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Which Way Wednesday – Trump Bloviates but Powell Will Have the Last Word

Is this guy delusional or what?

The Republicans got trounced in the House but kept the Senate and Trump calls it a "Big Victory" though I do have no doubt that his friend Putin did congratulate him – so maybe that part is true.  So far, the markets seem very happy with a split Congress and we're back to the 7,100 line on the Nasdaq but that's only our weak bounce line (7,080) and we're still waiting for the Nasdaq and the Russell to confirm strong bounces and, of course, the others need to hold theirs for two consecutive days or we'll have to reset the clock on them as well.  Our bounce lines are:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

As you can see from our Big Chart, We are still below the 200-day moving averages on all but the Dow and the Dow is a very silly index that it's best to ignore.  The Dollar is helping things along this morning by dropping half a point and we're down 1% since Monday, which means the things priced in Dollars, like stocks and commodities, have to rise 1% just to stay even.  

So it's no surprise that, this morning, we've got a big reversal on Gasoline (/RB), back to $1.70 but that's still shy of where we went long at $1.72 last week (down $880 per contract).  With Oil inventories at 7:30, it's too tough to call and yesterday's API Report showed yet another massive build in oil, with 7.8M barrels piling up in inventories against a 1.2Mb draw in Gasoline and a 3.6Mb draw in distillates so net +3Mb is NOT GOOD for the energy sector but it's hard to say if it's due to weak demand or robust drilling in the US.

Overall, at the moment, Global Production of oil exceeds the Global Supply and that's forecast to continue into the 3rd quarter of next year so get used to these weekly builds – they are not going away and, looking at this EIA chart, we're only at the begginning of a full year of a huge build in inventores.

Keep this next chart in mind before going bullish on oil as it shows you what happened to the price of oil in 2014 and 2015 – the last time we put together a string of 6 consecutive quarters of builds in oil stockpiles:

That's from $100 to $30 and there's really not much of a reason we should be over $50 now.  Only the upcoming Thankgiving holidays gives the bulls real hope this month but, after that, where's the catalyst going to come from?   Unless the Iran situation escalates into a war that disrupts production – we may have a lot further to slide in Oil (/CL) and Gasoline (/RB).

As to the market, who knows how it will react to the election but that's all based on speculation until the Dems actually take office in January.  Meanwhile, we're waiting on tomorrow's Fed Statement and it's possible they put off raising rates until December – but I doubt it.

We'll likely re-test recent lows after that.


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  1. What great win – by historical measures, the GOP underperformed. Even losing senators and governors did better than the Trump-Clnton spread: I was hoping for better, but losing the popular vote by 8% is not great win in my book.

    As I write this, the New York Times is projecting that Democrats will win the House popular vote by more than 8 percentage points. If that margin holds, it will be the largest since the Democrats’ 2008 victory, which came amid a collapsing economy, a hideously unpopular war, and the rise of Barack Obama’s massive grassroots army.

    Unemployment is at 3.7 percent right now. The economy is growing. For the country to vote this decisively against the incumbent party is shocking. Midterm election results hinge on turnout, gerrymandering, and the specific set of Senate seats in play, so they’re not a clear picture of the national mood. But for the House popular vote to swing this hard against Republicans under these economic conditions reflects a profound political failure on Donald Trump’s part. Republicans are paying the Trump tax, and it’s getting larger.[...]

    The GOP needs to ask itself: What’s going to happen in 2020, when the Senate map reverses, and Republicans are defending twice as many seats as Democrats? What if unemployment is 5.7 percent rather than 3.7 percent?

  2. This would have looked hard to believe 10 years ago:

    Must be the Trump effect! More likely a tight labor market and pressure from society at large.

  3. Morning All! 

    There will not be a webinar this week. We'll resume our regular schedule next week.

  4. ~~

    FTR -

    Frontier Communications beats by $0.37, reports revs in-line; slightly lowers adjusted EBITDA guidance . 

    ~~?Frontier Communications (FTR) downgraded to Sell from Neutral at UBS

  5. ~~GNC +12.2% (reaches agreement w/ Harbin Pharma for the funding of Hayao's investment, enters into JV Framework Agreement with respect to joint ventures in Hong Kong and China.

