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$2,000 Tuesday – Netflix Earnings Give Us a Big Win on Nasdaq Shorts

Wheeeee!

That's the way to play earnings!  In yesterday's Morning Report we called for shorting the Nasdaq (/NQ) Futures at the 7,400 line in hopes that Netflix (NFLX) would disappoint and take down the index and that's exactly what happened.  Nasdaq Futures contracts pay $20 per point so the 100-point drop paid $2,000 for each short contract – not bad for a day's work and, of course, our other index contracts were also winners:

  • S&P (/ES) short at 2,800 fell to 2,792 is just 8 points at $50 per point for gains of $400 per contract.
  • Dow (/YM) short at 25,000 fell to 24,960 and 40 points at $5 per contract gained $200 per contract
  • Russell (/RTY) short at 1,690 fell to 1,675 and 15 points at $50 per point was a gain of $750 per contract.  

And, of course, our Netflix (NFLX) short play will be doing very well this morning as that stock dropped $50 (12.5%) on disappointing subscriber growth and we could see that coming a mile away as no stock is likely to justify 250x earnings – even in the best conditions and we simply didn't see the current economic conditions (rising oil prices, economic slowdown, political turmoil) as a good recipe for continued super-bullishness on NFLX. 

There is, however, still time to initiate our bullish earnings trade on Sketchers (SKX) as detailed in yesterday's Report.  That stock finished right at $31.07, down 0.22 for the day despite our bullish pick – but what do we know?  Speaking of what we know, my comments were featured in Investing.com's weekly commodity outlook and that led to yet another $2,000 per contract day's gain on Oil (/CL) Futures shorts at the $70 line – which is a follow-through from our $5,000 per contract gain from our original call to short oil at $75 on July 3rd (nailed it!).

Though we have a longer-term target of $65, we're now using our Ultra-Short Oil ETF (SCO) play to cover that, not the Futures.  Our goal in the futures, as noted in our July 3rd report, was $68.50 on this run and, as promised, the profits from this trade exceeded $7,500 per contract.  As I said two weeks ago this morning:

It's too scary to short Gasline Futures (/RB) but we do like shorting Oil Futures (/CL) as they test the $75 line (with tight stops above) and we're also using the Ultra-Short ETF (SCO) to short oil with Sept $15 calls we bought for the Options Opportunity Portfolio for net $2.10 (we bought back short Sept $18s we had sold as a spread) and now they are $1.65 so we're going to take the OPPORTUNITY to roll them down to the Sept $13 calls at $2.75 to put us $2.30 in the money for $1.10 more money.  If all goes well and oil moves back below $68.50, this Ultra-ETF should pop 20% to $18+ and we'll collect $5 back on our net $3.75 entries.

Keep in mind we're using tight stops on our Oil (/CL) shorts over $75 so a $200 loss on an 0.20 move against us is our maximum risk while a drop down to $68.50 would be a $7,500 win so I very much like the risk/reward profile of shorting oil.  Unfortunately, there's a lot of cross-talk between OPEC, Iran, Libya, Russia, et al and the prices have been fluctuating wildly but the overall premise is that demand simply isn't there to support this kind of pricing.

In my interview for the Weekly Commodity Report, I also mentioned our long position on Coffee (/KC) using next July's /KCN9 contracts at $121, which corresponds to $110 on the current September contracts (/KCU8) and they are down again this morning at $109.50, so a great chance to get some cheap coffee but be careful as those contracts make OR LOSE $375 for each $1 move in the underlying commodity.  Our goal from the $121 line is to get back to $140, which would be a gain of $7,125 per contract – so well worth taking a chance at this low level for the reasons I gave in the interview.  

Image result for watergate stock market chartMeanwhile, whether you think Trump talked truth or treason at his meeting with Putin yesterday (I called it before it happened yesterday morning), he certainly caused turmoil and our index Futures seem fairly oblivious to the mounting danger of a President under indictment but those of us who remember Watergate also remember the stock market diving 40% between the start of the Senate Investigation and the Impeachment which, I will remind you, took well over a year and the investigation only began a full year after the actual break-in was discovered and arrests had been made – we haven't even arrested that many people in Trump's inner circle – yet.  At the moment, we're about at the "Trial begins of Watergate Burglers" stage of the ride.

You can be the biggest Trump fan in the World but that doesn't mean you need to let your portfolio go down with the ship.  Make sure you have the flexibility of CASH and good hedges in your portfolio if you must keep your longs but be warned that this is option expiration week and we will be purging many of our winning positions and moving back to 60-70% CASH!!! in all of our portfolios and our Hedge Fund is still over 80% CASH!!! into Q2 earnings season as we're simply not willing to risk a lot of exposure in this overbought and politically uncertain environment.  My kids' college accounts are 100% CASH!!! because they can't be hedged well (all ETFs).

