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Tumblin’ Tuesday (Again) – Markets Turn Ugly, Dow 25,000 Fails

Wheeeee!!!! 

As you know, we love a good sell-off because we're very well-hedged but now we seem to be breaking even lower and we'll have to look at improving our hedges – just in case.  We are significantly lower than 10/9's Tumblin' Tuesday and 10/2 was "Tuesday – Trouble at 1,700 for the Russell" and we're miles from that now as we are almost down to 1,500 and Sept 25th our Morning Report was: "Toppy Tuesday – Markets Bounce Back Ahead of the Fed" after 9/18's "Tariffic Tuesday – Markets Ignore Another $200Bn Drag on Global Trade".  Oh, and last Tuesday was: "Tempting Tuesday – Nothing has Changed but Markets Move Higher. 

I don't do these reviews to say "I told you so" – it's my job to tell you so!  Reviews are important because next time we're in a similar situation, you may recognize that that's what happened last time and that will help you make better trading decisions.  That's why I started keeping a blog in the first place – to review my own thought process as I traded!  Like last week, when I warned about chasing weak bounces, which we were clearly having that day.  On that Monday (15th) we had posted the bounce lines for the indexes, according to our Fabulous 5% Rule:

  • 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

Those "nows" were from the morning of the 15th and, oddly enough, that's almost exactly where we finished last night and we knew that was a bad sign because "Anything below 1,552 is catastrophic" was a pretty clear warning, right? 

We got back over last Tuesday but all the indexes failed to stay over their strong bounce lines (some not even weak) so it was no surprise when the correction began to resume after Friday's prop job into options expirations.  I am both surprised and concerned at how hard we are falling on relatively no new news (down 350 on the Dow at 8:20) and hopefully 25,000 will hold (we tried playing it for a bounce and it failed already) but, if not, then DOOM!!!! 

Not gloom, just doom because this is just a correction from a market that had gone too high and we're finally beginning to recognize SOME (not all) of the macro issues I've been ranting about all summer.  Once we feel these macros are correctly factored into stock prices – we will be thrilled to go shopping – using all the CASH!!! we made from our hedges!  

As noted on Thursday, when we reviewed our Money Talk Portfolio, we've been using the Nasdaq Ultra-Short ETF (SQQQ) as our primary hedge but already SQQQ is testing 15, which was the top of our range and, by coincidence, I will be on the Money Talk show tomorrow to talk about adjusting and we MIGHT flip bullish here and sell the long calls in our SQQQ June $10/15 bull call spread if we can get $5 for the $10s – as that's our goal and we don't think the Nasdaq is likely to sustain a move much lower than this because — Apple (AAPL).  

While there are many overpriced stocks in the Nasdaq, AAPL is not one of them and AAPL is about 15% of the Nasdaq by weighting.  Also, we had an extensive discussion on the value of Micron (MU) and decided they are far too cheap as well – though they still may endure more of a short-term correction before stabilizing.  

As the angel said unto Lot:  "Find me just two righteous stocks and I will spare the market" and we can certainly find 2 dozen of the Nasdaq 100 that are worth investing in so let's not throw the baby out with the bathwater or slay all the first-born children or whatever it is that Republicans like to do these days when they don't get their way…

As you can see from StJeanLuc's Big Chart (thanks), this morning we'll be failing the 200-day moving averages on the three remaining indexes that were above and the Russell and the NYSE are completing corrections that have taken them 5% below so it's very, very possible that we'll see another 5% drop in the market from here but, for the purpose of our SQQQ hedge, that only takes it to just over $16 – so no reason to panic on our short $15 calls.  

Of course, if you don't have a lot of good hedges on your position then I do have to say "I told you so" because I did – over and over and over again – all summer long so I'm sorry if you didn't listen but hopefully next time you will and, even so, compared to the damage done in 2008 – you are getting off lightly with a very small slap on the wrist.  

A good example of how a hedge is supposed to protect you from a drop is our Top Trade Alert of Sept 6th, in which I said:  

Very interesting that Tech can't catch a break lately.  MU and other chips getting hit hard.  We'll see what AVGO says later.

Hedge/Gard – To hedge $1M of SPY positions, I'd go with an SDS hedge.  He'd be looking to offset a $200,000 loss and SDS is at $34 so +20% (a 10% S&P drop on the 2x inverse ETF) is $42 and the March $34 ($2.60)/$40 ($1.50) bull call spread is $1.10 and pays $6 in a big drop so let's say he wants to offset $60,000 worth of damage – he can do that for $11,000 and that's the cost of insurance.  

I'd pair that with some short puts on stocks he'd REALLY like to own if they get cheap, like 10 MU 2020 $42 puts at $6.40 ($6,400) which drops the net cost to $4,600 on the $60,000 spread, giving it $55,400 (1,200%) profit potential if SDS is over $40.  

