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Maudlin Monday Market – Trying to Muddle Through

Not much going on.

China is doing what they can to prop up their markets this morning as President Xi Jinping vowed “unwavering” support for the country’s private sector.  In a clear hint that Beijing will do more to protect China’s economy, Xi insisted that his government was standing behind its business leaders.  In a letter to private entrepreneurs, the Communist leader pledged:

Any words and practices that negate and weaken the private economy are wrong.

Supporting the development of private enterprises is the Party Central Committee’s consistent policy."

We also got a boost from Italy, whose rating was cut by Moody's but not all the way to junk, as expected – they are one notch above junk and have agreed to try again to submit a budget that's acceptable to the EU.  On the home front – our own fealess leader has pledged to also make America a Capitalist Paradise but this weekend he also promised the Middle Class some super-secret tax cuts that no one in Congress seems to have any idea about – especially as he's promising them pre-election and Congress isn't even in session to pass them.

When Congress does come back, they'll actually be working to avoid a Government shut-down as Trump's prolific spending has already broken the very generous debt ceiling and another cut would surely shatter it beyond repair.  Rule #1 of government is that you don't run up deficits in a strong economy – that's when you are supposed to pay them down!  If you never pay them down – what are you going to do the next time there's a crisis?

We have a busy data week ahead with the Fed's Beige Book out Wednesday, Durable Goods Thursday and 3rd Quarter GDP on Friday and estimates have been heading lower and lower with the usually optimistic Atlanta Fed down at 3.9% from 4.9% forecast last quarter.  Q2 was 4.2% so anything under 4% is slowing but under 3.5% will be seen as a very negative sign.  Along with data, Earnings Season is heating up with 100 (20%) of the S&P 500 about to drop their reports:

As I said last Quarter, it's not the Earnings we're watching as they are being enhanced through buybacks and tax breaks but the Revenues tell the true tale of whether or not we have a strong economy and reveneus have, so far, been a bit of a disappointment.  The economy grows on Revenues, not Earnings.  As you can see from Refinitiv's chart below, although only 5 of the 51 reporting companies have missed earnings so far, 16 (31%) have missed on Revenues.  That's not the end of the World but we should keep a close eye on it because, despite Trump's promises – it's not very likely there will be room to cut taxes further next year and that means the comps will no longer be weighted 20-30% in the companies' favor.

Also, 31 misses does not bode well as we've already had 80 S&P companies pre-announce negative guidance along with a lower-than normal 40 who have raised guidance.  By comparison, there has been no quarter in 2 years in which more than 30 companes missed Revenues – TOTAL! – and we're only 20% into the reports…  It's a negative trend but, again, there's not much data to go on yet so we're not extrapolating – just monitoring…

U.S. manufacturing activity decelerated last month, as the Institute for Supply Management’s new orders gauge and its supplier delivery index both declined. In August, the Philadelphia Fed’s manufacturing survey hit its lowest reading in 21 months, while the Empire State manufacturing index fell in September.  While the S&P 500 remains up 3.5% this year, some money managers are urging investors to focus on more durable companies that have strong balance sheets, better pricing power and higher profit margins—businesses that are expected to better withstand an eventual economic slowdown.

Fortunately, that pretty much descibes our portfolios and we just did a thorough review last week and I will be on BNN's Money Talk live this Wednesday (7:30) to discuss the adjustments we'll be making to our Money Talk Portfolio, which I reviewed for you on Thursday.  


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  1. Phil; reviewed the portfolio reviews  as well as my portfolios over the weekend and had a few questions: (1)  I believe we added HD puts back on 10/9, 2) why sell F puts and not the 2021 covered call 3000 shares and 10 calls for 7.60 as you would collect the $.60 annual dividend as well.  3)  Similar question, why buy FTR shares and not sell puts since they don't pay a divdend.  4) I still have FCX, VLO and AAXN from prior PSW portfolios and wanted your current take.  VLO got crushed in Friday.  Thanks

  2. Good Morning.

  3. I love how conservatives always talk about out of control spending:

    Image result for spending as percentage of gdp

    We had a big spike because of the huge recession but Bush ramped it up nicely because of wars. And by 2014 it was lower than under Reagan. What's out of control is the giveaways to corporations and the top 1%. And the lying as well. 

  4. Good morning!

    Rally didn't last more than a few minutes before selling kicked in again.  Dollar 95.70 as Europe not fixed and everything is heading lower at the moment.

    4 Part question with essays/Options – Wow, you couldn't have asked that on the weekend?  I'll work in it later.

    Big Chart – Very clearly if we fail any of the 200 dmas – we are DOOMED!!!  That's Dow 25,158, S&P 2,768 (below it right now!) and Nas 7,058.  RUT and NYSE are already way below and they are much broader indexes so more likely than not they are predicting the Future.

    Interesting human capital chart, StJ.  

  5. Phil – On Friday you recommended selling some 2021 $10 F puts.  You later commented :

    "F/Learner – See above.  I think too cheap but I also remember them being much cheaper in 2009 for no good reason so I don't want to over-commit."

    I would agree with your assessment, but would point out that in 2009, F paid no dividend, nor in 2010.  I think that's the main difference between 2009 and now.

    BTW, they report Wednesday afternoon.

  6. Anyone taking a long on /RB? Seems like there is still enough geopolitical noise to give us a couple of cents

  7. F/Albo – And when and if they cut their dividend and the stock tanks again, THEN I'll be excited to buy a lot more.  Which also answers one of Options' questions re. FTR – they are cheap BECAUSE they cut the dividend but they are a company with a very long history of paying dividends so NOW is the time to accumulate the stock – BEFORE they put the dividend back on and the stock price soars. 