We are miles away from failing any serious technical levels but the NYSE has kept flashing the warning sign by failing our Must Hold line at 12,800 and the Russell is only about 22 points away from testing the 15% line, which is also now the 200-day moving average at 1,656 - so very nasty if that fails.

Industrial Production came in in-line today at 0.6% but last month (May) was revised down from -0.1% to -0.5%, which is TERRIBLE but, fortuntely, they lied about it last month and revealed it later and, even though that means that +0.6% means IP only gained net 0.1% in May and June combined – that concept is far too complicated for the media to explain or for most traders to understand so virtually no mention of it will be made and idiots will continue to pay record-high multiples for companies as if this is a booming economy and not a house of cards based on Debt, Tax Breaks and Corporate Buybacks.

I will be on CNBC in Japan this afternoon (4pm, EST) discussing Netflix, the other FANG stocks as well as tech in general.

 


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  1. Might not need new lines on the Nasdaq after all!


  2. Mild rebukes for Trump's treasonous remarks from the same GOP people who were ready to impeach Obama for not embracing America's exceptionalism! Fully complicit now…


  3. That's a lot of shopping:

    https://techcrunch.com/2018/07/13/amazons-share-of-the-us-e-commerce-market-is-now-49-or-5-of-all-retail-spend/

    Amazon is set to clear $258.22 billion in US retail sales in 2018, according to eMarketer’s figures, which will work out to 49.1 percent of all online retail spend in the country, and 5 percent of all retail sales.

    Not a bookstore anymore!


  4. There are some cool people in the world:

    https://www.buzzfeed.com/mjkiebus/really-good-dudes

    Not everybody is greedy and selfish…


  5. Phil is it not better to close that NFLX now while every one is jumping overboard or do you think to hold to the end as there will be bottom fishers again?


  6. Good Morning.


  7. Phil/DIS 

    Disney is taking off.  I have July 105 calls and July 100 puts sold in addition to a longer leap BCS.  Where would you look to roll the short calls and puts?  Thx.


  8. Same with ADS should have sold that put yesterday!!!!


  9. Good morning!

    Took the money and ran on /YM at 24,975 as the other indexes aren't confirming the drop.


  10. My guess is that NFLX will be back to $400 before the next earnings! People never learn…


  11. STJ same as TSLA


  12. hope it doesn't get there today stjean!!!


  13. you can always take profits here jabo!


  14. nobody has ever gone broke taking profits…


  15. From NFLX press release –

    We continue to anticipate FCF of -$3 to -$4 billion for the full year 2018, which implies that our content cash spending will be weighted to the second half of 2018.

     

    While interest rates have risen and the federal tax rate is now lower (reducing the tax shield on interest costs), we judge that our after-tax cost of debt continues to be lower than our cost of equity, so we anticipate that we’ll continue to finance our capital needs in the high yield market.


  16. Big Chart – As noted above, we're still waiting for the NYSE to give us a clear signal and it's down 12 points this morning.

    Complicit/StJ – Witness the advantage of a low-educated population that's unable to keep track of actual events.  This is why the GOP defunds education every chance you get – much easier to rob people when they can name more Kardashians than they can EU Members…

    Nice list StJ and don't forget Buffett – who just gave another $3.4Bn to charity this week.

    NFLX/Yodi – Yes, it's pretty much done so why wait?  We can make a dozen more earnings plays with the cash rather than wait a month for the last 10%.

    DIS/DC – In our Butterfly Portfolio we have 5 short July $105 calls we sold for $2.90 and they are now $7 but we have 15 2020 $100/120 bull call spreads and 15 short July $100 puts we sold for $1.60 and 5 short 2020 $90 puts we sold for $6.10 so really, at this point, the $2,000 loss on the short calls are simply a hedge on our massive gains.  

    DIS is at the top of the channel and it may be back at the bottom of the channel later so I'm not looking to do anything drastic and the July $105s ($7) can be rolled to the Sept $110s ($5) for $2 of the $3 we sold them for so we'd be short the Sept $110s at net $1 with DIS at $112 and we haven't even had to DD yet.  No big deal at all.

    Powell is testifying – by the way.  


  17. Oil failing $67.50 as the Dollar perks up:

    Obviously, /RB was a good bounce play off $2! 

    /NG getting interesting too.

    Ouch on gold!  I just added 2 more so now 8 /YG long at $1,241.24 but eager to get back to 4 when it bounces.  

    Because I have a lot of gold, I'm not playing /SI yet, but I do like it at $15.60 with a stop below $15.50.

    /HG $2.75 is still our long entry but tight stops below that line.


  18. ADS sold Sept. 200 put for 3.65!!!


  19. Yodi, thank you for the trade ideas yesterday!


  20. Mike you welcome.

    AMGN is losing feathers!! earning 7/26 possible has reached it's high


  21. NYCB deserves another look for an armchair trade. Oct strangle 11/12 pays .60 and buy the stock, combined return 2.2% per month. The stock is at the lower side of the channel.


