, emphasizing Iran's compliance with the deal and their "continuing commitment" to the Joint Commission Plan of Action, as the deal is formally known.  Iran's President, Hassan Rouhani, said he had ordered the country's atomic industry to be ready to restart industrial uranium enrichment, while the country's foreign minister said he would work with the pact's remaining partners — France, the UK, Germany, China and Russia — to see whether they could ensure "full benefits for Iran. Outcome will determine our response," Javad Zarif tweeted.

It is mission accomplised for Trump's Big Oil Donors as oil (/CL) is back over $70 and gasoline (/RB) is over $2.15 wholesale ($3 retail) – just in time for summer driving season, when prices tend to trend up into July.  The Iran sanctions won't actually change anything as Iran has hundreds of countries that will buy their oil so there will be no net change in supply but any excuse to jack up the prices paid by the American Consumers so the Top 1% who fund the campaigns can get much, MUCH richer is a good one, right?  

Image result for plunge protection team cartoonI don't think oil prices can go much higher without wrecking the economy so we're once again shorting the S&P Futures (/ES) at 2,684 (as noted in this morning's Live Member Chat Room) as well as the Russell at 1,597.50 because we think the entire move up in the Futures this morning of 0.5% is nothing more than a prop job by Trump's proxies (yes, they can do that) to make it look like the markets are happy about his decision.  If we're right and it's fake – it will unwind when regular trading resumes but, as long as we print a strong open – then Trump can say it wasn't because of what he did.  

Also, the Dollar has taken a dive, which is boosting the markets (you need more Dollars to buy the same stock) so there's two factors that can reverse very quickly – and we have a $25Bn 10-year note auction at 1pm that is expected to be so bad that the Fed's Bostic is scheduled right after it at 1:15 to help calm the markets down.

Unfortunately for the United States, the question foreign investors are asking themeselves these days is: "Are you willing to lend Donald Trump money for 10 years at 3%?"  Those of us who live in the Northeast know that's a TERRIBLE idea.  When Trump went to get a casino license for the Taj Mahal in Atlantic City, he had to convince regulators he could raise enough cash to complete the $1Bn project.  Testifying under oath, Trump said he could pull it off for one main reason: He was Donald Trump. Because of his reputation as a dealmaker, he said, bankers were lining up to lend him money at prime rates. That meant he could avoid the risky, high-interest loans known as junk bonds.  “I’m talking about banking institutions, not these junk bonds, which are ridiculous,” the now-President said.  

Image result for taj mahal bankruptcyAfter he got the approval, the prime-rate loans never materialized – not one Dollar's worth and Trump ended up borrowing $675M at 14% using – you guessed it – junk bonds.  Just 6 months later, the Taj Mahal defaulted on their payments and, in July of 1991, the company filed for bankruptcy.  

This is the guy who is now in charge of the financial future of this country!  

I'm terrified and not just because Trump is a terrible businessman and a serial liar – that we've known for quite some time.  It's the complacency of the markets that worries me, the fact that the VIX is still in the low teens and that the market is trading at record high multiples to earnings and earnings growth is clearly slowing down, DESPITE the massive boost given this year by the tax cuts that have, so far, not done anything positive at all for the broad economy.

In our last Short-Term Portfolio Review (April 19th) we bought back our short DXD July $10 calls for 0.18 and left ourselves with 100 long July $8 calls which we bougth for net 0.78 after adding in the 0.18.  Those are now 0.85 (up 10%) and we are glad to have them as additional protection as they'll make another $11,500 at our goal of $10 if we do have a pullback (now $8.61) and we also have a bull call spread on SQQQ but I think, not that earnings are mostly in, it's time to add another major hedge on the S&P using the Ultra-Short ETF (SDS) or the Russell, using their Ultra-Short ETF (TZA) – we'll look at those this morning in Member Chat.

We can certainly afford the hedges as our Long-Term Portfolio has popped $21,000 (4.2%) since our 4/20 Review of that portfolio.  At 19.3% I will say the same thing I said last time we were up almost 20% with just 1/3 of the year gone and that's that is would be a good idea to cash it in and go on vacation (sell in May?) as this was our goal for the YEAR and it's not likely to continue at this pace, which means a pullback is inevitable (see my notes in yesterday's PSW Report). 

I said the same thing in March and by late that month we had dropped back to about 12% and now we're back over 19% so you can continue to ride the snake or you can cash out and take some time off and enjoy yourself and just check the news once a week and, when the market is down 10%, then it's time to come home and we can start buying again.  If the market doesn't go down, whenever you decide to come back I am certain we'll find PLENTY of things to trade (see Monday's Top Trade Review, for example).  