    /RB/Japar – You would think but I told the guy from on Friday – it's too tricky to trade as the Fundamentals are driving it down but the "any second now" threat of Iran or the Saudis cutting supply means it's a bit silly to short as well.  Last time we went long on /RB was $1.885 on Thursday and it worked well but we had the weekend to count on vs now you have the wild-card of inventories tomorrow and Weds – so be careful if you are playing.

  8. Thx Phil. Yeah I’m only looking for 1-2c. In at 1.8875

  9. Teachable moment:  I am accidentally holding 1 WYNN short Jan 160 put contract (I thought they all were closed but one never filled.  The price was $15/share.   Thinking about rolling it down though not really sure there is much value in that.   Not much to be gained by going out further in time it appears to me but maybe I am not reading that right?  Time decay has helped here so I can currently buy them back for $35/share.  If I then sell the Jan 145 puts for $35+/share have I improved my waiting it out position by $15/share or am I looking at this incorrectly in some way?

  10. Homework/Options – I don't see an HD play though it's not a bad idea.  Let me know if you actually find it but certainly not on the 9th.  As to F, I'm not that confident they won't go lower and, for God's sake, I wrote out my reasoning at the time!  

    • F – Ridiculously low at $8.50.  If we buy 3,000 more we average $9.50 but let's just sell 30 of the 2021 $10 puts for $2.60 ($7,800) so the worst thing that happens is we're assigned 3,000 more at net $7.50 and our average would be $8.925 on 6,000 shares.  Meanwhile, it lowers our cost basis on 3,000 to $18,050 or $6/share so hitting our original goal at $11.87 would be a double if they recover.  

    We're NOT buying the stock but collecting 4.5 year's worth of dividends up front instead – surely that's not complicated logic?

    As to FTR, they do pay dividends, they are just not right now and I'm not worried about the stock going lower but I would be worried about it blowing out over a covered call.  You could do it either way but it's mostly a reflection that I think F could get weaker but I doubt FTR will.

    As to FCX, VLO and AAXN – there's a reason we never got back into them though, at this price, I might like FCX again.  VLO is in trouble as they had 2 years of gasoline rising faster than oil (better margins) but now they are going the other way.  Taser just had a camera catch fire on a NYC police vest – so they are in pain at the moment but also maybe a chance to get back in for us if they have a nice sell-off.  

    Good call on /RB Japar – don't be greedy and forget to take profits.

    WYNN/Tangled – So what you are saying is you own 100 shares of WYNN At $160 – there's no magic fix to that at the moment.  WYNN is $108.50 and you got $15 so $123.50 and you're down $36.50 x 100 but, as you say, if you can buy them back at $35, you're only down net $20 x 100, which isn't awful.  I'd sell 2 of the 2020 $100 puts for $14.50 rather than one of the $145s as that gives you plenty of breathing room and a much easier strike to hit.

  11. Oil’s plunge has investors cutting their bullish bets – Houston Chronicle

  12. Phil; here is the HD trade from "10/9":  The best way to play a stock we WISH would go lower is to sell puts and, fortunately, HD has some expensive puts to sell so I like selling the 2021 $180 puts for $16 because, even if HD goes lower and it gets assigned – your net entry is just $164, which is another $31 (16%) below the current price so our worst case is owning HD at $164 and our best case is keeping the $16 so let's sell 5 of those in the Long-Term Portflio for $8,000 and see how it works out

    On F; I read your comment and from Friday and this morning and I still don't follow the logic of not accepting the dividend.  You state "so the worst thing that happens is we're assigned 3,000 more at net $7.50", but I ask again, why not buy the covered call today for $7.5 and collect the dividend for 8 quarters and potentially sell the stock for an overall profit of $3.60 ($2.5 on the stock and $1.2 in dividends) .  Seems to me wort case is netting into the stock for $6.40.  If I'm missing something, I apologize for asking again but I have always looked at your site as learning tool.  I didn't appreciate being scolded for asking the question (for God's sake, I wrote out my reasoning at the time!).

  13. Option, on F by buying the stock you will have the cash outlay for the stock, but just selling the put yes will make you responsable to buy the stock at the strike price, but only if the stock goes below the strike price, so at present no cash outlay.

    Obviously you will have to put up margin.

  14. Thanks Yodi.  That makes sense if cash is an issue.  Still seems like a better deal to own the stock.  Your approach is often to sell both the call and put so maybe the optimal answer is too do half covered calls and half put sales and sell some "cherry calls" along the way. Thanks again for the input.

  15. NATIONAL EMERGENCY!!!  "The caravan is coming" – Trump actually just called this a National Emergency – we have a psychotic President and people don't seem to care…

    Just look at them – they are going to kill us all!!!

    Image result for trump caravan

    Trump’s warnings are detached from reality. Here’s the real story: The caravans have been organized since about 2008 to help migrants from Central America find refuge in the United States or Mexico. Eighty percent of the people who joined this year came from Honduras. And as chronic violence and a deep political crisis roil their home country, Trump’s harsh rhetoric and U.S. policy in the region have done little to deter them from seeking safety.

    On March 25, the refugee caravan set off from southern Mexico with more than 1,000 migrants. On Friday, about 600 people embarked on the last leg of the trip, from Mexico City to the U.S. border.


    The stories of the Hondurans in this year’s refugee caravan ? families traveling with small children, single men with their few possessions stuffed in backpacks, teens who left their houses on their own ? drive home the severity of the crisis.