SDS should be close to $38 this morning, putting the March $34 calls $4 in the money at about $4.80 while the short $40 calls should be about $2.80 so the bull call spread is at net $20,000 less the 10 short MU 2020 $42 puts at $7.80 ($7,800) is net $12,200 from our net $4,600 entry is up $7,600 (165%) so far but keep in mind that, if we finish at $38 on SDS, the short calls would be worthless and we'd have $40,000 on the longs – almost a 10x return.  

Image result for hedgingA hedge isn't supposed to pay you on a spike down that corrects – it pays you if there's a prolonged drop and your long positions don't recover.  This particular hedge was very, very cheap ($4,600 net) compared to the potential $55,400 pay-off if SDS is over $42 in March – that would be where we are if the Dow does drop another 5% and stays down into 1.

Our goal on a hedge isn't to erase all the damage – just to mitigate it.  If you feel that you have to hedge so much as to erase all possibility of a loss to your long positions – THEN TAKE YOUR LONGS OFF THE TABLE DUMMY!   Now THAT is good trading advice…

Even as a new trade, this SDS hedge at $7,600 still returns $60,000 for a $52,400 (689%) profit if the Dow falls another 1,000 points so it's good for a new trade as long as you REALLY want to own 1,000 shares of Micron (MU) at $42 (now $38).  Otherwise, you can substitute any stock that's on sale that you REALLY would like to own down the road as your offset but, after this morning's MU discussion – I'm fine sticking with them for the long haul…

I THINK this morning's sell-off is a bit overdone given that nothing has really changed – just sentiment so we'll be looking to play Nasdaq Futures (/NQ) long at the 7,000 line (tight stops below!) and the Russell Futures (/RTY) at the good old 1,515 line along with S&P (/ES) 2,700 and Dow (/YM) 25,000 – which already failed but if it goes back over that's a good sign.

Oil (/CL) makes a nice long at $67.50 for a quick bounce, as does Gasoline (/RB) at $1.86

If those lines fail, we'll add more hedges and tomorrow we'll do a triage and see if we need to add hedges to the Money Talk Portfolio tomorrow morning.

 


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  1. As I said last week, I don't think that we are done on the downside.


  2. This election is turning ugly and it's impossible to think that it doesn't have an impact on markets – we are back to fear of the brown people, anti-semitism (Soros is paying for the caravan) and lies by the bucket! Countries that are run on these values are not investment safe harbors!

    Why is the GOP not running on its "accomplishments" – tax cuts for corporations, repealing protection for pre-existing conditions, its plan to cut Social Security and Medicare? These are what they said they would do – a promise kept should be touted.


  3. A trip in memory lane – I had forgotten many of these websites:

    https://gizmodo.com/100-websites-that-shaped-the-internet-as-we-know-it-1829634771


  4. I predict that marijuana will be legal in a majority of states in 10 years:

    Not red states though!



  5. Phil/Sqqq- we cashed out the longs for stop but are we still keeping the naked short 14 calls? 


  6. Good Morning.


  7. I think weed will be legal in the U.S. by 2020…at the very least, no longer a schedule one drug.


  8. Does anyone have info on that XRT trade that Phil mentioned a cpl of weeks ago?


  9. TSLA

    Citron reverses opinion on TSLA.  Is now long.

    Unreal !


  10. Citron / Albo – There is a lack of integrity with these guys!


  11. Good morning!

    Lots of good sales in the Futures (see above).  Short summary for me is Asia went up for no reason (empty promises by Xi) and now back down and that sent Europe down even though progress is being made on Brexit and that sent us down because we were up for no reason last week so nothing to see here other than back to testing our 200 dmas at the moment but a full day below them will be bad news. 

    Not done/StJ – We're just forming the next leg of the "W" if it holds today and that's not too bearish but then we HAVE to see the weak and strong bounces over the same time-frame as they failed.  

    On /ES, we're down from 2,950 to 2,700 so 250 gives us 50-point bounces to 2,750 (weak) and 2,800 (strong) and we need to get back to 2,800 in the same 4 sessions we fell from it and 2,750 by tomorrow or this is NOT a healthy pattern and we can look for the next 5% drop (2,700 was 10%) to 2,575 and maybe even 2,400!  

    Election/StJ – Good point – it certainly doesn't fill me with hope about the future.  

    Memories:  My kids played Club Penguin.  All those sites remind me how new and exciting the Internet used to be.  Now it's just a thing that annoys us with ads for the most part..

    Oh no, things turning down again already!  


  12. SQQQ/Dave – Yes, in the STP we still have the short $14 calls and the plan was to re-cover with a long spread if we thought we might have trouble and – we might have trouble but I'd like to see how the 2.5% line holds up first today (about 6,975 on /NQ).  