That's my trading advice for the moment – DON'T!  I have to be here – it's my job, but you don't and you can go and enjoy yourself, spend time with the family, do something you always wanted to do.  It's not necessary to always play the market, just like a casino game – it will always be there waiting for you whenever you feel like playing.  

I don't like playing when I feel like I need more hedges to protect gains just because I can't take gains off the table.  Our Hedge Fund is over 90% in CASH!! and my children's college accounts are in CASH!!! and I don't expect that to change much until either we see reasonable July earnings or we get a nice, 10% correction.  Until then, we can amuse ourselves with things that come up (like today's easy index shorts or yesterday's AAPL long) but I'm not going to force trades in a choppy market.

 


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  1. Good morning, All! 

    Join us for our LIVE webinar, at 1pm (Eastern):

    https://attendee.gotowebinar.com/register/8787100507226928385



  2. Trump killed the Iran deal because it was the worst deal ever… I think that this one is a good example of how good Trump is at making deals:

    https://www.motherjones.com/kevin-drum/2018/05/a-quick-reminder-that-donald-trump-is-the-worlds-worst-dealmaker/

    Just as a reminder of what a terrible dealmaker Donald Trump is, a Saudi Prince bought the Plaza Hotel in New York today in a deal that values the hotel at $600 million. In 1988, Trump bought the hotel and then renovated it at a cost of $950 million in current dollars.

    Even after 30 years and over a decade of escalating prices for New York real estate, the Plaza still isn’t even close to being worth what Trump paid for it. He could have waited a century and not made money on it. This is the guy who will be negotiating North Korea’s nuclear program with Kim Jong Un.

    In the meantime, Cohen gets $500K from a Russian back business for insight on real estate! And AT&T pays him $200K for insight on the Trump administration. That Cohen guy is one heck of a lawyer! Most corrupt administration evah!


  3. More thoughts on luck with some good examples on money:

    https://ofdollarsanddata.com/why-winners-keep-winning-4e7f221f5b84

    Think about the story you tell yourself about yourself. In all the lives you could be living, in all of the worlds you could simulate, how much did luck play a role in this one? Have you gotten more than your fair share? Have you had to deal with more struggles than most? I ask you this question because accepting luck as a primary determinant in your life is one of the most freeing ways to view the world. Why? Because when you realize the magnitude of happenstance and serendipity in your life, you can stop judging yourself on your outcomes and start focusing on your efforts. It’s the only thing you can control.


  4. Frontier Comm Cut to Sell From Neutral by Citigroup

     

     

     


  5. Phil, Wow – Mad Cramer pounding the table on GE…..must want his buddies to bail out…Schmuk!


  6. Good Morning.


  7. CTL vs FTR   (12 or 22)

    I'm still alive.


  8. Phil//  I bought HMNY stock at $2.25.  I was waiting for the stock to move up before wanting to sell some calls.  Looking at their recent cash flow situation of the company and their chances of survival, I"d like hear option about the company and also what are my options.

    Thanks.


  9. AAXN    stock of the century


  10. rookie--looks like we will need a miracle for hmny ;-(


  11. Good morning! 

    As expected, futures gains are fading now that real trading started, congrats to all who played along on that one!  

    FTR/Jabob – I agree, that's why we sold the $8 calls.  That one is over, time to watch something else. 

    GE/Jasu – I've been pounding the table on GE all year! 

    FTR/Albo – See above, our actual target was $8 on our LTP and OOP trades and we already passed $10 ($11.64 was the high).

    HMNY/Rookie – Too greedy.  Well, it's $1.20 now so, if you are going to stick with it, you should DD but then we want to compare a straight DD, which averages you in at $1.75ish, where you can sell $1 calls for 0.55 and $1.50 puts for $1 to net 0.20/0.60 on 4x, which is about the same as you have 1x for now or, over $1.50, you get called away at $1 for an 0.80 profit.  So, worst case is dropping your net to 0.60 but on 4x as many shares and the best case is making 0.80 on 2x, which is pretty good.  

    If you want to reduce the commitment, you can kill the stock at $1.20 so now net -$1.05 and then you can sell the $2 puts for $1.40 (+0.35) and buy the $1 calls for 0.55 so now you have the $1 calls for net 0.20 and if HMNY is over $2, you make $1.80 but, under $1, you are back in at net $2.20 – right where you are.  The difference is we're lowering your break-even to about $1.10 and giving you a profit potential at $2 instead of an 0.25 loss if the stock doubles.  