    “If I could offer something to my kids in Honduras, don’t you think I would be there?” wondered Carlos Soto, 28, an appliance salesman from San Pedro Sula whose business closed. Soto spoke to HuffPost in early April from a soccer field in Matías Romero, Mexico, where the caravan stayed for nearly a week, while in negotiations with the Mexican government.

    Esperánza, who is being identified by first name only to protect her identity, said gang members had kidnapped and raped her 18-year-old daughter after Esperánza was unable to pay the gangs the traditional “war tax” for her tortilla business. Even after leaving her home, in the manufacturing town of Choloma, the attacks on her family had continued.

    “Eight days ago, they cut my nephew to pieces,” she told HuffPost as she walked down the highway on an early morning of the caravan.

    Despite the reports of corruption and human rights violations, the United States continues to see Hernández as one of its closest allies in the region. The U.S. has provided millions of dollars in aid to the Hernández administration to stem violence, migrants and contraband. In 2017, on top of military aid, Honduras received a cut of a $655 million assistance package for Central America.  

    The Trump administration recognized Hernandez’s victory despite controversy over the vote and has stayed quiet on the growing instability in the country since. Two days after the contested election, the U.S. State Department certified Honduras had made progress on improving human rights and fighting corruption, paving the way for millions of dollars in aid to be released.

    “While protesters were being shot dead in the street and the Organization of American States was calling out the Honduran government’s dirty tricks, the Trump administration chose to put its head in the sand and say there was nothing to see,” said Rep. Norma Torres (D-Calif.), the founder and co-chair of the Central America Caucus in the U.S. House.

    Irineo Mujica, the director of Pueblo Sin Fronteras, the group that organizes the caravan, said the U.S. has turned a blind eye to the government’s role in the crisis and has failed to address “the roots of the problem.” Consistent arms sales continue to fuel violence from all sides, Mujica said, noting both the gangs and police use U.S. weapons. Due to lax U.S. gun laws, nearly 50 percent of weapons found and traced at crime scenes in Honduras originate from the United States. Mujica also criticized policy focusing on anti-trafficking initiatives instead of reducing demand for drugs in the U.S., which has yet to stem the flow of narcotics.

    Trump has consistently conflated Central American migrants with members of gangs like MS-13, even though many Hondurans joined the caravan precisely to escape the gangs. And while migrants have a right under both international and U.S. law to seek asylum at the border, Trump has continuously voiced his opposition to their arrival. He urged Mexican authorities to prevent the caravan from reaching the United States, called for 4,000 members of the National Guard to be deployed to the border and urged U.S. lawmakers to vote for stricter immigration laws.

    The size of the caravan has dwindled in the past few weeks because many of the immigrants have ventured onward on their own. Many have decided to stay in Mexico, some with the intent of requesting a visa or refugee status there. On Friday, about 600 migrants continued the last part of the journey as a group, mainly by train.

    Image result for a nation of immigrants

    What the Fuck has happened to this country???

    Image result for build the wall animated gif

    I'm wavering on getting more short with our SQQQs in the OOP and STP.  AAPL is up 1.2% but, if not for that, Nas would be red too.

    Things don't look better, do they?

    HD/Options – Oh, that was the post of 10/10 – that's why I couldn't find it (and why I missed it).  Will update to the LTP.

    F/Options – Again, I think F could, POSSIBLY, go significantly lower and I don't want to be over-committed if it does.  Our net entry will be $1 cheaper if it sells off and we're collecting $2.60 now without putting up another $19,200 vs collecting $3.60 ($7,800)  HOPEFULLY in two years if all goes perfectly on the covered call.  I simply don't think it's worth it.  

    If you buy 3,000 shares for $8.30 ($24,900) and sell 30 2021 $7 calls for $1.95 ($5,950), you are in for net $18,950 ($6.32) and your max gain at $7 is 0.68 ($476) plus the dividend of hopefully $2.40 ($7,200) – as long as they don't cut the dividend, which could send the stock below $7 and leave you with a loss on the stock and no dividend (this is what happened with FTR).

    If you sell 30 2021 $10 puts for $2.60, you have a net $7,800 credit NOW and you lay out no cash (but whatever margin) and, if they cut the dividend and the stock plunges, your net entry is $7.40 on the next 3,000 so not cheaper, but, as I said, in my original note, in the context of our original position, in which we INTENDED to sell a put if F got cheaper – it brings us down to 3,000 shares at $6/share and a double at $11.87 if called away so $35,610 – $18,050 = $17,650 profits + dividends at our goal or you could DD and sell the covers and now you have 6,000 shares at $25,850 + $24,900 you are spending on new shares less $11,400 for the short $7 calls is $39,350 you lay out and called away at $11.89 would pay $35,670 on 3,000 and $21,000 on 3,000 is $56,670 less $39,350 is $17,320 plus, on the bright side, 2x the dividends – assuming you never got called away by the $7 caller.  

    So you are, on the whole, RAISING the cost basis to $39,350 instead of lowering it to $18,050 and your extra $21,300 nets you 2 years worth of dividends on 3,000 shares ($3,600).  

    When I'm faced with a choice of putting $7,800 INTO my pocket on a trade that's going poorly or taking $19,200 OUT of my pocket on the same trade just to make 15% more over 2 years – I find it to be a clear choice so I'm sorry if I scolded you but it seemed very clear to me at the time and it still kind of does.  

    And what Yodi said!  Cash is always an issue if you're not putting it to best use.  Not only that but you are far better off diversifying than putting more eggs in the same basket unless you have a very good reason to think the sell-off is unjustified and will correct (like FTR).