    For /NQ, we're down from 7,700 to 7,000 so call it a 10% correction but actually 6,930 is the -10% line so you have to allow for the Nas to fall that far before bouncing but we don't need it to complete the fall to chart those bounce lines so 7,700 to 6,930 is 770 points x 20% is 150-point bounces so let's say 7,080 (weak) and 7,230 (strong) should be significant lines on the way back up and, if that's so, they should have shown us something on the way down:

    Not definitive but notice 7,230 was a stop line on the 19th and 7,080 held early on the 22nd and it's where we broke down from this morning.  Also, notice back on the 11th – where did we bounce?  6,930 on the button.  How much did we bounce, 150 points (a 20% segment) over 7,230.  So we can be pretty confident that the 5% Rule is in play here and we should AT LEAST get a weak bounce off 6,930 back to 7,080 which means I'm not in a particular hurry to enter a new hedge until we see how that bounce works out.  

    Of course, for the sake of the Money Talk Portfolio, we'll have to probably take a more cautious approach as we can't adjust it again until Jan(ish)

    HMNY/Jabob – Spun off into what?  Well, we're up 24% on that news at least….

    I guess it's good as we own HMNY and if we dump the money-losing Movie Pass (we'll get shares in that too), then HMNY can potentially get back to their historic (post-split) $1 valuation.  That would be funny after all these gyrations.

    XRT/Soma – That was a hedge that went into the STP (was from that morning's post):

    Long Put 2019 18-JAN 55.00 PUT [XRT @ $46.23 $-0.51] 20 9/27/2018 (87) $8,300 $4.15 $5.03 $4.15     $9.18 - $10,050 121.1% $18,350
    Short Put 2019 18-JAN 50.00 PUT [XRT @ $46.23 $-0.51] -20 9/27/2018 (87) $-2,900 $1.45 $2.88     $4.33 $0.53 $-5,750 -198.3% $-8,650
    Short Call 2019 18-JAN 52.00 CALL [XRT @ $46.23 $-0.51] -10 9/27/2018 (87) $-1,850 $1.85 $-1.50     $0.36 - $1,495 80.8% $-355

    Too chasey for a new trade.  

    Citron/Albo – I wonder what that cost?

    Still, their story is getting a bit better as they ramp up production on the Model 3s, which they are selling for $45,000 with the $7,500 rebate still a reality so call it $37,500 net.   Since the rebate is in the lease price – it makes it pretty attractive to lease a car for, say, $400/month that doesn't need any gas (saving you maybe $100/month).  Makes them a lot harder to bet against down here. 


  13. Marijuana/Stj

    Unfortunately, I believe your chart may be right.

    I predict you will have a whole population of Canadian young men and women, followed by the same in the U.S. with psychosis and other similar disorders in 10 years.

    The medical research data on this is unequivocal….

    The other consequences on society have not been addressed either. How are they going to prevent ‘impaired’ drivers from taking the freeway?

    For now, let’s all party! And I am a believer of ‘freedom’…


  14. MJ / Maya – Possibly but how we stop people driving impaired from legal alcohol consumption? 


  15. Every index besides the Nasdaq is either negative for the year or barely hanging on! Time to turn on fear to 11 to maintain the illusion.


  16. MU OUCH!


  17. From Scientific American:

    "Interpretations of these new findings are hardly likely to receive universal acceptance. Questions about the cannabis–psychosis link have persisted for years. “The available data on this subject are far from definitive—particularly with regard to any potential cause-and-effect relationship,” notes Paul Armentano, deputy director of NORML, a U.S. organization that advocates marijuana legalization for adults. “For instance, increased cannabis use by the public has not been followed by a proportional rise in diagnoses of schizophrenia or psychosis.”

    In 2015 the Toronto-based International Center for Science in Drug Policy issued a report—“State of the Evidence: Cannabis Use and Regulation”—that detailed this discrepancy. It cited a British study that estimated the significant rise in pot use should have produced, between 1990 and 2010, a 29 percent increase in schizophrenia cases among men and 12 percent among women. But according to other data, during the time when usage was thought to have grown most (1996 to 2005), the number of new schizophrenia cases remained stable or declined. “These findings strongly suggest that cannabis use does not cause schizophrenia,” the center’s report notes."

     

    Old attitudes die hard….


  18. Of course, if you have issues, Sleep, Exercise, Eat well. Don't drink or take drugs.

     

    My PSA to all of you…. :)


  19. U.S. warships pass through Taiwan Strait amid China tensions





  20. Walmart’s strategy to solve the Amazon puzzle is working


  21. Phil – I think we bought back the short calls on one of your ABX spreads recently (with plans to re-sell when time was right). Just wondering now that ABX has come up somewhat and vol is a little higher, would now be a good time to re-sell that cover???