    Make that $1.15 on HMNY now, down another 20% already.  

    $1.10!  

    AAXN/Stock – IRBT was the Stock of the Century but they split the company, unfortunately and boy have they pulled back:

    TASR/AAXN was our Stock of the Decade as we said we were most sure it would be a 10-bagger by 2020 (from our $5 entry).  I guess we're 2 years early…

    Miracle/Jabob – AAXN had a rough ride too but rewarded the faithful (he said to the apostate):

    Submitted on 2008/08/15 at 10:45 am

    TASR – It’s my stock of the decade, I hope I didn’t say stock of the year but maybe I did as I really love them…  My overriding belief on TASR is that guns will, over time, be replaced by tasers, at least for police as it can be argued that guns constitute cruel and unusual punishment when a non-lethal alternative is present.   They are not there yet, they need to advance the tasers a few levels but there is no real competition so I don’t see it as an if thing but a when.

    Submitted on 2009/07/22 at 11:06 am

    TASR/Pstas – Quick story is:  Imagine watching Star Trek and they all whip out their phasers and stun the bad guys except this one officer who pulls out a Barretta and blows a guys brains out.  In our world, he’d get his ass sued off right?  What’s kept TASR down this decade has been lawsuits that using a Taser was dangerous.  I predict that in the next few years, we will start to see lawsuits filed against police departments for using guns and NOT using a Taser.  20 years from now, the idea of shooting people with bullets will seem barbaric…

    Submitted on 2010/02/22 at 12:30 pm

    TASR – Meanwhile, I like any play that involves selling the Jan $7.50s for $1.50 (20%) like the above $7.50/10 bull call spread, selling the $5 puts for .50, which is net .30 on the $2.50 spread and your worst case to the downside is you are in my stock of the decade for net $5.30.  You can also save a little margin by selling 1/2 the $7.50 puts for $1.50 instead against the spread.  Also, nothing wrong with the buy/write with TASR at $7.50, selling the Jan $7.50 puts and calls for $3 for a $4.50/6 entry or you can be more conservative and sell the $7.50 calls and $5 puts for $2 for a $5.50/5.25 net entry, which still has a 36% upside if TASR holds $7.50.

    Submitted on 2010/04/23 at 3:59 pm

    TASR/BGB – Taser is my stock of the decade (this one).   I love them long term and am always happy to buy on dips so they will be on the new Buy List. 

    Submitted on 2010/04/23 at 3:59 pm

    TASR/BGB – Taser is my stock of the decade (this one).   I love them long term and am always happy to buy on dips so they will be on the new Buy List. 

    Submitted on 2010/05/17 at 1:01 pm

    TASR/Cwan – They are my stock of the decade but maybe not my top 10 for now as there is no indication that their outlook will improve very much this year.   I still love them and we picked them last week but they could lay down here for a long time as they face municipal-level budget issues while SPWRA can be fixed by a stimulus bill.  Of course, SPWRA doesn’t have something as awesome as the Shockwave(see intro and then use at 1:30,  which uses up a ton of expensive cartirdges)! 

    Well, patience pays off, doesn't it?

    Oil is down 2.2Mb, Gasoline down 2.2Mb and Distillates down 3.8Mb so a nice, bullish report – we'll see how high they can take it.  


  12. New poster for HMNY:

    Image result for 50 cent rapper



  13. DXD/Phil- hi Phil, on 1st May, I did highlighted I wasn’t able to close the $10 short calls for $0.18 and you replied the spread remains in the STP as the price never got down to $0.18. Today you said you closed it, I’m new to the club and maybe I’m not catching the style you work with. So why today you mention you already closed the $10 short calls? I got confuse just like yesterday with the HMNY positions.


  14. ~~ SHLD – Sears Holdings is working with Amazon.com to provide full-service tire installation and balancing for customers who purchase any brand of tires on Amazon.com.

    Do you guess Bezos thinks SHLD is going to be around for awhile ?  


  15. GNC – New low.  Now a dumpster dive

    Sold some Jan 19 2.5 puts for .58.


  16. AAPL/Phil,

    Question on yesterday;s trade,

    "

    Sell 10 AAPL 2020 $160 puts for $10.25 ($10,250)

    Buy 20 AAPL 2020 $165 calls for $34.50 ($69,000) 

    Sell 20 AAPL 2020 $195 calls for $19.10 ($38,200) 

    Sell 5 AAPL July $190 calls for $4.70 ($2,350) 

    "

    The 5 July $190 calls are uncovered. Right?

    Also,any particular reason you chose Jan 2020 over Jun 2020 expiration? Thanks.