  16. Very tricky market – so many cross-currents.  Certainly not going to be resolved on a Monday…

    Goldman is going to save us:

    • Goldman Sachs (GS -1.3%) for decades required that clients have at least $10M to manage their money. Now the firm is creating a digital wealth product under its Marcus brand for clients beyond its traditional base of wealthy families, hedge funds, and governments, CNBC reports.
    • Ahead of the new product, Goldman is moving its Marcus brand into its investment management division, which will be renamed consumer and investment management. Until now, Marcus was part of Goldman's investing and lending division.
    • Although the bank hasn't announced what the product will be, people with knowledge of the plans says that one option is a robo-advisor. The company could offer mutual funds and ETFs created in-house through its digital channel, CNBC says.
    • Marcus, Goldman's consumer digital banking brand, currently offers high-interest savings accounts and personal loans.
    • Previously: Goldman is said to reduce Marcus lending goal for 2019: Bloomberg (Oct. 8)

    Banks see customers pull billions from accounts that don't pay interest: WSJ

    • Now that the Federal Reserve has been raising interest rates for almost three years, customers are pulling out billions of dollars from accounts that don't pay interest--mostly business and consumer checking accounts--and putting their money into higher-yielding alternatives, the Wall Street Journal reports.
    • At the four biggest U.S. banks--JPMorgan Chase (JPM -1.1%), Bank of America (BAC -2.1%), Wells Fargo (WFC -1.6%), and Citigroup (C -1.9%)--U.S. deposits that don't earn any interest fell 5% combined in Q3. Over the past year ended June 30, customers withdrew more than $30B from non-interest-bearing U.S. bank accounts, according to FDIC data.
    • The deposits are lucrative for banks because banks can use the no-cost deposits to make loans, and as short-term interest rates rise, so do their profits from the loans.
    • Previously: More on Bank of America Q3 (Oct. 15)
    • One way Blackstone Group (BX -0.8%) rewarded the kingdom of Saudi Arabia for pledging as much as $20B for the private equity firm's infrastructure fund is through a fee discount; for every dollar than any other investor pays Blackstone to oversee its cash, Saudi Arable would pay 15 cents less, Bloomberg reports.
    • The terms face scrutiny after the apparent killing of U.S.-based journalist Jamal Khashoggi in Saudi Arabia's consulate in Turkey.
    • Concessions seem to be in the form of lower fees as well as certain rights and provisions; for example, Blackstone will "consult with and consider opinions" of Saudi Arabia's Public Investment Fund on deals involving a review by the Committee on Foreign Investment in the U.S., which may allow PIF to abstain from some deals.
    • Other large investors in the fund are the Commonwealth of Pennsylvania Public School Employees' Retirement System, the Teachers' Retirement System of the State of Illinois, and the Teacher Retirement System of Texas, as well as the New Mexico State Investment Council.
    • Previously: Saudi stocks fall after account of Khashoggi death (Oct. 21)
    • After more than five years after construction started at 220 Central Park South, Vornado (VNO-0.9%expects to start closings this week, The Real Deal reports, citing undisclosed sources.
    • Brokers have been told that the building is more than 70% sold, even though Vornado hasn't disclosed and official sales update in three years; the last update--in late 2015 reported contracts valued at $1.1B six weeks after sales began.
    • The building's top penthouse, at 23,000 square feet, was priced at $250M, and a quadplex of 11,000 square feet at $150M. If either closes at those prices, they would set a new record, beating Michael Dell's $100.4M penthouse at One57.
    • Previously: Vornado reports items affecting Q3 financial results (Oct. 10)

    Transocean wins new contracts, fleet status report says

    • Transocean's (RIG -2.2%) latest fleet status report shows further contract awards amid a market recovery, highlighted by a new contract for a currently idle drillship to begin work offshore China.
    • RIG reports its Dhirubhai Deepwater KG2 drillship won a three-well contract with China's CNOOC, which is expected to start in February 2019 and end in June 2019; the contract also includes plus two one-well options.
    • RIG also says the Henry Goodrich semi-submersible drilling rig was awarded a one-year contract extension with Husky energy offshore eastern Canada with a $275K dayrate, set to end in November 2019.
    • The Transocean Leader semi-submersible rig was awarded a three-well contract in the U.K. North Sea by Hurricane Energy, and the Paul B. Loyd, Jr. semi-submersible rig was awarded a two-well contract by BP; dayrates were not disclosed.
    • Former Ocean Rig (ORIG -0.9%) CEO George Economou is set to pocket as much as $134M if Transocean's (RIG -1.6%$2.7B cash and stock offer to takeover the company wins shareholder approval, Splash 247 reports.
    • According to a recently published 531-page prospectus on the proposed merger, Economou would be a paid "convenience termination fee" of as much as $134M through Marshall Islands-registered TMS Offshore.
    • Economou stepped down as ORIG's CEO together with his CFO nephew last December following the company's restructuring.