  6. ETSY

    Etsy beats by $0.08, reports revs in-line; raises FY18 guidance, announces $200 mln stock repurchase program/. 

    ~~ETSY is trading up 12% around the 45.25 level in extended hours trading.


  7. Good Morning.

  8. FTR…E.T.

  9. FTR bought stk and selling Jan 19 5 put !!!!!

  10. ETSY – Up 20%.  Sold some.

  11. FU GE!!!!

  12. Good morning!

    Well, I'm in a good mood as Democracy does still sort of work.  I'm pretty sure Texas and GA were cheats as the exit polling did not match the vote count but what can you do?  And how the F did Florida vote for 6 more years of Rick Scott?  Big strategic gamble for the GOP that paid off.  At least next election we can concentrate on the Senate instead of the House.  

    What if/StJ – If anything bad happens, Trump can now blame it on the obstructionist Democrats (more so than he usually does).

    FTR/Albo – Got whacked on what wasn't a bad report.  

    GNC going the other way:

    Trump will declare victory at 11 am conference.

    EIA in 15 mins.

    $19Bn 30-year auction at 1pm but 10-year went pretty good yesterday.

  13. YAAAAAAH! We are rid of Scott Walker/Koch brothers in Wisc!!!!!

  14. Trump / Phil – Didn't work this time so don't know if that can work in the future. The only thing that saved them this time was a favorable map. 

    Of course now he is threatening Dems with investigations if they investigate him. That sounds like a page from Putin's book. Not sure how that plays outside of his base. And look at these phonies saying that we should not waste taxpayers money on investigations – hmmmm Benghazi comes to mind! 

  15. oil????

  16. oil looks like about 5 million build

  17. but it went into strategic reserve

  18. sorry same amount went into reserve 

  19. Another big build on /CL spikes everything and now /RB is building too so very bad.  Net 4.3Mb build – not good!

    • EIA Petroleum Inventories: Crude +5.8M barrels vs. +2.4M consensus, +3.2M last week.
    • Gasoline +1.9M barrels vs. -2.3M consensus, -3.2M last week.
    • Distillates -3.5M barrels vs. -2.6M consensus, -4.1M last week.
    • Futures +0.21% to $62.34.

  20. Koch/Pirate – We're not rid of them, unfortunately, but at least their favorite puppet is out.

    Outside his base/StJ – Unfortunately, yesterday's vote showed that Trumps base can actually support a fairly unlimited amount of crap.

    Volume has died again – maybe waiting on the Fed?

    Date Open High Low Close* Adj Close** Volume
    Nov 07, 2018 277.56 278.89 277.08 278.69 278.69 26,445,604
    Nov 06, 2018 273.32 275.30 273.25 275.12 275.12 59,179,300
    Nov 05, 2018 272.44 274.01 271.35 273.39 273.39 65,622,500
    Nov 02, 2018 274.75 275.23 269.59 271.89 271.89 122,634,100
    Nov 01, 2018 271.60 273.73 270.38 273.51 273.51 99,495,000
    Oct 31, 2018 270.65 273.23 270.12 270.63 270.63 128,296,300
    Oct 30, 2018 263.67 268.12 263.12 267.77 267.77 157,116,000

  21. Phil/NAK,


    50% up


  22. NAK/Pat – That's a nice surprise.  One good thing coming from a Republican victory:

    Northern Dynasty: Alaska voters elect pro-development State Governor Mike Dunleavy

    $61.50 failing on /CL, $1.66 failing on /RB – really catastrophic if /BZ fails $71, now $71.50.

  23. GLUU – New multi-year high.

  24. Phil I still have the SCO 11/14 jan 19 BCS. Where would you think I schould roll it to.?

  25. Recount in Florida!

    Well, $1.65 on /RB is a little crazy.  In the STP, let's add:

    • Buy 30 UGA Jan $28 calls for $2.00 ($6,000) 
    • Sell 30 UGA Jan $31 calls for 0.80 ($2,400)

    That's net $3,600 on the $9,000 spread and figure we'll cut and run at $1,800 so risking that to make up to $5,400 if all goes well.

    Big picture the move was $25 to $37.50 so 50% move up and that means, unless we're making new lows, that $27.50 should be good support (weak bounce of a full retrace) and $30 really should be bouncy (strong bounce) so this is a good spot to give the longs a shot. 