  22. Donald Trump just embraced nationalism. Yes, really.



  23. Saudi Oil Chief Says OPEC’s in ‘Produce as Much as You Can’ Mode





  24. China’s economy loses even more steam


  25. --review on OOP – ABX – Finally back from the dead and we're pretty aggressive.  Let's cover 1/2 with 20 2021 (yes, 2021) $15 calls at $2.30 ($4,600) as it drops a lot of money in our pockets and it's only a 1/2 cover so we can do a 2x roll much higher when 2022s come out (and we'll need to buy longs then too with the money from our 2020 calls – how's that for long-term planning? 


  26. Phil, I have been holding off on MU trade.  Given the move down, would you make changes to it?  Thanks.


  27. Nope, nothing in my reading convincing me to get more bearish.  

    F/Learner – We discussed them on the weekend.  F could go lower because people are irrational but I certainly like it down here and GM also very attractive at $31.50 so I'd put eggs in both baskets – not just one.  

    And FCAU

    TM is almost a buy again – at $100 I usually go long.  

    Speaking of /RB – Ouch!  Testing $1.85 now with /CL near $67.  /NG heading higher as we're just exporting more and more every day.  

    Marijuana/Maya – I don't think it's worse than alcohol, probably better and I'd certainly rather have a stoned driver than a drunk one though, preferably, neither.  Won't matter in 20 years as no one will drive anymore anyway.  As to the psychosis – Pot was legalized in Amsterdam in 1976 and they have pretty good data and not much evidence of long-term mental harm though there is a tendency of people with psychosis to find pot soothing so it distorts other studies that confuse cause and effect.  I know there are a ton of "studies" saying there's a link – there are also "tons" of studies that say Global Warming is a hoax – I tend to go with the majority views – not just the one I prefer.  

    And what 1020 said! 

    MU/Jabob – Now downgraded too!  

    ABX/Crs – You mean like this?

    • ABX – Finally back from the dead and we're pretty aggressive.  Let's cover 1/2 with 20 2021 (yes, 2021) $15 calls at $2.30 ($4,600) as it drops a lot of money in our pockets and it's only a 1/2 cover so we can do a 2x roll much higher when 2022s come out (and we'll need to buy longs then too with the money from our 2020 calls – how's that for long-term planning?  

    Thanks Grass! 

    Wow, oil and /RB down and down.  

    MU/Taihu – Yes, I'd wait to see where it settles for sure. 


  28. Winning trade wars is easy:

    https://www.bloomberg.com/news/articles/2018-10-22/ford-says-trump-tariffs-makes-u-s-steel-costliest-in-the-world

    Ford Chief Executive Officer Jim Hackett last month called on President Donald Trump’s administration to resolve trade disputes quickly, warning that they would otherwise do more damage to the second-largest American automaker. He said the company sustained a roughly $1 billion hit to profit despite the fact that it sources most of its metals from the U.S.

    Looking at my Ford positions taking a hit! Thanks Trump…


  29. I guess we can't say no to lower oil prices!




  30. Big bounce on /NQ!  

    Intra-day "W"s are forming – now we need the bigger ones.

    See, this is the real advantage to hedging – we are able to sit back and watch a 500-point drop and calmly wait to see what happens without feeling the need to adjust things under pressure. 

    /YM just crossing back over 25,000 if you missed out on the other lows.

    I have 2 long /RB at $1.8376 and 2 long /CL at $66.31 – probably will be happy with those into inventories tomorrow – or at least API tonight.

    F/StJ – See but I don't consider that a long-term knock on the company because it will eventually resolve.  It's a self-inflicted wound (for the country, not F).


  31. /NQ at 7,080 right now and, of course, pausing there.  5% Rule rules!  cool


  32. If you are playing futures for quick in and out money, best to take the $1,600 profit at 7,080 and then, if /NQ crosses that line, you can go long again with tight stops below or you can look for the lagging index and play that to move up to the weak bounce line.

    To calculate that though, we need to see everyone's 10% correction lines:

    27,000 to 24,300 is 10% down and that's 2,700 points so 500-point bounces to 24,800 (weak) and 25,300.

    2,950 less 10% is 2,655 and that's 295 so 60-point bounces is 2,710 (so we bounced off the weak bounce line from the 10% correction that hasn't completed) and 2,780.

    1,750 less 10% is 1,575 so the RUT is the lagger if we're recovering as they are miles away.  If they have trouble getting back over their -10% line, it's doubtful the others will make their strong bounces.  Keep in mind a 10% drop has 2% corrections just to be weak and 1,500 x 2% is 30 so 1,530 and call it 1,560-1,575 are the levels to watch here.  

    So, nothing to get excited about so far as we may just be pausing on the way to more carnage.  