    Investors bid up shipping stocks

    • Shipping stocks are higher on the day after the Baltic Dry Index shows a gain for the third consecutive day. The index currently stands at 1,576 vs. the 52-week trading range of $948 to $1,774.
    • A +4% surge in Chinese stocks today earlier is also providing a big sentiment lift for shipping stocks trading in the U.S.
    • Finally, the withdrawal of the U.S. from the Universal Post Union is seen as supportive of international shipping rates across categories.
    • Shipping and tanker gainers off the mix of news include Navios Maritime (NM +17.8%), Dry Ships (DRYS +14.7%), Navios Maritime Acquisition (NNA +7.7%), Euroseas (ESEA +143.2%), EuroSry (EDRY +18.3%), Seanergy Maritime (SHIP +22.8%), Global Ship Lease (GSL +15%), Danaos (DAC +14.4%), Globus Maritime (GLBS +47.2%), TOP Ships (TOPS +90.6%), Eagle Bulk Shipping (EGLE +8.4%) and Diana Shipping (DSX +3.7%).
    • Halliburton (HAL -2.3%) falls as much as 3.5% after warning it expects Q4 EPS of $0.37-$0.40, well below analyst consensus of $0.49, amid ongoing weakness in the North American hydraulic fracturing market.
    • HAL sees fracking work in Q4 to decline by a low double-digit percentage but it will not cut costs or infrastructure during the downturn, as it expects the U.S. onshore sector to find a bottom in the quarter as producers reset 2019 budgets, the company said in its earnings conference call.
    • HAL has seen demand for oilfield services weaken as U.S. producers trim spending and transportation bottlenecks in the Permian Basin pushed the price of regional crude lower.
    • The oilfield services ETF (OIH -1.5%) hits a 52-week low, and HAL peers are down: SLB -3.2%WFT -2.2%BHGE -1.7%.
    • United Natural Foods (UNFI -9%) discloses that the company closed on the $2.9B acquisition of Supervalu (SVU).
    • "We will take the best from both businesses to create North America's premier food wholesaler with significant scale, reach and choices for our customers," says United Natural Foods CEO Steve Spinner.
    • UNFI projects run-rate cost synergies associated with this transaction of more than $175M by year three and more than $185M by year four. The company says it's committed to improving profitability into the future by leveraging scalable systems to streamline processes and by reducing future capital expenditures.
    • An update on integration efforts is planned for the company's investor day event on January 16.
    • Source: Press Release

    BofAML: Semi correction normal, here's what to buy

    • Bank of America Merrill Lynch says a 10% correction of the Philadelphia Semiconductor Index happens one to two times a year and the current one is the tenth since the recovery began in 2010.
    • Analyst Vivek Arya says corrections average around 19%, suggesting the potential for another 5% downside to this current downturn. 
    • Good news: The recoveries tend to lead to 45%+ gains on average. 
    • Arya sees an “attractive risk-reward scenario once the volatility subsides” and recommends high-quality, large-cap names like (NVDA +1.5%), (AVGO +0.6%), (TXN +1.3%) and smid caps like (MRVL -1.2%), (AMD +6.8%), (NXPI -1.1%), and (ON -0.1%).
    • Texas Instruments reports earnings tomorrow after the market closes. 
    • Source: Bloomberg First Word
    • The Technology Select Sector SPDR Fund (NYSEARCA:XLK) is up 0.81%, the S&P 500 IT Index is up 0.78%, and the Philadelphia Semiconductor Index up 0.2% compared to the 0.4% drop for the S&P 500.
    • Semi: Semiconductors gain as two AMD +4.9% target boosts and a positive BofAML note on the sector overcome Micron -1.7% weakness after a Raymond James initiation.
    • Industrial laser stocks are down after Coherent -7.2% provided lower Q4 preliminary results partly on Chinese weakness, which led to B. Riley coming out cautious on II-VI -2.1% and Fabrinet -1.2%.
    • Earnings after close: Cadence Design Systems +1%, Logitech +1.7%.
    • Earnings before tomorrow's open: Verizon, Corning.
    • Today's top stories:
    • Previously: B. Riley cautious on II-VI, Fabrinet after Coherent drop (Oct. 22)
    • Previously: Coherent dips 6.7% on lower preliminary Q4 results (Oct. 22)
    • Previously: Nomura says Buy to Intel (update) (Oct. 22)
    • Previously: AMD +6.4% after two target boosts (Oct. 22)
    • Raymond James resumes Micron (NASDAQ:MU) with a Market Perform rating from a Strong Buy.
    • The company switched analysts with Chris Caso taking Micron from Michael Gibbs.
    • Micron shares are down 1.8% to $39.74.  

  17. Imagine the outrage if it was a caravan of blue eyed, white people….

  18. Options,

    I trust Phil gave a more detailed explanation in the F matter.

    Yes I do mostly buy the stock and sell the straddle or strangle, but you seriously have to check on the stock now and these days. The market is very very erratic at present. Just look at a day like today the S&P is up 10 and down 10. It seems to my people are very unsure what to do.

    As usual I had a fair amount of options coming due last Friday, but one has to be much more careful when to sell the next caller or put. At the moment the market is up you sell the call and on the down swing only sell the put. Sometimes it is wisely to be more conservative by not selling puts at present market conditions. Selling calls always gives you a hedge for the downside.

    Just on today’s high on AAPL I rolled a covered Jan 19 170 caller to Feb. 230 caller. Sure paid for the roll but looking at it at this moment my 230 caller is giving me already a 250$ credit. Obviously that does not mean it will last.

    The difference is you need to roll at the right moment.

  19. I did long /CL instead of /RB, Japarikh. Getting out of the last contract right around here.

  20. Phil

    So you bailed on PYX what about MJ?

  21. Outrage/1020 – It really amazes me how fast this country has turned.

    /CL/Ati – That's a good one too but what a ride.

    MJ/Coulter – That's more of a general bullish bet on pot stocks, wheras PYX was just a crazy stock that wasn't as much fun to play with as I'd hoped.  MJ also took a huge hit though – kind of a "buy the rumor/sell the news" thing on Canada legalization.  I'm hearing nothing but increasing demand stories and more states coming on-line – it's like betting against liquor after Prohibition…..