  26. trump better shut his cell off a call from putin during his speach could be embarrassing

  27. SCO/Yodi – Well it's miles over at $18 and you can pull the Jan $11s for $8 and the $14.s are about $4.70 so net $3.30 and done or, since the delta on the $14s is 0.88, you only risk about $1.75 leaving them naked and hoping oil bounces back from $60 in time to drive them lower.  Maybe keep a stop on 1/2 over $5.25 so there's little risk of them burning you.

    • BlackRock (BLK +0.5%), the world's largest asset manager, had its Munich offices searched by German prosecutors as part of a larger criminal tax-fraud probe that's already involved several other financial firms, the Wall Street Journal reports.
    • The investigation focuses on historical cum/ex transactions, trades executed during the few days before and after scheduled dividend-payment dates.
    • German officials claim that tax credits have been artificially claimed through these types of trades using methods that could constitute fraud.
    • BlackRock said it's cooperating with the investigation regarding cum/ex transactions during the 2007-2011 period.
    • Spain's Banco Santander (SAN -0.3%) has said it's also being investigated and is cooperating with authorities.
    • Previously: Goldman removes Blackrock from Conviction List, lowers EPS estimates, still bullish(Oct. 19)
    • The Nasdaq is ahead 1.8% in late-morning action. The S&P 500 is higher by 1.2%, and the Dow by 1%.
    • The strongest S&P sector by a mile is healthcare (XLV +2.5%) as the continuation of Obamacare – in some form – seems assured. Health plan providers like UnitedHealth (UNH+4.6%), Anthem (ANTM +5.7%), Humana (HUM +4.4%), and Centene (CNC +7.4%) are among the leading partiers.
    • The weakest S&P sector is financials (XLF -0.1%) as the banks (KBE -0.8%), (KRE -1.1%) mull a less-friendly regulatory environment.
    • Randgold Resources (GOLD +0.1%) shareholders easily approve Barrick Gold's (ABX -0.3%) all-stock takeover, clearing one of the final hurdles to creating the world’s largest gold company.
    • More than 99% of ABX shareholders approved the merger earlier this week.
    • In its final quarterly earnings release, Randgold yesterday reported better than expected Q3 earnings, helped by lower costs.
    • Dun & Bradstreet (DNB +0.3%) shareholders signed off on the company's $6.5B go-private planin today's special meeting based on a preliminary vote count.
    • Stockholders voted to approve of the merger with an investor group led by affiliates of CC Capital, Bilcar, Cannae Holdings and Thomas H. Lee Partners with 71.9% of outstanding shares approving (and 99% of total voted shares).
    • The deal still needs approval from the Russian Federal Antimonopoly Service and the UK Financial Conduct Authority; D&B expects it to close no later than the end of Q1 2019.
    • Gogo (NASDAQ:GOGO) is retrenching a bit, down 5.2% on high volume after closing yesterday with a 26% gain following its earnings beat (with equipment revenues getting a boost from new revenue recognition standards).
    • Shares yesterday hit their highest point since May.
    • Today, the company says its latest light-jet connectivity solution has been chosen by Airshare for use across its Embraer Phenom 100 fleet. The AVANCE L3 will be installed on all 11 of those aircraft belowing to the fractional jet provider; many of Airshare's Phenom 300 craft are also equipped with Gogo connectivity solutions.
    • Airshare has committed to installing AVANCE L5 on new additions to the Phenom 300 line, Gogo says.
    • Earnings call transcript
    • Micron (NASDAQ:MUstarts shipping its 2.5-inch 5210 ION enterprise SATA SSD that was first announced in May. The 5210 ION targets read-intensive applications like AI, deep learning, and big data.
    • The flash drive uses 64-layer 3D NAND in quad-level cell or QLC form and has 1.92TB, 3.84TB, and 7.68TB capacity points. The ION delivers up to 90K random read IOPS.  
    • Micron says the drive delivers 75x faster random reads, 30x faster random writes, 2x more sequential throughput, and 3x better energy efficiency than “the largest 10K RPM HDDs.”
    • Other features: AES 256-bit encryption, end-to-end data path protection, power-loss protection, and 5-year warranty.
    • SATA SSD makers: Western Digital (WDC -0.8%), Seagate (STX -0.3%), Intel (INTC +1.8%). 
    • Micron shares are up 2% to $40.61. 