  22. Powell coming across bullish – glad we took the quick money on /YM (and NFLX).

    • In prepared remarks for his semiannual Monetary Policy Report to Congress, Fed Chairman Jay Powell is mostly upbeat, noting continuing strengthening in the job market and inflation.
    • The already low unemployment rate is expected to fall further, he says, and wage growth is picking up (though not at the pace of the pre-crisis years).
    • The FOMC, he says, believes the best way forward is to continue to keep gradually hiking rates.
    • Currently, lawmakers are making opening statements. Q&A is to begin soon.
    • Despite months of negative trade headlines, the IMF expects the global economy to grow 3.9% this year and next.
    • That's unchanged from its April forecasts, and would represent the best back-to-back years of growth since 2010 and 2011 when the world enjoyed a fleeting snapback from the financial crisis.
    • The fund is still cautious on the road ahead, stating the "risks to the outlook are mounting."
    • The IEA is sounding the alarm over a "worrying" pause in the shift to clean energy after global investment in renewables fell 7% to $298B last year.
    • Electricity generation still attracted more capital than oil and natural gas for the second year in a row, taking in $750B thanks to robust spending on grids, compared to the $715 that flowed into the latter category.
    • The U.S. has filed separate claims with the World Trade Organization against China, the EU, Canada, Mexico and Turkey after the countries lodged complaints over the Trump administration's steel and aluminum tariffs.
    • President Trump has repeatedly raised the prospects of withdrawing from the WTO, although this month he said that no withdrawal was planned for now.
    • Amid the trade tensions, Chinese mainland stocks are down almost 30% since their peak in January.

    • Stocks edge lower at the open, with Netflix's weaker than expected Q2 subscriber numbers weighing on the tech sector; S&P and Dow both -0.2% while Nasdaq -0.3%.
    • European markets are mixed, with U.K.'s FTSE +0.1% while Germany's DAX flat and France's CAC -0.3%; in Asia, Japan's Nikkei ended +0.4% but China's Shanghai Composite closed -0.6%.
    • In earnings news, Netflix -11.8% and leading FAANG names lower after its Q2 subscriber growth fell well short of estimates, and Goldman Sachs -1.3% after Q2 revenue slipped below analyst expectations.
    • The consumer discretionary (-0.8%), energy (-0.7%) and information technology (-0.5%) groups are struggling in the early going.
    • Fed Chair Jerome Powell will testify before the Senate Banking Committee at 10 a.m. ET to offer a semi-annual update on the economy and monetary policy.
    • U.S. Treasury prices are flat to slightly higher, with the benchmark 10-year yield off a basis point at 2.85%.
    • U.S. WTI crude futures -1.1% at $67.27/bbl following yesterday's shellacking, its second in the past four sessions.
    • Still ahead: NAHB housing market index
    • Johnson Redbook Chain Store Sales:+3.3% Y/Y vs. +5.2% last week.
    • July sales were up 3.3% through July 14

    • Canadian manufacturing sales rose by 1.4% M/M in May, beats estimates of 0.5% as chemical and machinery sales increased 6.2% and 8.9% respectively.
    • Sales rose in 14 out of 21 industries, representing 64% of total manufacturing sales and increased by 0.9%.
    • The petroleum and coal product industry reports decline of 1.8% M/M as it continues to grapple with shutdowns at several oil refineries for maintenance and retooling.

    More on Goldman Sachs Q2: Institutional, investing & lending revenue fall vs Q1

    • Goldman Sachs (NYSE:GS): Q2 EPS of $5.98 beats by $1.32.
    • Revenue of $9.4B (+19.1% Y/Y) beats by $660M.
    • Shares +1.1% PM.
    • Goldman Sachs (NYSE:GSfalls 0.9% in premarket trading as revenue from institutional client services, and investing & lending fell from Q1.
    • Investment banking net revenue $2.05B, its third highest quarter, up 14% from Q1, and 18% higher than a year ago; reflects strong net revenue in financial advisory and underwriting.
    1. Financial advisory net revenue $804M, up 37% from Q1 and up 7% from a year ago..
    2. Equity underwriting net revenue $489M, up 19% from Q1 and up 88% from a year ago.
    3. Debt underwriting net revenue $752M, down 6% from Q1 and up 4% from a year ago.
    • Institutional client services net revenue $3.57B, 19% lower than Q1 and 17% higher than a year ago.
    1. Fixed Income, Currency and Commodities Client Execution $1.68B, down 19% from Q1 and up 45% from a year ago.
    2. Equities net revenue $1.89B, down 35% from Q1 essentially unchanged from a year ago.
    • Investing & lending net revenue $1.94B, down 7% from Q1, up 23% from a year ago.
    1. Equity securities net revenue $1.28B, up 20% from Q1, and up 9% from a year ago.
    2. Debt securities and loans net revenue $663M, down 35% from Q1, up 67% from a year ago
    • Investment management net revenue $1.84B, 4% higher than Q1 and up 20% from a year ago; total assets under supervision rose $15B during the quarter to $1.51T, with $8B of long-term net inflows partly offset by net market depreciation of $3B.
    • Source: Press release
    • Previously: Goldman Sachs beats by $1.32, beats on revenue (July 17)