  17. /CL and /Rb not really rallying off that report. 


  18. OPK finally catching a bid.  I think this one is real now, so let's give it a try in the LTP:

    • Sell 10 OPK 2020 $5 puts for $2 ($2,000) 
    • Buy 30 OPK 2020 $3 calls for $1.70 ($5,100)
    • Sell 30 OPK 2020 $7 calls for 0.70 ($2,100) 

    That's net $1,000 on the $12,000 spread so $11,000 upside potential if they can get back to their highs and worst case is we own $500 worth of the stock for net $1,500 – I can live with that risk…

     DXD/Dave – They filled on the 7th and are still 0.20 right now and what I said was:

    DXD/Dave – The July $10 calls?  They never did come back to $18 so the spread still stands in the STP as a $8/10 spread – I wasn't going to chase it but I would have taken 0.20, as that's not a huge difference but 0.22 is a bit much.  The reality is DXD is $9 so has to go up more than 10% which means the Dow would have to drop 5% (1,200 points) and AAPL would have to drop $150 to drag the Dow that low by itself so I'm not too worried that AAPL will drop 20% and blow up my hedges, right?

    I'm sorry things changed over the course of a week in the markets but it does happen sometimes.  As to HMNY, I sometimes mean to make a trade and it doesn't go off or sometimes I forget to enter it completely and, if you remind me, like you did yesterday, then I try to fix it.  

    SHLD/Albo – What's going to last longer, your tires or Sears?

    GNC/Albo – VSI disappointed so they are down with them.   They are voting on the Australia deal next week but the adjuournment sent panic signals to the algos as well.

    GNC Announces Adjournment Of Special Meeting Of Stockholders Until 10:00 AM Eastern Time On May 17, 2018

    AAPL/Ayyaps – Well, they are covered by the $70,000 you'll have from the bull call spread going in the money and no, I simply am not in the habit of looking at June yet, so I didn't.

    /RB/Jeff – So tempting to short but just two weeks from the holiday weekend is very scary.  

    /SI with a super-pop (again!) 


  19. Phil, 

    Is there any entry for AAXN you would consider reasonable at this price?  Thx


  20. 2680 is the bounce line on S&P…bullish if goes and stays over 

    Meanwhile, T looks like it’s going out of business??


  21. OPK/Phil – I've been riding this one down and down for years due to a Pharmboy reco, I believe he recently gave up and called it a 'house of pain' here, so be watchful.


  22. AAXN/Sun – Nope, can't do it at this level.  

    Popped through 2,684 on that run, we'll see if it holds.  Market ran up with oil after inventories so this rally is pretty much a one-sector wonder.  

    OPK/MrM – I saw they are moving forward with some studies and earnings showed expenses getting under control so I think worth a toss down here.  Before I never liked them but now they seem worth gambling on.



  23. AAPL/Ayyaps Phil answered your question somewhat, but looking deeper at you question,

    I feel you do not understand the meaning of tree planting. Less the meaning of a cherry call.

    It is my humbled suggestion you should study these plays first, before using real money.


  24. This is the growth millstone. Balance sheets awash in debt. Negative shareholder's equity now common. It just doesn't matter. 

    Corporate America Is Staring Down a $4 Trillion Wall of Refinancing


  25. HMNY/Phil- I understand we jump in this stock too early. while I agree to DD on the long calls but I was wondering what if we just hold on to the short $5 puts? they expire in 2020, all we need is the stock to recover to above $5…. will you think not DD to roll the $5 puts to $2.5 puts is risky? I was thinking to not risk more $ and just let it remain as $5 put and see how HMNY play out. technically if by 2020 the stock is still below $5, we kind of really did not get this company "Right"?


  26. Well, we made $200 on 2 contracts (/CL and /YM) in the Webinar and I left /RTY short at 1,599.30 to see if we can get $150 from it around 1,596.  If I traded my usual 10-contract lots, it would have been a nice day!  I did already have $500 from /RTY earlier though.

    As far as adding to our hedges – nothing drastic but let's spend a little to add protection:

    In the STP:

    Buy 50 TZA July $10 calls for 0.83 ($4,150).  Our target is $13 so returns $15,000 on 10% market drop (+$11,000) 

    • We have 100 naked DXD calls at $8 and 20% more is $9.60 so $16,000 payoff there is + $9,000
    • The short May SQQQ $20 calls will expire worthless and leave us with 80 Sept $15s (at the money) covered with 40 Sept $20s and +30% is $19.50 is $4.50 x 80 = $36,000 (+$23,000)

    So the STP has $43,000 of protection against a 10% pullback (plus $80,000 in cash profits) protecting our now $600,000 LTP – really still light but we're over the weak bounce in the S&P so I don't want to spend more on a hedge.  