  28. Only issue with the UGA trade is the lack of open interest.  Not much volume in UGA options.  :(

  29. AAXN   Good option premium and new products coming out for 2019 tailwinds

  30. GE

    big option trades in the June 2019 $9 calls and $10 puts

  31. typical trump people are to stupid to understand my taxes

  32. Phil what are your thoughts on keeping the WBA 2020 $75 short calls here (I Have 20) they are currently around $12

    against the 2021 70/85 spread (I have 40)?

    The stock would have to go to $87 by 2020 to be worse off, but then i would have the 70/85 spread totally in the money.  I am curious because the price just went higher than its high from February peak (all time high is 97 back in 2015)


  33. UGA/Ult – That's why you have to buy them on the way down and sell them on the way back up.  I'm just trying to find a way for people who can't buy /RB at $1.65 to play.   

    AAXN/Stock – Getting more reasonable but I'd really like to catch $40 or less for a re-entry.

    /RTY right at 1,575.

    Trump says he can stop Mueller investigation right now by firing everyone if he wants.  Yeah, he's really learned a lesson from the elections…  

    WBA/Coulter – I think we decided to ride them out because, in the LTP, it's a 50% cover on a spread where we already cashed in some long calls.  Hopefully you have something similar:

    Short Call 2020 17-JAN 75.00 CALL [WBA @ $80.76 $0.16] -20 3/28/2018 (436) $-10,400 $5.20 $6.50 $-12.85     $11.70 - $-13,000 -125.0% $-23,400
    Short Put 2020 17-JAN 65.00 PUT [WBA @ $80.76 $0.16] -10 3/29/2018 (436) $-7,700 $7.70 $-4.94     $2.76 $-0.24 $4,940 64.2% $-2,760
    Long Call 2021 15-JAN 70.00 CALL [WBA @ $80.76 $0.16] 40 10/22/2018 (800) $59,400 $14.85 $2.83     $17.68 - $11,300 19.0% $70,700
    Short Call 2021 15-JAN 85.00 CALL [WBA @ $80.76 $0.16] -40 10/22/2018 (800) $-30,000 $7.50 $2.33     $9.83 - $-9,300 -31.0% $-39,300

    To some extent, the short call money locks in our unrealized 2021 profits as 40 of those spreads should be $60,000 and, currently, they are net $31,000 so $29,000 to gain plus $2,760 on the short puts vs 20 short puts we sold for $10,400 that we'd have to give $20,000 back to at $85 (not there yet).  So, if I were to buy back the short 2020 $75 calls now for $23,400, I'd be paying a massive premium out of irrational fear and THEN I'd have to spend even more money hedging my unprotected 2021 bull call spread.  Doesn't make sense to me….

    If WBA does go past $85, we can always buy 40 2022 $80/95 bull call spreads for $29,400 and we'd have another $31,000 of upside against the short calls.  I'd rather spend $29,400 on that than spend $23,400 just to buy back the short calls on the assumption that WBA will never, ever, ever pull back.

  34. Trump says the media is dividing this country.  Also says if Obama were still president, GDP would be down 4% and not up 4% so we should kiss his ass for an 8% gain in GDP.  AMAZING!  

  35. RB/Phil- are you holding any RB contracts?

  36. /RB/Dave – Just a couple at $1.65 with a bit of conviction.  I guess I'd DD at $1.60 (hopefully not) and try to hold 4 into Thanksgiving.  Been a total disaster trying to pick a bottom though.

  37. Trump / Phil – He seems a bit grumpy for someone who claims a big victory! Must be worried about something!

  38. Stj/Trump worried

    Melania is giving him grief…divorce in 2020? Although that would not be a big deal by itself..