    Goldman pulls bearish outlook for retail REITs

    • The bad news – at least relative to other REITs – has been priced in, says analyst Caitlin Burrows, upgrading the retail REIT sector to Neutral from Cautious.
    • With fewer bankruptcies and store closings, the outlook for same-store NOI growth is stabilizing, she says. While nine out of 11 companies in her coverage universe missed guidance last year, 2018 forecasts have been more conservative and thus there have been fewer negative surprises in 2018. Investors in Washington Prime (NYSE:WPG) and PREIT (NYSE:PEI), however, should still be on the lookout for missed forecasts.
    • She upgrades Macerich (NYSE:MAC) to Neutral from Sell.
    • In other moves, Morgan Stanley starts coverage on Retail Value (NYSE:RVI) – just spun out of DDR - with an Overweight rating and $41 price target, suggesting about 15% upside.
    • Source: Bloomberg
    • Other names of interest: CBL & Associates (NYSE:CBL), Taubman Centers (NYSE:TCO), Kimco (NYSE:KIM), Federal Realty (NYSE:FRT), Tanger Factory (NYSE:SKT)
    • Transocean (NYSE:RIG) says its midwater semisubmersible Transocean 712 rig was awarded a 13-well contract for work in the U.K. North Sea with ConocoPhillips (NYSE:COP).
    • The contract is scheduled to begin in March 2019 and have a duration of ~580 days; the estimated firm contract backlog is $75M, and the deal includes a one-well option.
    • RIG also reports its ultra-deepwater semisubmersible GSF Development Driller I was awarded an 11-well contract for workoffshore Australia with Chevron (NYSE:CVX).
    • The contract is expected to commence in H1 2019 with a length of ~955 days; the estimated firm contract backlog is $158M, and the deal includes four one-well options.
    • Ocean Power (NASDAQ:OPTT): Q4 EPS of -$0.18
    • Revenue of $0.22M (-12.0% Y/Y)
    • Press Release
    • Ballard Power (NASDAQ:BLDP+2.9% premarket after announcing that its El Dorado National fuel cell electric buses have successfully completed rigorous testing at The Altoona Bus Research and Testing Center under a program established by the Federal Transit Administration.
    • Furthermore, El Dorado National FCEBs are now eligible for a $300K voucher incentive under the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project.

    • Boeing's (NYSE:BA) has presented its new annual forecast, renamed the Commercial Market Outlook, at the Farnborough International Airshow.
    • Amid rising passenger traffic and upcoming airplane retirements, the U.S. company lifted its long-term forecast for commercial airplanes to 42,730 new jets – valued at $6.3T – over the next 20 years.
    • The global airplane fleet will also sustain growing demand for commercial aviation services, leading to a total market opportunity of $15T.
    • BA +0.4% premarket

    Farnborough Airshow Day 1: Boeing Bamboozling Everyone 

    • Air Lease (AL +1.4%) announces a commitment to order as many as 78 Boeing (BA +0.3%) single-aisle and wide-body airplanes in a deal valued at $9.6B at list prices.
    • AL says three 787-9s and the first 20 737 MAX airplanes in the total deal are firm purchases while the remaining 55 737 MAX airplanes are provisional commitments.
    • Separately, AL CEO John Plueger says he believes, based on conversations with numerous airlines, there is strong interest and a need for a new mid-market jet Boeing is considering.
    • “There’s definitely strong interest in the entire global airline marketplace in this aircraft,” Plueger says at the Farnborough Airshow. “The business case is up to Boeing, to be able to get there.”
    • The Pentagon has granted Lockheed Martin (NYSE:LMT) a $451M modification to a previously awarded contract for material and detail design in support of the construction of four Multi Mission Surface Combatant ships.
    • The contract involves foreign military sales to Saudi Arabia.
    • UnitedHealth Group (UNHQ2 results: Revenues: $56,086M (+12.1%); Premiums: $44,458M (+12.3%); Products: $7,004M (+9.2%); Services: $4,269M (+12.4%); Investment and other income: $355M (+38.7%).
    • UnitedHealthcare: $45,846M (+12.4%); Optum: $24,726M (+9.1%).
    • Net Income: $2,922M (+27.9%); Non-GAAP Net Income: $3,086M (+27.4%); EPS: $2.98 (+28.4%); Non-GAAP EPS: $3.14 (+27.6%); CF Ops: $12,376M (+43.5%).
    • 2018 Guidance: GAAP EPS: $11.80 – 12.05; Non-GAAP EPS: $12.50 – 12.75; CF Ops: $15.5B.
    • Johnson & Johnson (JNJQ2 results: Revenues: $20,830M (+10.6%); R&D Expense: $3,504M (+0.7%); SG&A: $10,354M (+19.9%); Operating Income: $6,972M (+3.7%).
    • Net Income: $3,954M (+3.3%); Non-GAAP Net Income: $5,718M (+14.0%); EPS: $1.45 (+3.6%); Non-GAAP EPS: $2.10 (14.8%).
    • Sales by Business: Baby Care: $456M (-7.7%); Beauty: $1,109M (+3.1%); Oral Care: $393M (-0.3%); Women's Health: $280M (+1.4%); Immunology: $3,338M (+12.8%); Infectious Diseases: $849M (+7.2%); Neuroscience: $1,528M (+4.2%); Oncology: $2,456M (+42.2%); Cardiovascular / Metabolism / Other: $1,518M (-5.4%).
    • Key Product Sales: Remicade: $1,320M (-13.7%); Simponi/Simponi Aria: $548M (+24.8%); Stelara: $1,341M (+36.4%); Darzalex: $511M (+70.9%); Xarelto: $679M (+5.8%); Zytiga: $909M (+62.9%).
    • 2018 Guidance: Revenues: $80.5B – $81.8B; Non-GAAP EPS: $8.07 – $8.17.
    • Shares are up 1% premarket.