    In the OOP:

    • Let's buy back 10 (of 30) of the SQQQ short Sept $20 calls @ $1.15 ($1,150).  With the same $19.50 target, 40 SQQQ Sept $15s would be $18,000 (up $10,000) 
    • Let's buy back the 25 short TZA July $12 calls at 0.35 ($875) leaving us with 50 long Jan $10s half-covered.  At $13 they hit $15,000 (+$9,000).

    So $19,000 of hedges against our $100,000 portfolio seems adequate for now.  

    Debt/Pstas – Yet another thing this market is completely ignoring.  +1% is $40Bn taken from profits.

    HMNY/Dave – You certainly can do that but if the roll is about 2x to the $2.50 then there's no change in our net obligation and it's a much easier hurdle to cross.  It's perfectly valid not to bother though.


  27. Wasn't able to watch the webinar today, did you go into much depth on HMNY?

    I recall before you put on the original position you were somewhat expecting more pain / the need to raise cash or dilute.

    Was the recent news that has sent them lower in line with what you were expecting? Are you still bullish on them or has your outlook changed much with the new info? 

    They've taken a real beating the last couple days, but if we still like them, selling some puts and buying some calls seems like an attractive option…

    If you covered in depth in the webinar just let me know and I'll try to catch the replay.

    Thanks!


  28. HMNY/Crs – I still think they'll pull it out but it remains to be seen how diluted we get.  I did talk about the pros and cons of the situation in-depth.  I think people are panicking out over HMNY doing exactly what they said they were going to do when the stock shot up to $38.  TSLA also was going to go BK early on, CZR goes BK every other year…. 


  29. CTSH 

    Qualcomm board approves $10B repurchase program

    Qualcomm’s (NASDAQ:QCOMboard approves a new $10B stock repurchase program, effective immediately.

    The program replaces the $15B program announced in March 2015, which had $1.2B left. 

    Qualcomm shares are up 2.7% aftermarket to $54.60.  


  30. Anyone, I am considering KHC for my portfolio, does anyone have any thoughts about the stock or the spread.  It is my first attempt at putting together a spread, feedback appreciated.  TIY

    KHC 2020 55/65 BCS, what you think?  Cost is $380, or can sell a 2020 $50 put for net $0. 

      


  31. Good morning! 

    /KCU8 testing $121 – very nice time to get some coffee! 

    Indexes pulling back a bit.  

    2,700 is a good shorting line on /ES with tight stops above.  

    /RTY 1,600 we're already short from the Webinar.

    DAX failing at 13,000 – that's key if we're going to go higher.

    QCOM laying off workers and buying back $10Bn worth of their own stock – there's your Trump Tax Plan in action!  

    Oil topped out at $71.89, now $71.50 with /BZ at $77.33 so below $77.50 on /BZ I like /CL short below $71.50 with tight stops above.  /RB also a good short below $2.17 – just above it now. 

    /NGV8 is $2.75, also a nice long.

    KCH/Grass – Last year they had a $5.5Bn tax credit.  Normally they would have PAID $1.5Bn so subtract $7Bn from $11Bn and call it $4Bn in earnings, not $11Bn that's showing.  So, for a $71Bn boring company – they are priced about right (a little high in a normal market).   

    I would just be a bit more conservative with the target.  The 2020 $45 ($15)/$60 ($6) bull call spread is $9 and I'd rather be aggressive with the spread and sell the $60 for $8 as you can always roll to lower 2022s and, if you like KHC as a true long-term hold, then the May $60s are $2.20 and the 2020 $45s are $2.30 so figure you can pick up $10 (20%) every two years you roll easily.  Meanwhile, you're into a $15 spread that's pretty much in the money for net $1 and that means you can also sell 1/4-1/3 covers once it recovers a bit or, if it doesn't, once it looks stable. 


  32. By the way, KHC is a little strange because they have a very small float (600M) compared to the number of shares outstanding (1.2Bn).  Shares Outstanding represent all the issued stock while the float is the amount of shares available for trading.  Shares that have been given or sold to owners of the company, members of the board of directors, or family members of company executives or board members are excluded from the float number and, of the float, Berkshire owns 325M shares (1/2) so if Buffett ever says he's reducing or getting out of KHC – head for the hills!  


  33. And that's a $7.5Bn hit Berkshire is taking on the drop from $80 to $55!