  39. And Tester wins in Montana!

  40. In the meantime, it seems that no one was right in our predictions yesterday – Dems won and the market is up. Trump was the most wrong of all of us – what happened to all of use losing money if the Dems win. I am making money today…

  41. Interesting take on the VIX:

    The daily SP500 vs. VIX from Nov 2016 to Nov 2018 covers enough market history with enough detail to reveal an opposite correlation than that in the media.The data indicates that the highest levels in the VIX occur after prices are already low. The data shows that periods of elevated VIX levels correlate with short-term and opportune buying levels, i.e. lower periods of risk. This is the opposite of the consensus perspective. Traders are typically leveraged and it takes a few days before they begin to panic. When they panic, they buy puts fearing higher losses than they have already suffered. The VIX is an after-the-fact indicator and better at identifying short-term equity buying levels than anything else. The VIX is good for gaining media attention, but rises in this index indicate less not more market risk.

    Of course, there are still these huge black swan events where the VIX will rise big and it takes a while to get to a safe buying level. 2008 comes to mind.

  42. STJ I beg to differ I was right!!!!

  43. You gotta really not want to vote:  In my county we have postage free vote by mail and still had only 50% voter participation.

  44. Trump/StJ – He's giving the same kind of speeches he used to give when one of his casinos when bankrupt and he'd blame everyone under the sun while telling people how he did an amazing job and, if it hadn't been for him, things would have been much worse, etc..

    Yay Montana!  Where is that on a map, exactly?

    Up/StJ – I'd hold off on that call as the volume is still anemic.  Gotta wait until Friday.

    VIX/StJ – That's interesting.  Maybe that's why we end up selling a lot of puts into a high VIX.

    50%/Tangled – Still, unfortunately, the national average.  

    Nas up 2.25% at 7,172.  /YM testing 26,000, /ES testing 2,800, /RTY 1,575.  

  45. "The VIX is an after-the-fact indicator and better at identifying short-term equity buying levels than anything else. "

    That's great. I'd always considered it more of an immediate indicator but it does make sense that it'd lag.

  46. Phil, not in FTR currently — is there a new entry you would recommend here?

  47. FTR/Idi – One day, they will pay dividends again (years) so I'd go with:

    • Buy 2,000 FTR @ $4.10 ($8,200)
    • Sell 20 FTR 2021 $5 calls for $1.60 ($3,200)
    • Sell 20 FTR 2021 $5 puts for $2.30 ($4,600)

    That puts you in 2,000 shares for net $400 so paying net 0.20/share on the first round, called away at $5 ($10,000) with a $9,600 (2,400%) profit or being assigned 2,000 more at $5 to average $2.60 so the worst case on this trade is to own 4,000 shares at $2.60 ($10,400) or, over $5, you make $9,600 – seems like a good deal to me!

  48. Phil:  I closed out a SCO position a while ago, but left the short Nov 16 $18 calls in place, expecting them to expire worthless.  I had a $.55 credit.  The calls are now about a $1.00.  I'd appreciate any ideas you might have for dealing with this.  Thanks.

  49. Trump fired Sessions!

  50. I cant' believe the market is just taking this in stride.  

    When Nixon fired the AG, it was the beginning of the end for the US economy for quite a while.

  51. Hi Phil and Everyone, 

    I'm new here, only joined few days ago. Therefore I don't have positions in most of the stocks you recommend. That leads me to few questions about new trades

    1. Should new members scan for losers in the portfolio to jump into? To begin with GE, T, WHR, FTR come to mind, any new trade in those or any others? 

    2. We already heard on FTR, so it would be nice to hear the investment rationale on FTR and T? One could argue that old school cable providers will suffer more and more as world growing more wireless (5G rollout and so on). AT&T will probably fare better due to it's diverse business.

    3. Isn't UGA or /RB trade in direct contradiction to what Phil wrote in the report today? After shifts between backwardation and contango occurs (supply is shifting towards being larger than demand) the bear market may be quite prolonged.

    Thank you very much

  52. Maybe Sessions firing will be good for the pot stocks

  53. With /RB, I’ve been papertrading with conviction and it’s a total disaster! I’m going to wait until I see a few daily moves up, perhaps over 1.675 now and if it holds that get back in for a move back to 1.70. 

    On the fun side, I bought some TLRY calls today (also paper trading) and made a cool 500% there to offset my /RB losses, so all is good! Too bad none of it is real…

  54. Phil, this is very similar to the Nixon situation.  The primary difference is that this comes as no surprise to the market as Trump has been telegraphing this for months.  What would be eerie is if Trump gets Whitaker to fire Mueller.  