    Opko Health CEO adds to stake

    NXP Semi -2.5% on reiterated report that Qualcomm could walk

    • NXP Semiconductors (NASDAQ:NXPIdrops 2.5% after CNBC’s David Faber reiterates that Qualcomm (QCOM -0.8%) is likely to walk away if Chinese regulators don’t approve the deal by July 25.
    • If Qualcomm walks, NXPI would collect a $2B breakup fee.  
    • Previously: CNBC: Qualcomm could walk from NXP deal on July 25 (July 12)
    • IQiyi (NASDAQ:IQacquires mobile game publisher Skymoons and Chengdu Skymoons Digital Entertainment for a fixed payment of about $190M.
    • An additional consideration of $109M will be paid over the next two years if certain performance benchmarks are met.
    • IQiyi shares are down 3.9% premarket to $35.48. 
    • Previously: Spotify, Roku, streaming firms dip after Netflix miss (July 16)
    • A flood of analyst revisions is coming in on Netflix (NASDAQ:NFLX) after the company posted subscriber growth below expectations for Q2 and guided Q3 sub adds below consensus.
    • Firms pulling back on Netflix include Deutsche Bank with a cut to Hold from Buy on its view the streamer's subscriber growth in global markets is tricky to model. Meanwhile, B. Riley FBR warns that Netflix has hit a brick wall. "What I think we have to watch out for is maybe the kind of high-wire act that these guys have been doing … quarter after quarter after quarter can't continue forever," notes analyst Barton Crockett.
    • On the other side of the ledger, BMO Capital (Outperform, $400 PT) and Stifel (Buy, $406 PT) are taking advantage of the dip to recommend shares again. Netflix is also still rated as Highly Attractive by GBH Insights' Daniel Ives. "In uber growth stories, especially in technology, from Apple to Amazon to Netflix, you’re going to run into these one- or two-quarter issues when they’re white-knuckle periods in the very near-term," he advises. "While the knee jerk reaction will clearly be negative from the Street’s perspective, we would be buyers of Netflix on this weakness," he adds in backing a $500 PT.
    • Shares of Netflix are down 12.95% in premarket trading to $348.61. Even with the post-earnings decline, Netflix has doubled in price in 2018.

  23. GNC – I was fortunate to have caught that modest up move in June.  Putting back some exposure with the sale of Jan 2.50 puts for .50.


  24. Not sure the NFLX sell off marks the top for the FANG stocks.  Someone pointed out this morning that FB, AMZN, & GOOGL has strong moats.  NFLX doesn't.

    Phil – In addition to your great call, Citron predicted last month that NFLX would drop to $340 and cautioned against buying the dip.


  25. wonder if NFLX will close green today…

    unreal


  26. NFLX/Albo, Jabob – I'll be talking about them with the Nikkei this afternoon as well as the FANG.  My advice to them is don't think of them as one thing – AAPL is a whole different game and FB has real value but do the math on GOOGL, who have 86% of the Global Search market (so more likely to lose than gain) and search is 70% of their revenues yet they are trading at 50x earnings so, to get to 20x, either their 30% non-search business (and a lot of it is really variants on search anyway) has to grow 500% or the Earth's population has to double while still using the same percentage of Google's search.

    Possibly they are counting on AI robots to use Google in their free time?  What kind of ads appeal to robots?  I sense an opportunity there!  

    Huge NFLX recovery already, that's why we take the money and run on those!  