    Speaking of prohibition, someone was interviewing me last week and asked if I thought illegal pot sales would hurt legal pot sales and I said to them "how many illegal liquor companies are there?"  Over time, the entire industry becomes legitimate – the business cost/risk of not being legal isn't worth the effort.  

    So far, we've been trying out MJ in the STP with a 2021 $35/50 spread and short $30 puts but, at $30, I'll be wanting to add it to our main portfolios.

  22. STZ might make a good short since they just paid top Dollar for $4Bn worth of CGC!  

    So let's say they bought $4Bn at $50, at $40 they are down $800M and STZ onlyh makes $2-3Bn a year so it's a very significant hit (not that they'll realize the loss but – damn!).

    Year End 28th Feb 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 2,796 4,868 6,028 6,548 7,332 7,585 7,911 8,142 8,719 +22.1%
    Operating Profit $m 510.4 2,438 1,496 1,764 2,399 2,188 2,305     +33.8%
    Net Profit $m 387.8 1,943 839.3 1,055 1,535 2,319 3,310 1,857 2,012 +43.0%
    EPS Reported $ 1.81 8.79 3.74 4.64 6.75 8.73 13.3     +36.9%
    EPS Normalised $ 1.98 10.3 4.01 4.96 6.14 9.83 14.3 9.46 10.2 +37.8%
    EPS Growth % -6.3 +420.1 -61.0 +23.6 +23.8 +60.0 +79.5 -3.76 +8.29  
    PE Ratio x           22.7 15.6 23.6 21.8  
    PEG x           n/a n/a 2.84 1.80

    The only problem is that STZ isn't that expensive at $42Bn at $220 but I'd sell the Jan $235 calls for $4.50 and buy the $230 ($14.50)/215 ($7) bear put spread for $7.50 so net $3 on the the $15 spread seems about right to me.  

  23. Got a little rally going but very low volume.  

  24. STZ Phil smells like another AMZN play!!!! Might work OK.

    I am just looking at EXPE. Have been playing this stock since Oct 14 and build up 22.5K in plays.

    At present holding the Jan20 100/135 BCS. Obviously have and holding cherry calls against the position.Kopieren

    Stock reporting 10/25.

    I am setting up the following roll: Jan 20 100 to Jan 21 100 for 5.85 partly covering the cost by selling half the Jan21 95 put for 9.50. Holding back on any Jan 21 callers, and observing the declaration 10/25.

  25. Phil looking at the Jan19 STZ play again, you seem to sell and buy options in equal amounts.

    I look at say selling 3 x 235 callers against 2x 230/215 vertical. Just about even. You think the 3x is to risky.

    Did actually the same with TSLA and paying off very well. Obviously we comparing apples with oranges.

  26. EXPE/Yodi – I used to love them when they were much cheaper.  Still a good, solid stock.  

    STZ/Yodi – It's risky in general but I doubt you can't roll out of trouble as they aren't a business that's likely to grow explosively from one period to another.  $235 was the high for the year and they got a big boost out of the pot announcement, back near the highs but now it looks like they were celebrating way too early and you know how fickle investors get.  Earnings are likely to be not much over last year ($2) and not until Jan as they just had them and they have a new CEO (as of March) so he's not going to want to take the hit on this deal…

  27. Nas now having a very good day – up 1.2% (same as AAPL), back near 7,200.

  28. Nope, selling off again into the close.  

  29. Here's where we were last Monday (the "nows"):

    The summary of our bounce levels is:

    • Dow (/YM): 25,450 (weak) and 25,700 (strong) – now 25,317
    • S&P (/ES): 2,775 (weak) and 2,800 (strong) – now 2,766 
    • Nasdaq (/NQ): 7,100 (weak) and 7,250 (strong) – now 7,157 
    • Apple (AAPL): $223.50 (weak) and $226 (strong) – now $222 
    • Russell (/RTY):  Anything below 1,552 is catastrophic – now 1,545

    We are within points at the worst from last Monday.  That's consolidating near the bottom = NOT GOOD!

    Remember, the longer it goes, the less impressive the weak bounce line is and the stronger the resistance of the strong bounce line becomes.  

  30. This looks similar to what we saw back in March/April – big moves down and rallies but technically, we are much weaker this time. The Russell never closed below the 200 DMA then and the NYSE never 2 days in a row. This time, well below the 200 DMA and both these indices have given up the entire 2018 gains. The NYSE is actually negative now (-3%) and the other indices are up around 3% or so. Nasdaq up much more though – and maybe the one to short!

  31. Phil

    for MU – you said Let's roll our 20 long 2020 $40 calls at $8.40 ($16,800) to 40 of the 2021 $35 ($12.20)/55 ($5) bull call spreads at $7.20 ($28,800)

    so are we keeping the -20 2020$55 calls also or rolling the entire spread?

  32. Futures not looking bright at the moment, down about half a point but Nikkei testing lows again, so watch that 22,200 line.

    11,500 would be critical fail on DAX

    Euro Stoxx 3,180 is not really strong support but worth keeping an eye on for direction:

    And watch out for VIX over 19

    MU/Coulter – Yes, the short 2020 $55 calls are now 2x covered by the 2021 $35/55 bull call spread as I'm not paying $3.30 to buy back the $55s and it's nice to have another year to recover on the long spread (at a lower strike):

    The original net of the bull spread (ignoring the short puts) was $13/5 so $8 and we cashed out $8.40 so we didn't lose any money (cash) and now we're putting the $8.40 to work + $12,000 more on a longer spread that's $5 ($20,000) in the money at $40 – as opposed to being at the money.  In order to lose money on the 20 short calls, our 40 long spreads would be $60,000 in the money first (plus the $7,500 puts we sold).   