  55. Phil:

    Great analysis on WBA.  It’s a great reminder for all of us to keep our allocations appropriate.  When they are not, you lose the flexibility to double down when necessary.  

    Is it finally time to reduce our hedges?

  56. Pot stocks on a roll with Sessions gone.  

    Welcome Being!  The idea of the portfolios is to give Members ideas of how to handle differently aimed portfolios of various sizes and strategies – not to mirror every trade.  Every time you enter a trade you like, the next thing you should think of is whether the next trade gives you better or worse diversity and balance than the other trades you've added.  Almost every day, there's a trade I highlight like FTR or today's Top Trade Alert on UGA and, of course, there's a Top Trades tab at the top so you can look through all our recent Top Trades.

    As to rationale, I don't endlessly repeat myself so you'd have to go back to the date the trades originated in the portfolios if you want to read about why we took them.  We like T too, any time they get close to $30.  Also VZ or CHL when they are cheap.  

    Yes to /RB/UGA but, of course, I did say after Thanksgiving and this is before Thanksgiving – unless you are Canadian…  

    Speaking of Futures, I have to like /NQ short (yet again) at 7,200.  Firing Sessions and what Trump said today about the investigation and about only working with Dems if they back off is way too much "Crazy Despot with his Back to the Wall" and his enemies at the gates for my taste.  

    With the Saturday Night Massacre, Nixon Miscalculated. Will Trump …

    Saturday Night Massacre was landmark of Watergate | News …

    /RB/Jeff – Very wise.  Even now it's $1.645.

    Whitaker/Albo – That's his whole job!

    Hedges/DC – The LTP, which we added to BECAUSE we were well-hedged and BECAUSE we had lots of cash in the STP, is up about 10% this week ($50,000) and the STP is still over 200% – even with the aggressive hedges so, on the whole, I'd much rather keep them on and protect the LTP for now.

    OOP and Money Talk also well-balanced and Butterfly is, as usual, doing its own thing…

  57. I wonder if Sessions regrets being Dump's first supporting-pumper now. From prestigious US Senator to antognized AG to unemployed. It's a good lesson on how a narcissist turns everything he touches to shit.

  58. hi being human 

    New members generally find it advantagous to review a few months or more of phils previous posts to get a general idea of how phil does things-




  59. ps being human another fun way to get up to speed is to watch a bunch of the weekly seminars

  60. beinghuman / welcome and here some personal pointers

    1. Resist the temptation to jump into anything until you get the lie of the land of the board. First you need to understand Phil's style as a value investor – and that style behoves a certain mindset of scaling into positions over time. And in some cases that can mean doubling down and doubling down again on a position. It is also not a rules based approach, although fairly systematic. But position sizing, scaling in and diversification are key. 

    2. FTR has probably had more comment and analysis than any stock I can remember. A good exercise is to retrace the latest to the earliest comments on how the position on FTR has evolved – it's been an ongoing story stock on the board for years. Use advanced google search with keywords 'FTR comments permalink' on the site '' and that should help you zone in on the relevant posts – but you will need to play around with it. It will teach you how to deal with positions that go against you – managing winners is easy!

    3. I never comment on contradictions. But it is a mark of genius to hold opposing points of view at the same time and still maintain your sanity.

    But the best way to get value out of the board is to ask questions, many of them. There is always someone who will jump in and help you out.

    Oh, and never get yourself trading the wrong side of the trend.

  61. Love this one Winston – "never get yourself trading the wrong side of the trend."

    That's a mistake made often though.

  62. BHuman / pointers- In addition to everything above, remember to watch your position sizing!  I think that is the number 1 issue new (and sometimes old!) members run into.  For example, the above FTR trade is for 2,000 shares plus another 2,000 if the puts are assigned.  And that's just round 1 of this trade, you should be able to double down at least once if FTR continues to drop.  

  63. Following up on a previous discussion between Coulter & Phil:

    "WBA/Coulter – I think we decided to ride them out because, in the LTP, it's a 50% cover on a spread where we already cashed in some long calls"

    Coulter, thanks for mentioning that WBA trade and adjustment, because it highlights a point that I always felt was the achilles heel of getting cute with the classic PSW artificial buy write (long LEAP BCS financed by short LEAP puts).  