    I'm willing to play /RB and /CL overnight but not the indexes!  


  33. In First for Europe, Brussels Rejects Italy’s Budget


  34. S&P 500 Sell-Off Deepens With Over 90% of Stocks in Red






  35. LMT with really good earnings, on track to make $17+.  P/E around 20 at $324 but they still look like the top contender to commercialize fusion first – which is a Trillion-Dollar opportunity, long-term.

    I like them because they are one of the last remaining companies with a real R&D budget.  I think at $250 I'd be really excited to own them so no reason not to sell 5 LMT 2021 $280 puts for $21 ($10,500) in the LTP, to remind us to keep an eye on them (and to drop $10,500 into our pockets). 

    A much cheaper stock I'd like to keep an eye on is CZR and I don't mind getting "stuck" with 2,000 shares in the LTP so we can sell 20 2021 $12 puts for $4 ($8,000) and buy 40 of the 2021 $10 ($2.40)/15 ($1) bull call spreads for $1.40 ($5,600) so we still have a $2,400 credit (so net $9.60 if assigned) and we'll be able to sell 10-20 short calls when they pop.  At the moment the Jan $10s can be sold for 0.55 but even $550 x 8 is $4,200 while we wait…

     

    CAT is a bit of a falling knife but $120 is $72Bn and they are good for $3-4Bn this year and only just starting to cycle back up (assuming the economy doesn't totally collapse).  $80 is where I usually put my foot down on them, even in down cycle and we can sell 5 CAT 2021 $100 puts for $10 ($5,000) as a nice placeholder for now in the LTP.

    • Barrick Gold (ABX +2.2%favors taking back control of Acacia Mining (OTCPK:ABGLF) following completion of the merger with Randgold Resources, Bloomberg reports.
    • Acacia Mining, currently 64% owned by ABX, has been dogged by operational setbacks and is locked in a dispute with Tanzania’s government, which would need to be resolved before ABX makes any decision, according to the report.
    • Acacia, formerly called African Barrick Gold and spun off from ABX in 2010, promised gold production of 1M oz./year when it first listed in London but instead has declined and this year is forecast to come in at around half the figure.
    • In the latest blow to the company, Acacia says a senior manager in Tanzania has been arrested and charged with corruption.
    • JPMorgan is “a bit more cautious” ahead of Amazon’s (AMZN -3.3%) earnings results happening after the market closes on Thursday.
    • The firm cites potential headwinds from Amazon’s recent $15/hour minimum wage increase and the prospect for higher shipping costs under a proposed U.S. Postal Service rate change, which could put pressure on margins.
    • Positive trends include growth in advertising and web services, opportunities from grocery and healthcare, and Prime subscriber adds despite price increases.
    • Firm reiterates an Overweight rating with a “top pick” status and a $2,200 price target.
    • Source: Bloomberg First Word. 
    • Previously: Amazon, FedEx, and UPS drop on proposed USPS price increase (Oct. 11)
    • Previously: Amazon sets $15 minimum wage for all U.S. employees (Oct. 2)
    • Investors are showing some anxiety with U.S.-focused casino stocks ahead of earnings reports from the group.
    • They may be taking their cues from Telsey Advisory analyst Brian McGill, who warned today in a note that channel checks imply weakness in Las Vegas.
    • Notable decliners: Eldorado Resorts (NASDAQ:ERI-5.0%, Golden Entertainment (NASDAQ:GDEN-4.9%, Penn National Gaming (NASDAQ:PENN-4.5%, MGM Resorts (NYSE:MGM-4.0%, Caesars Entertainment (NASDAQ:CZR) -2.9%, Century Casinos (NASDAQ:CNTY-2.3%.
    • Related ETF: BJK.
    • Uber (UBERplans to extend UberEats food delivery to 70% of the U.S. population by the end of the year, a 50% increase from the current availability.
    • The company is working to strengthen its core businesses ahead of next year’s IPO.  
    • Competitor GrubHub (NYSE:GRUB) is down 3.8%.  
    • Previously: Uber plans to go all-electric in London (Oct. 23)
    • U.S. WTI crude oil -2.6% to $67.56/bbl and Brent -2.3% to $78.01/bbl after Saudi Arabia said it could supply more crude quickly if needed.
    • Saudi Energy Minister Khalid al-Falih told a conference in Riyadh that the oil market was in a “good place” and the kingdom would "continue with the mindset we have now, which is to meet any demand that materializes to ensure customers are satisfied."
    • "Saudi Arabia's energy minister has dealt a fresh heap of bearish fodder onto the energy complex," quipped PVM Oil analyst Stephen Brennock.
    • Falih said he would not rule out the possibility that Saudi Arabia would produce 1M-2M bbl/day more than current levels in future, and Saudi Aramco head Amin Nasser said it would take only three months to reach maximum production capacity of 12M bbl/day if needed.
    • Oil and gas names are broadly and sharply lower: XOM -2.5%CVX -3%RDS.A -2.8%BP-2.8%COP -4%PSX -4.6%VLO -5%PXD -3.9%, EOG -4.3%DVN -3.7%APA -4.5%APC-3.8%MRO -6.2%MPC -6.8%HES -4.2%SWN -3.3%SLB -3.2%HAL -4.1%BHGE -3.4%KMI -3.6%EPD -3.2%CHK -2.8%.
    • McDonald's (MCD +6.1%) is far and away the biggest gainer on the retreating Dow after a strong earnings report.
    • Analysts are pointing to the operating margin beat and tight G&A expense control by the restaurant company, while the near-miss on the U.S. comparable sales isn't creating any ripple of anxiety.
    • Shares of McDonald's are trading at their highest level since January.
    • Previously: McDonald's beats by $0.11, beats on revenue (Oct. 23)
    • Previously: McDonald's higher after strong global comp (Oct. 23)