  27. 1/2 way to make my prediction on NFLX correct by EOD!


  28. Lost in the news here, but the EU and Japan have just signed an agreement to lower tariffs on many products including many farm products – markets that the US will now have trouble gaining or regaining. Thank you Trump!


  29. Someone noted the other day that the natural progression of Trump's slogan will be:

    America First
    America Alone
    America Hated

    On step 2 now…  


  30. Phil/NQ- worth another shot at the short or not for you?


  31. Phil;  when you are doing the portfolio update for July, please add the non-future trade in coffee we entered on Mar 13th.  Here it is:  

    BJO, unfortunately, only goes out to Sept but same concept as you can sell 10 of the Sept $49 puts for $3 ($3,000) and buy 25 of the $44 ($5.20)/$48 ($3.70) bull call spreads for $1.50 ($3,750) and that pays $10,000 at $48 (where it is now) and you can sell 5 April $50s for $1 ($500), which you certainly don't need but why not?  

    Let's add that to the LTP as it's a nice spread worth watching


  32. options-alpha:  note that BJO now goes out to December


  33. NFLX/StJ – I think "correct" may not be the right word for going back to insane highs.

    Gaining/StJ – That's the real damage to tariffs – it's not like you just turn these relationships on and off.  By imposing sudden tariffs, Trump makes the US an unreliable customer as well as an unreliable supplier and, the entire time tariffs are in effect, people make arrangements with new suppliers, who are very happy to fill the gap and make sales.  Now we have to fight and discount, etc. to get that business back and it's a process that can take years just to get back to the market share we threw away.  Total idiocy!  

    With China, we negotiated with them for 10 years (70s/80s) to become a trading partner.  WE are the ones that wanted access to their 1Bn people (now 1.4Bn) 

    /NQ/Ravi – Too crazy.  NFLX was a good catalyst last night but now that they've quickly rebounded, it's not safe to even make the same bet on another tech earnings.  We'll have to wait and see the reaction to a few reports first.  IBM is tomorrow, that will be helpful, MSFT Thurs…  MSFT also has a silly valuation now, making $21Bn last year but only paid $2Bn in tax so no benefit to them from the cut as they already don't pay taxes.  Even allowing for 20% growth and calling it $25Bn, it's an $820Bn valuation at $110 which is 33x optimistic earnings so they could disappoint – but I wouldn't bet against them as they've been amazing recently (post Balmer).

    BJO/Options – Thanks for reminding me.


  34. The actual problem with BJO is that, since we forgot about it, we didn't follow up and sell more calls or adjust.  It was just a net $250 spread and the April short calls expired worthless but we never sold May, June, July and that was the crux of the plan.  

    Also, we should have rolled the Sept $44s by now as they are now $1 and below our $1.50 net entry (turned out to be $1.75) but the move would be the Dec $41s (as low as they go) at $3.05, covered with the $45s at $1.50 for net $1.55 x 25 = $3,875 so that plus original $250 is $4,125 on the $10,000 spread and we're about $3,000 in the money at $42.36.  Of course the short puts need to be rolled too but not urgent as we sold them for $3.10 and the Dec $45 puts are $3.70 so $3 to do the roll means we'd be in those puts net even but, if we can roll down $3 per quarter – we'll get there eventually.


  35. Phil,

    Did you pull the trigger on HMNY and add 10k more? Got to 0.105 but now over 0.11


  36. Phil/NQ- thx


  37. HMNY/Japar – No, not trying that hard to DD.  If it falls it falls but avg is 0.28 so could easily recover to there and a DD at 0.10 only gives us 0.19 avg – not very far from 0.28.

    You're welcome Ravi.

    So tempting to short, I think I'll take a poke at /RTY below the 1,690 line.  Others are at 25,100, 2,812 and 7,420.  


  38. Trump with a bit of backpeddling on his insults to intelligence agencies.  


  39. IMHO Trevor Noah at The Daily Show summed it up best regarding yesterdays Trump / Putin press conference, "it was KGB Agent vs KFC Agent" !!! lol 


  40. Nope, punched up again into the close – amazing!  

    Volume is now beyond a joke – why even open the markets?

    Date Open High Low Close* Adj Close** Volume
    Jul 17, 2018 278.47 280.89 278.41 280.85 280.85 38,231,168
    Jul 16, 2018 279.64 279.80 278.84 279.34 279.34 48,106,900
    Jul 13, 2018 279.17 279.93 278.66 279.59 279.59 48,216,000
    Jul 12, 2018 278.28 279.43 277.60 279.37 279.37 60,124,700
    Jul 11, 2018 277.15 278.04 276.52 276.86 276.86 77,054,700
    Jul 10, 2018 278.41 279.01 278.08 278.90 278.90 51,966,800
    Jul 09, 2018 276.55 277.96 276.50 277.90 277.90 50,550,400
    Jul 06, 2018 273.14 275.84 272.71 275.42 275.42 66,493,700
    Jul 05, 2018 272.17 273.18 270.96 273.11 273.11 56,925,900
    Jul 03, 2018 272.87 272.98 270.42 270.90 270.90 42,187,100
    Jul 02, 2018 269.51 272.04 269.24 271.86 271.86 63,554,80

     

    You can hardly find a two-day combo that hits 100M and 120M was the daily average last year!  