  33. Phil.  MU.  You seem bullish on this.  Memory will struggle for probably more than a year unless demand picks up significantly inside a year.  So I get the 55 callers staying open.   I just have trouble seeing this at 55 in 19.  Can you share your reasoning on this?   My most bullish pripjectiins don't have this at 50.  I'm just wondering why you would not go with a 50 target.  Thanks. 

  34. MU price target. Phil did have a suggestion for a MU trade with a 'price target' of $50 back in March 2018: - MU was trading at $54 then. (not sure whether this was adjusted later on). 

    Sell 10 MU 2020 $40 puts for $5.25 ($5,250) 

    Buy 20 MU 2020 $35 calls for $24.50 ($49,000) 

    Sell 20 MU 2020 $50 calls for $16.50 ($33,000) 

    That's net $10,750 on the $30,000 spread that's $30,000 in the money so the upside is $19,250 and you can sell 4 (20%) of the April $44 calls for $3.40 ($1,360) while you wait as that's 45 days out of 682 you have to sell so you can work that $10,750 down to zero while you wait for your $40,000.

  35. More opportunities as new information comes in. More recently for the OOP there is this trade suggestion on October 15th:

    As a new trade for the OOP, I want to take advantage of the short 2020 $55s at $4.50 so:

    Sell 10 2020 $55 calls for $4.50 ($4,500) 

    Buy 20 2021 $45 ($11)/$60 ($6.50) bull call spreads at $4.50 ($9,000) 

    Sell 10 2020 $35 puts for $5.50 ($5,500) 

    So we're starting this trade with a $1,000 credit and you have $31,000 upside potential if all goes well.  If MU goes higher, you're well-covered and can begin buying back short calls.  At $45, let's say they gain all $3 of the move and you buy back 3 for $7.50 – that's just $2,250 so you're in for $1,250 net and now triple-covered on the longs.  At $50 you buy back 3 more for $12.50 and that's $3,750 and you'd be then in the $30,000 spread for $5,000 with 4 short calls left against you.  

    So the upside case is just fine and flat is fine and down is fine because you have a credit and the worst case is you have to roll the puts but, if you don't REALLY want to own MU for net $34 – why would you be in this trade in the first place?

  36. Good morning!

    Big sell-off overnight as Asia goes down 2.5% and DAX down 2%, EuroStoxx down 1.3%, our futures down about 1.25%.  Gold and silver up huge as Dollar down 1.5% too.

    But not copper – which indicated lack of faith in the Global Economy.

    People are so nervous they are actually buying bonds!

    More evidence of worries about Global Growth:

    You would think we'd get a bounce off 25,000 – very bad if we don't – I think that's worth a long on /YM with tight stops below.

    The drop in European tech stocks followed heavy selling in Asia-Pacific, where investors reversed the broader market rally that came Friday and Monday amid anxieties about Chinese economic growth. Index heavyweight Tencent Holdings TCEHY 4.42% was down 4.6%.

    In China, the Shanghai Composite Index and the Shenzhen A Share dropped by 2.3% and 1.9% respectively. Hong Kong’s Hang Seng was dragged down 3.1% by sinking financial stocks. Indexes across the rest of the region suffered heavy losses, with the main benchmarks in Japan, South Korea and Taiwan slumping 2% or more.

    The U-turn in Chinese stocks marked an end to the Shanghai index’s sharpest two-day rise since 2015, which came as investors parsed reassuring comments by key government and central bank officials about the health of Chinese economic growth.

    Ugly gap down:

    Technology stocks led the way lower in Europe, with the Stoxx Europe 600’s tech sector plunging 3.9%. Austrian semiconductor firm AMS AG AMS -26.45% plunged 22% after it surprised investors with weak fourth-quarter guidance, while French IT firm Atos plummeted 20% after slashing its forecasts.

    Kavanaugh already earning his paycheck:

    Supreme Court Blocks Quiz of Ross in Census Controversy


    WASHINGTON—The Supreme Court on Monday shielded Secretary of Commerce Wilbur Ross from being questioned under oath about the government’s decision to ask people on the 2020 census whether they are U.S. citizens.

    The court, in a brief written order, stayed the effect of a lower-court ruling that had required Mr. Ross to sit for a deposition conducted by lawyers for a group of 18 states and other plaintiffs who are challenging the lawfulness of the administration’s move to add the citizenship question.

    The unsigned order seemed like an attempt by the court to avoid a 5-to-4 split in its first politically significant action since the addition of new Justice Brett M. Kavanaugh


    The states and the groups said Ross should be deposed. He has “offered shifting and inaccurate explanations in his decisional memo and in testimony before Congress” as well as in new documents filed in the case, said a brief filed by the New York Immigration Coalition, the American Civil Liberties Union and others.

    Democratic lawmakers and immigrant rights groups have blasted the idea of adding the citizenship question. They contend it will make immigrants and their families less likely to fill out the form, leading to a more costly and less accurate census.

    Six former census directors and a Census Bureau internal analyst also have said that the question would harm the count.

    That, in turn, could cost states with large immigrant populations representation in Congress and federal funds distributed on the basis of population.

    Ross first said he added the citizenship question at the behest of the Justice Department, which said it was needed to help enforce voting rights.

    But emails showed that he had been pushing for the inclusion of the citizenship question earlier than that, and the groups and states contend the Justice Department request was a pretext.

    Here's how crazy the World is – our Government is a corrupt, hateful mess with a strongman leader and a puppet court and who is the voice of sanity in the World?

    Erdogan Says Saudis Planned Murder of Journalist Khashoggi

    Meanwhile, what is President Coco Puffs focused on?