  36. Good recovery so far – the bots are in overdrive now!


  37. Hey PSW members!  Lurking still, trying to keep up.  Long VKTX.  Nice place to get in for a longer term hold.  They have several nice molecules entering into Phase 3, one being for the treatment of NASH.  

    I would buy the stock and sell the Nov 15 calls and Dec 11 Ps.  Net entry is 11.80ish.

    Hope all is well!


  38. Another that I am playing with is IMGN.  Stock has been bouncing around, but someone is playing the Apr calls in large fashion.  So, I did the stock selling calls and puts in December.  I also bought a January 9 call JIC someone buys them before the new year.  My hail Mary play.

    LQDA – I think I mentioned them a while ago at 12ish.  I really wanted them to pull back, but they shot out of the gate and hit $38.  Back at $21.  I am getting close to accumulating them. Think United Therapeutics many years ago, with a better profile.  It is the same drug, so it works, it is just delivered more efficiently.  They will get approval and most likely be bought out.  United Ther is a good bet on that one.  Mannkind did sign a deal with UTX, but I think that was a ploy to slow down development for the same drug.  Love big pharma squashing competition! :)


  39. Hey Pharm – good to hear from you and thanks for the update!


  40. And since 1020 likes pot, ganja, or whatever the new term may be….MMNFF has a large footprint in the retail space!  Look them up….I am in the stock.  They generate a large amount of $$ per sq ft!


  41. STJ…yeah, good to be on the board.  My device company is now public…now maybe I can retire…when I can sell! :0


  42. Good luck Pharm! Maybe you'll have more time to chat with us working people.


  43. Congrats Pharm! Very Cool. 


  44. Holy crap, we might go green at this pace!

    /RTY 1,540!  /NQ 7,150, /YM 25,250, /ES 2,750!  WOW!!!

    Hola Pharmboy!   I like that LQDA story – bit of a falling knife though and no options.  frown

    MedMen (MMNFF) is doing a great job on the retail side.  Also no options.  angry

    Congrats on going public, now you can come worth with New Age…


  45. AAPL $222 again – crazy!


  46. AAPL – Sold more more nov 16 $220 Puts this am at 10.5 (AAPL at 115 ish), now selling some short putters for the end of week Nov Oct 26 227.5 Calls for .75…  222.4 ish….. crazy. 


  47. Phil – those put sales – fearless – you're a better man than me Gunga Din


  48. ARNA Nov $35 P STO.  Lunch money.


  49. Phil / Hedge – I have a SDS hedge I place now am looking for a TZA hedge with market popping up do you have something for that looks good for TZA out to maybe Jan?


  50. Phil,  Agree with Winston’s comment on your put sales.  I have been taking profit on a few deep itm puts that expire in Jan 2019 just to free up margin.  Been layering into butterflies lately – a bit worried about new BCS positions.   Love my butterflies.. question –  after MSFT reports earnings… would it be a good time to initiate a Jan 21 butterfly? 100/120 or something higher in case there is a spike.  Stock has had a great run but downside risks appear higher if valuations start to normalize even if business is good.  Rate of growth should slow next year… your thoughts? 


  51. AAPL/Batman – Good timing.

    Fearless/Winston – I keep telling you, I have a set value I'm willing to pay and, when something hits it (or close enough), I'm willing to buy.  That's the whole point of having watch lists – it keeps you focused on what something is really worth so you don't get swayed by shifting market sentiment (or nervous Members!).  

    SDS/Batman – Odd timing to add a hedge but, on TZA, I'd sell some CAT or LMT puts to help pay for an April $10 ($2.25)/15 ($1) bull call spread at $1.25 as it's $1.30 in the money so you can't lose UNLESS the market is higher in April so, as long as your longs are set up to pay you in a flat or up market – it makes a great hedge.