    Cute 1: The LEAP BCS goes 100% ITM by the end of year one, and it seems a no brainer to cash out the long calls and then use that to leverage out a new set of LEAP BCS at a slightly higher price. That essentially turns the position into a kind of ratio / calendar where the position skews short to a lesser or greater degree: short calls from the original LEAP BCS in addition to the long calls and short calls of the new LEAP BCS. If the underlying remains relatively flat for the duration of year 2 and the extra set of original short calls expire worthless.

    But that requires you hoping for 12 months that the underlying does not move too far against you. If momentum kicks in (or continues) then when it is a real money portfolio (and not funny money from a paper trading account) than can be psychologically challenging. The challenge is that you have given your caller 12 months to burn you and you risk to become way out of position.

    Cute 2: You start selling front month or quarterly covers on the classic LEAP BCS – let's say a half cover – and as above the stock takes off. You have the possibility of rolling in time until the expiration of the LEAP, and if that proves insufficient, hope that the new issue LEAPs (normally starting in the Aug/Sep) provide more rolling opportunities. You can also double down to scale up into a full cover position – or a combination of both. 

    This can be a challenge if there is a strong move against you. 

    Cute 3: layering on additional LEAP BCS – this appears to be a better use of cash than buying out the short covers, but if momentum continues in the underlying, it may require more than one round of layering on the BCS, and before long you start running into violating your position size parameters.

    I've been there, done that, and I don't like it.

    A much better approach than hoping that a stock will stop going up, is to ruthlessly manage the short covers. Put a stop on half, and close out when that point is touched and then another stop on the remaining half if needed. If you are forced out of the position then at least you get a chance to reset and start the selling cover process again to recoup the cost of the prior rolls.

  64. StJ: if only I had followed that one proviso in my investing career ………

  65. Winston deserves colored comments for his sage advice :D !

  66. Thank you very much everyone for prompt advice. Now that you are saying asking questions is good, so I may continue to do so. I'm sorry in advance, if my questions will sound dumb or ill-informed. 

    I've read education section. It's great, very informative. I've watched few webinars, that is why I did join. 

    Now I'm looking over earlier FTR discussions. 

    Thanks again. 

  67. .Winston and STJ - FTR is a good example of a case study in how not to trade.  Hard to believe that the stock was $120 in March 2015.  Management's decision to buy VZ's legacy access lines has to be one of the worst management decisions ever. And the decision to keep averaging down, in retrospect was a terrible idea.  I believe combining Phil's unmatched knowledge and skill in options with judicious use of stop loss orders is the way to go.  Don't know if anyone agrees with me, but opportunity cost is a huge component in trading and investing. Why keep averaging down ?  Cut bait, take a small loss, and move on. JMHO

  68. snow / Dem's have no message - this is a defensible generality to say the least (that is, it is not necessarily true everywhere, but defensible in general). This was very apparent at the state house level. Almost every state's entire house was up for re-election along with the federal house (except VA and NJ and some partial states). I was following this pretty carefully. Prior to yesterday, the D/R split was 2,314/2,986 (43.7 to 56.3%). I've gone through the data from the NYT (with some races to be called of course) and come up with +221 seats for the Dems and 44 of those are in NH's huge legislature alone. [This doesn't include ND NE WV MS AZ AK or LA yet, but these will not move the needle much]. This brings the new total to 2,535/2,765 or 47.8% to 52.2%.

    In SD, for example, the dems went from 10 seats (out of 70), to 8. Dems really hated Walker in WI, and he lost by a whisker. But the state house went from 35 democrats to…. 35 democrats. If you are a democrat strategist, this is totally unacceptable. The Dems generic federal house vote was +7%, let's say it's 53.5 to 46.5%, and the state houses are, at best, 48 to 52%? This represents a total lack of grassroots representation.

    My fear is what Steele spoke to on MSNBC last night, that the Dem house would play into the subpoena and impeachment game with trump which is page one of his playbook. When you wrestle with a pig, nothing good happens except everyone gets muddy, and the pig likes it. Instead, the House should pass Medicare for All, demand-side tax breaks for the poor / middle-class, and sensible gun legislation (i.e., perhaps mental patients don't have unrestricted gun access?) every single day they are in session, and force the Senate and/or trump to defend shooting it down, all the while building grassroots support, Beto-style, talking to the voters and relating to their issues on person-to-person level. The message from the House would be clear: We are adults, we're getting stuff done, what are you doing for the governed? Then they have nationwide coalition of issues to run on in 2020 that a strong candidate can codify at the Presidential level, sweeping in 500 or even a 1000 fresh new representatives at the state level and building a blue wall to last a decade or more.