    Trump Threatens to Cut Foreign Aid Over Migrant Caravan

    Speaking of our corrupt courts:

    Judge Reduces Jury Award Against Bayer’s Roundup to $78.5 Million

    States Cleared to Allow Less-Comprehensive Health Plans

    States will be allowed to offer less-comprehensive health plans yet still qualify for federal subsidies under a new Trump administration policy that lets them skirt key regulations under the Affordable Care Act. 

  37. MU/Batman – The $50s are $7.75 and the $55s are $6.40 so, for $1.35, I'd rather have more headroom on the net $7.20 spread that's 1/2 covered because we can sell Jan $40 calls for $3.40 so our net net on the 1/2 covered spread is about $20,000 and, if we sell 20 Jan $40s for $3.40, that's $6,800 collected for 1 qtr out of 8, so I'm not at all worried about getting my money back – especially that $1.35 – but I am worried about getting blown out at the top of my range – so I'd rather have $5 more upside protection than $1.35.  And, of course, if we sell some Jan $40s (not yet, hoping it bounces) and it goes lower, $6,800 is enough money to roll the 2021 $35s ($13.20) to the $33s ($14.40) and, if we roll down $2 each quarter – we're likely to be in very good position no matter when MU comes back.

    Essentially, you are looking at the opening move of a chess game and asking why we would do that.  You have to learn to think further ahead and also to think of the positions as dynamic things whose primary purpose is to generate an income for us.  When we get a chance to get into a Butterfly-type position like MU (but too violent to be a Butterfly) in the LTP that promises great returns over time – we grab it!

    Als, keep in mind that $40 on MU is a $45Bn market cap and this goes back to last week's discussion on cyclicals – if you aren't going to buy them during a down cycle – you will be overpaying.

    Year End 30th Aug 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 9,073 16,358 16,192 12,399 20,322 30,391 30,879 30,779 +27.3%
    Operating Profit $m 1,737 3,082 2,950 164 5,839 14,609     +53.1%
    Net Profit $m 1,190 3,045 2,899 -276 5,089 14,135 12,663 11,427 +64.0%
    EPS Reported $ 1.13 2.54 2.48 -0.27 4.41 11.4     +58.8%
    EPS Normalised $ 0.28 2.77 2.51 -0.22 4.43 11.6 10.6 9.83 +110.9%
    EPS Growth %   +894.5 -9.6     +162 -8.79 -7.14  
    PE Ratio x           3.42 3.75 4.04  
    PEG x           n/a n/a n/a

    Again, you can buy this company for $45Bn and here's Batman – a generally savvy valuation guy, questioning the VALUE because "most bullish projections don't have this at $50".  My God, if I listened to "most projections" I'd have gone broke long ago!  So, when you see crazy big numbers like $14Bn in 2018 profit you certainly check another source to see if maybe Stockopedia has it wrong but Yahoo says the last 4 Q profits were:  $2.7Bn, $3.3Bn, $3.8Bn and $4.3Bn and the last 3 are 2018 so yes, $14Bn in profits is very doable.  

    Looking ahead, let's say MU does suffer a massive turndown and profits drop back to 2015s $3Bn – I still don't mind owning them for $45Bn but MU was $12 in 2015 so about $15Bn and for sure I would DD and average $30BN ($27ish) and I'd be very happy to hold that for years if that's how long it takes for the next cycle when they make $10Bn a year.

    This is what cyclical stocks do and you have to have a very long-range plan for scaling into them as well as a plan to generate income to pay for your scale.  Overall, our 40 $7.20 spreads (we rescued the original money) are $28,800 – 1/4 of an LTP allocation block – this is very early innings in playing MU in the LONG-Term Portfolio.  Hopefully, before we deploy more cash, we'll recoup a bit of money selling short calls.  Even if we only sell 10 shorts for $3,400, in 8 quarters that's $27,200 back in our pockets but keep in mind that our 1/2 cover expires in 4 Qs so we get 4 x $3,400 ($13,600) conservatively selling the first year but double that, even selling 1/2 covers the second year ($27,200) and that's $40,800 back on $28,800 less the 15 2020 $42 puts we sold for $7,500 so $21,300 was our outlay (of course we'll roll the puts lower and longer until we get them right).  We initiated the trade in August so it's a 2.5-year trade that's on track to make $19,500 (91.5%) so far but, of course, we plan to roll and keep playing this for many years and the only way we stop is when MU goes OVER our limit – otherwise, as I said above, this is just a 1/4 entry so far…

    You guys may not realize it but this is the reason the gains in the LTP accelerate over time.  As these positions mature and get bigger – those quarterly sales get bigger as well and the thing turns into a monster cash-generating machine – especially when we have a higher VIX! 

    MU/Winston – Notice how conservative I was when it was higher (about $54 at the time).  My valuation doesn't change just because the PRICE is high!

    "MU/Dave – Another one I used to love at $10 just 2 years ago but very hard to get excited at $54, though they've certainly grown to keep up with it, dropping $5Bn to the bottom line last year on a $62Bn market cap makes them still very reasonable – especially in this space.  So yes, I do like them – even at $54 but I'd still go conservative:"

    In the recent OOP trade, I was struck by the ridiculous price of the 2020 $55 calls ($4.50) so the rest of the trade was constructed to take advantage, leaving us in 20 2021 $45/60 bull call spreads with 10 short $35 puts for a net $1,000 credit.  Again, $60 is not our target but simply a vehicle that will allow us to sell short calls along the way but no pressure – as it's a $1,000 credit and we have nothing we need to work off.