    MSFT/Learner – MSFT generally goes up and up and up and up so not the best Butterfly candidate as we prefer up and down and up and down but, overall, flat to slightly up.  MSFT went from $60 to $85 last year and $85 to $115 this year so about $8 per Q and the Jan $105 calls are $7.50 and the $105 puts are $4 so $11.50 vs an $8 expected move is + $3.50 and then what does a long cost me? 

    It's too high for me to really want to sell puts and the 2021 $110 calls are $17.85 and the $130 calls are $10 so net $7.95 for my longs but I wouldn't want a 1:1 cover so say 10 longs for $7,950 and sell 4 calls and puts for $4,600 is not terrible to try out though I'm not sure if it will last with a lower VIX.  

    Figure you end up making $3.50 x 4 = $1,400 x 8 = $11,200 if all goes well so your money back + 40% + the value of the spread that remains is good but not great for a butterfly (that should make 40% a year if it's on track).

    Toad/Rexx – Isn't that gone?  


  52. I don't like the selling into the close.  Not a big dip but still – there are sellers out there significant enough to end the day on a down note.  


  53. Puts / Phil – I'm glad you pulled the trigger…. I was watching may stocks. When you pull the trigger I did as well… small bites to start -- With the vix above 20 it makes sense to see some….

    Sold LT Puts on LMT, T, and AAPL,  SKT…  We'll see how goes 


  54. OOPS. AAPL was ST putter the Nov 220 Put


  55. We'll see/Batman – Think of those puts as paying for the hedges we'll slap on now if we break today's lows (like that TZA above!).  


  56. Texas Instruments misses on processor weakness and issues downside guidance.   I think we are at the early stages of a semiconductor/memory inventory correction. 


  57. Learner  / Texas Instruments - I agree with you on the Semi's especially memory…  Apple has been highlighting getting favorable pricing on memory all year ( they outlooked it to start FY Q3 but really hitting Q4) they saw a little of this last Q.   There is over capacity in the industry,  due to storage business weakness, and if this QTR or next is the start, then we are looking at probably 3 to 5 qtrs for this to even out….  I've been looking at QCOM – they are still executing on their 30- 35 B buyback, and I think this is good for support and some tailwinds for this to reach into the high 60 or low 70s…  AVGO is also interesting to me with the CA acquisition and a really a good portfolio of products..  I looked and FNSR as well – they have almost $10 of cash on the books and are expanding in texas, with this capacity coming on line late this year.   They are tight with AAPL, however this is a commodity business. but I like them, and could see them hitting low to mid 20s late Early to late '20 


  58. LB – Still waiting for the November rally to kick in…  Hope they don't cut the dividend –   I know hope is not a trading plan….


  59. Leaving for New Orleans early tomorrow so posting the lines tonight!

    Looking at longer terms charts, if we are not done going down (which I believe is the case), then I see support at:
    Dow – 24,700 then 24,200
    S&P – 2700 (our bounce line today) then 2650 and 2600
    Nasdaq – 6900/7000 where we stand now then 6400/6600 zone
    NYSE – 12,200 where we bounced today then 11,800 to 11,900
    Russell – 1510  where we bounced today then 1440/1450 (Must Hold line)

    The Russell and NYSE are a bit scary now because not a ton of support I think. Just my $0.02.


  60. API is NOT good for oil but not bad for /RB though net bad with a 4Mb build:

    Inventories: Crude: +9.88 Mb Gasoline -2.8 Mb Distillate -2.4 Mb Cushing +0.971Mb


  61. Money Talk Notes:

    Segment 1:

    Increasing volatility coming into the election is "normal" as is a correction after such a huge rally, which has been fueled by corporate buybacks and tax cuts that have distorted the true profits of US Corporations and the true demand for stocks in general.

     

    Segment 2:  The Money Talk Portfolio 

    The Money Talk Portfolio had its one-year anniversary on September 6th and we only include trades and changes that we announce live on the show and don't touch it in-between so it's the ultimate low-touch portfolio, as we come on about once each quarter. 

    We started with $50,000 and now, after a year and a month, we're at $95,645 for a gain of $45,645 (91.3%) so far.  

    • ALK – A short put we are confident in, should gain another $3,275 at maturity.  
    • SQQQ – A good hedge that's $6,760 in the money but only showing net $3,450 out of a $10,000 potential.  Hopefully we lose the $3,450 because the market does well as it's simply insurance and not a bet.  
    • ABX – A long-term bet on gold that pays up to $12,500 and is currently on track at net $2,225 so good for a new trade with another $10,275 (460%) left to gain at $15.  