  41. Volume/Phil- summer time?


  42. ~~After over 24 hours of crippling bipartisan pressure, President Trump on Tuesday backtracked on his controversial press conference with Russian president Vladimir Putin in which he refused to endorse the American intelligence community’s conclusion that Russia attempted to influence the 2016 election.

    Trump claimed he misspoke when he said he cannot see why Russia would be responsible for election meddling and meant to say he doesn’t see why Russia “wouldn’t” be responsible
    .

    YEAH, Right !    Easy mistake to make.


  43. Summer/Dave – Maybe that's some of it but below 50M is like a holiday weekend kind of number and we're getting it every other day!  

    Would/wouldn't/Albo – Well from the context of what he was saying, that excuse is ridiculous but his followers are notoriously uncritical so he'll likely get away with this quick-change of reality.


  44. Money Talk Portfolio Review:   I am doing the show tomorrow so I have to put this together first.  Sadly, we dropped a lot since our June 14th review, when we were at $92,727 (85.5%) but now down to $84,300 (68.6%), mostly due to LB's pullback and our inability to roll SQQQ like we did in the STP/OOP.  Nonetheless, up 68.6% since Sept doesn't suck and now we can make some adjustments! 

    I'm a bit concerned about the rest of the summer so we're going to be cautious – especially with these gains to lock in. 

    • ALK – I'm very confident in the next $51.80 entry so no change here.  Earnings are 7/26 so we'll watch those carefully but expectations are low (about $1.65) and they made $2.51 last Q2, so I'm only worried about guidance.  Anticipate making $3,725 more on this one.
    • IMAX – Lots of blockbusters ahead should be good for them but this spread is well in the money and can be cashed out for $8.80/4.10 for net $4.70 ($9,400) out of a possible $5 so it's not worth the risk as we can't make interim adjustments so we'll take the profit off the table.  
    • SQQQ – We still need a hedge and there's not much left in this one.  We bought it for net $3,080 and now we can sell the Sept $16 calls for 0.45 ($1,800) so our cost of insurance since Feb was $1,280 – not too terrible.  We'll leave the short $23 calls to expire worthless and set up a new hedge of 20 June 2019 $10 ($3.50)/Jan $15 ($1.30) bull call spreads at net $2.20 ($4,400).  The spread is $2.35 in the money ($4,700), so it's money well-spent as we can't lose unless our other positions go higher.

    • AAPL – We are way over our goal and the Jan $150 ($43.30)/165 ($30) bull call spread is $13.30 ($26,000) and the short $140 puts are 0.70 ($700) for net $25,300.  If we ride it out, we will make $4,700 more at $165 and that's up 18.5% in 6 months – not terrible but I think we can do better with $25,300 in cash so let's take this one off the table! 
    • ABX – Gold has not been doing well but, long-term, I expect it to make a comeback.  In a case like this, where the stock is below our target, we can roll to a lower spread, closing out the 25 $13 ($1.75)/20 ($0.39) for $1.36 ($3,400) and picking up the $10 ($3.45)/$15 ($1.10) bull call spread at net $2.35 ($5,875).   We originally spend net $1,500 and now we're spending $2,475 putting us in the much lower $12,500 spread for net $3,975, so our upside potential is now $8,525, which is still very good.  Currently, we're showing a loss of $2,613 so, if it turns around to a winner of $8,525, that will be a net $11,138 gain in the portfolio.  

    That's true with a lot of our spreads.   Of course it would have been nice if ABX had gone up and up and never gave us any trouble but we spent so little cash on our entry that we have plenty of room to make adjustments along the way in our 2-year spread and, if necessary, we can always extend the time-frame a year or so longer or simply walk away with a manageable loss – that is what hedging is all about!  

    • GE – These guys have been a disaster and we'd down $3,125 on it so far.  Do we try to fix it or give up?  While GE is having trouble, I certainly don't think they will go bankrupt so, like ABX, we can roll to a lower position, closing out the 20 2020 $15 ($1.42)/22 (0.28) bull call spread for $1.14 ($2,280).  The short puts are in at net $13.05, so they are fine and we'll buy 30 the 2020 $13 ($2.30)/18 (0.70) bull call spreads for net $1.60 ($4,800).  Here we are spending net $2,520 on top of our net $2,950 original cash position but we're now in a $15,000 spread for $5,470 with $9,530 (174%) upside potential at $18.  As we currently show a loss of $3,125, this position will hopefully turn around by $12,655 if GE is at $18+ in Jan 2020.
    • LB – They just announced disappointing June sales but the company is in the midst of a turnaround and investors are simply impatient.  It's a great opportunity for us to close our 40 Jan $32.50 ($2.85)/40 (80) bull call spreads for $2.05 ($8,200) and move out to 40 2020 $27.50 ($6.65)/35 ($3.75) bull call spreads at $2.90 ($11,600) so here we are spending $3,400 but we are getting an entire year longer to hit a much lower target for $15,000 on the spread.  Our original spend was net $3,400 in cash so this doubles us to $6,800 with an upside of $8,200 (120%) and currently we're showing a $2,800 loss so the potential turnaround on this trade is $11,000 at just $37.50.  