    • GE – Been in everyone's dog house but I like them long-term.  If they recover, could be a $15,000 net at $18 but we'll be happy with $6,000 at $15 and the current net is just $2,020 so call it $3,980 (197%) at $15 as a realistic goal.
    • GIS – A newish trade still good for a new entry with a potential return of $11,250 and currently net $2,315 so $8,935 (385%) more if all goes well.  
    • LB – Another sleeper but our goal is a modest $35 though we'll have to roll the 20 Jan $32.50 puts at $4.50 ($9,000) to 12 2021 $30 puts at $7.50 ($9,000).  At $35, this trade pays $30,000 and is currently trading at net $1,700 so a nice $28,300 (1,665%) at $35 would be great! 
    • WPM – Possibly my favorite as they are so undervalued.  The short Jan calls will expire worthless and, this low in the channel we can sell 10 2021 $17.50 puts for $3 ($3,000) and roll the 30 2020 $22.50 calls at $1.03 ($3,075) to 25 of the 2021 $15 calls at $4.40 ($11,000) and sell 25 of the 2021 $22.50 calls at $1.80 ($4,500) and buy back the 30 short 2020 $30 calls for 0.36 ($1,080).  So, to recap, we're essentially closing this whole trade and opening a new 2021 $15/22.50 bull call spread at net $2.60 ($6,500) and selling 10 of the 2021 $17.50 puts for $3 ($3,000) so our net/net on the new trade is $3,500 with a potential gain of $15,250 (435%) at $22.50.

    We have a small hedge and I like our 5 spreads and the short put which, if all works out, will make another $70,015 between now and 2021 so all we really have to do, between now and then, is check on them each quarter to make sure they are on track and this portfolio will gain another 140%.

    Since we do have $85,740 cash on the side and we're only using $30,000 in margin, we can add one trade and one hedge:

    • Sell 10 MJ 2021 $30 puts for $7 ($7,000) 
    • Buy 20 MJ 2021 $25 calls for $9.50 ($19,000) 
    • Sell 20 MJ 2021 $45 calls for $5.25 ($10,500) 

    That's net $1,500 on the $40,000 spread that's currently $16,000 in the money with a $38,500 (2,566%) upside potential.  It's crazy volatile but a lot easier than trying to pick an individual winner in the Cannabis Industry!  

    As a hedge, I'd like to add TZA with a short put that pays for it:

    • Sell 5 CAT 2021 $100 puts for $10 ($5,000) 
    • Buy 40 TZA April $10 calls for $2.25 ($9,000) 
    • Sell 40 TZA April $15 calls for $1 ($4,000) 

    The net cost of this spread is zero but we are obligated to buy CAT for $100 if it goes that low (20% lower) and that's not likely to be the case if our TZA bet fails to win.  The spread pays up to $20,000 and is currently $5,400 in the money so you can't lose unless the Russell is higher in April and that should be good for the short puts.  

    Also, just because they are such a good deal, I'd like to sell 5 MU 2021 $35 puts for $6.40 ($3,200) as we'd only be promising to buy 500 shares at net $28.60, which is a 28% discount. 


  62. Turns out TD does not like Pot Stocks so we can't do MJ for that portfolio (though I still like the trade!).  Instead we'll turn MU into a proper trade with:

    • Sell 5 MU 2021 $35 puts for $6.40 ($3,200)
    • Buy 10 MU 2021 $35 calls for $12.40 ($12,400)
    • Sell 10 MU 2021 $50 calls for $7 ($7,000)

    That's net $2,200 on the $15,000 spread so the upside potential is $12,800 (582%) in two years if MU can get back to $50. 



  63. Trump Steps Up Attacks on Fed Chairman Jerome Powell



  64. Popularity of Indian Stocks This Decade Adds to Outflow Risk



  65. Phil – set value. I respect that fact. However, selling puts into a down draught means you are potentially giving up additional premium that you would be able to obtain from a lower stock price and a higher VIX. Yes, you will say you are well hedged, but……



  66. Trade Woes Set Up Euro Economy for Disappointing Year-End


  67. How to Make America America Again


  68. Brexit Bulletin: Open Conflict






  69. Good morning! 

    Well, if you don't like which way the market is going, just walk away for an hour and come back – worked for me at 4:30, when I woke up…

    So silly!  

    Same bounce lines, of course, overnight nonsense doesn't count.

    Lot's of W's attempting to form:

    /NKD is a fun play over the 22,000 mark as it's a big lagger to the upside.

    Dollar was killing the market but now market even stronger against the strong Dollar:

    I'm long 2 /CL at $66.82 since it held $66 overnight against a strong Dollar.

    That's because it was $75 on /BZ, so we'll see how bouncy ($76 weak, $77 strong).

    /RB can still be played over $1.84 but tight stops below.



  70. Unions Seek 40% Pay Hikes for Iceland Workers