    • WPM – Despite silver getting hit hard, WPM has stayed near out goal but 6 months ahead of schedule.  The Jan $17 ($5.10)/22 ($1.40) bull call spread is $3.70 out of a possible $5, so plenty of room to run but the short puts are silly at 0.12 – so let's buy those back for $288 to free up a slot to sell something else.  I am concerned the timing is off and WPM will dip so let's cash in our 50 Jan $17 calls for $5.10 ($25,500) and buy 30 of the 2020 $22.50 ($2.75)/30 (0.90) bull call spreads for net $1.85 ($5,550) so we'll be taking just shy of $20,000 off the table and the 2020 spread provides us with $22,500 of protection against the short calls.  We have 50 short calls so WPM would have to be more than $4 over their $22 strike ($26) before it's a problem.  If all goes very well, the short calls will expire worthless (or at least worth little) and whatever value remains on the long spread is a bonus.    

    So we are cashing out $54,650 worth of winning positions and the remaining trades have $38,518 of upside potential, which is another 77% against our original $50,000 entry.  Of course we'll lose some money on our hedge and things don't always go as planned but the key to successful investing is to have a plan in the first place!  

    As a new entry, I like a nice, boring play on General Mills (GIS), makers of Bisquick and Cheerios, Cocoa Puffs, Fruit Roll-Ups, Go-Gurt, Haagen-Dazs, Lucky Charms, Old El Paso, Pilsbury, Progresso and dozens of other things you have in your cabinets.  Last year, GIS made $2.1Bn on $15.7Bn in sales yet you can buy the whole company for $26.25Bn at $44.25 – that's just silly!  

    There's no "story" to this, it's a blue-chip stock that's been in business 100 years and will likely be in business 100 more and Amazon doesn't hurt them because they are not a retail store – they just supply stuff that retail stores sell – including Amazon.   The drop from $60 was caused by a combination of higher transportation costs and fears of rising labor cost and raw goods costs that, so far, have not materialized.  

    Also, the company stretched out, buying Blue Buffalo pet food for $8Bn, which was 25x their $329M earnings so WAY higher then GIS's valuation but GIS sells $16Bn worth of stuff and has fantastic distribution so I think they will quickly squeeze another $200M out of Blue Buffalo, which would grow their earnings 25% to perhaps $2.65Bn and even applying a 12x multiple to that gets us to $31.8Bn, 20% higher than the stock is now.  

    We don't have to shoot for the moon here – or even $60.  Let's go for $47.50 (10% higher) with the following spread:  

    • Sell 10 GIS 2020 $42.50 puts for $3.90 ($3,900) 
    • Buy 15 GIS 2020 $40 calls for $6.50 ($9,750) 
    • Sell 15 GIS 2020 $47.50 calls for $2.85 ($4,275) 

    The net cost of the spread is $1,575 and, if all goes well, at $47.50 or higher in Jan 2020, the spread will pay $11,250 for a gain of $9,675 (614%).  If GIS is below $42.50 you do have an obligation to buy 1,000 shares of the stock for $42.50 but the margin requirement should be only about $2,000 and you would take the loss and sell – not buy all that stock (even though it would be great to own, long-term).  

    As noted above, it would be great if GIS goes up and up and we make 614% in 18 months in our sleep but you can't expect that.  The idea is just to have a diversified group of good, conservatively-targeted trades in solid companies that COULD make ridiculous amounts of money and, usually, some of them will and a 614% winner can pay for a lot of losers along the way so, in the end, you are very likely to come out consistently ahead!  


  45. Walmart Moves to Microsoft’s Cloud


  46. Phil just a small correction on GIS. In your note you various times mixed GS Goldman Sachs with General Mills. Some members might be confused.


  47. .

    Just on the Europe news. The joke with Trump by him taking another 180 degree turn re his statement with Putin.

    What an ass surely get yourself a President instead of a clown. It is amazing that guys like this get a salary, even a dishwasher would get fired if he drops his plates.


  48. The News on Drug Prices? Nothing Good



  49. Maria Butina Loved Guns, Trump and Russia. It Was a Cover, Prosecutors Say.




  50. ‘Cash’ Me Out