  69. …And keep Pelosi out of view!

  70. BDC – Completely agree.

    The Dems can walk and chew gum, but the focus needs to be on the issues that matter most.


    The best person for Beto-Style is Beto himself…. I could not believe he is 45…..BETO 2020  :)

  71. @Winston..Sage advice.. “`A much better approach than hoping that a stock will stop going up, is to ruthlessly manage the short covers. Put a stop on half, and close out when that point is touched and then another stop on the remaining half if needed. If you are forced out of the position then at least you get a chance to reset and start the selling cover process again to recoup the cost of the prior rolls.“`

    I have done the same with LB, SPWR and earlier CSIQ -  Just evidence to your advice, that LB and CSIQ if they go up from here will double the return of the original BCS which went against us.  I will sell some more short calls once they advance higher… the risk is being naked for some time and hope the stocks dont go against you.  


    @albo – FTR -couldn't agree more.  I just stayed away – fundamentals were too scary for me.  Phil is a maestro but my tolerance for margin erosion is much lower than his…  FTR is an example of why cheap stocks remain cheap for a long time. 

    For new members @beinghuman – As Phil has advised before too, butterflies are a good way to step in and learn before jumping on high octane BCS financed by put sells. I have found my butterfly hit rate is much higher than the bcs trades where some of them work right away and some of them need a lot of rolls/adjustments/white knuckles…  just my thoughts..

  72. BDC – You also ignore all the gerrymandering that is going on. Walker and his cronies have been working on that map for years to ensure that result in the state house. That and voter suppression will get some tight races! 

    At the moment, Dems cannot win the Senate for years to come. Read the article posted by Phil earlier:

    By 2040, according to Baruch College’s David Birdsell, about 70 percent of Americans are expected to live in just 15 states. That means that the vast majority of Americans will control just 30 percent of the Senate, while the remaining 70 senators are elected by just 30 percent of the nation.

    It won't matter how good they are on message then! There will be 30 Dems senators representing 280 millions people and 70 GOP senators representing 120 millions people! The only way to fix that is to split big states like California, NY, Florida and Texas and maybe we have a chance!

    But yes I do agree that they while they have the house they should push as many progressive ideas that are popular as they can. But we can't underestimate the level of ignorance in the electorate that leads them to vote out of fear and the general lack of honesty from Trump and McConnell that would portray Medicare for all as a road to death panels and so on! And they should still maintain some oversight over Trump and his cronies. We simply can't let him get away with crimes.

  73. FTR / Albo – I stayed away from this one because I don't like the story at all. But there are cases where I do and it still doesn't look good. GE for example – they still have a lot of good stuff that is packaged in a bad basket. But I came in late when it had already taken a lot of hits so the damage for me is limited and I believe I will be on the right side of the trend soon!

    I remember one of the rules in one the best investment book I read – stocks that make 52-week lows generally keep in making 52 week lows! And I also have low tolerance for pain so I keep all my positions much smaller than most to spread the risk.

  74. Boeing issues warning on potential instrument malfunction after Indonesia crash

  75. Arizona GOP sues to limit mail-in ballots in US Senate race

  76. Albo – stop losses – absolutely essential – I ignore mine far too often. 

    I took a small position in FTR, just to see how Phil would manage the incontrovertible writing on the wall that this was a poorly run company with management asleep at the wheel, Nothing changed so far.

    GE – Jack Welch has a lot to answer for – but the value destruction goes beyond anything that most people would have thought possible.

    StJ: Lows going lower. Another truism. There is no law of the universe that says good companies that screwup and see their stock price crater have a right to expect that all will come good in the fullness of time. It is often better to ensure that price trumps gut feeling and analysis. Enter positions when the price confirms the analysis, i.e. have a price trigger. That should keep one out of most clunkers. 

    All the analysis in the world is worthless if the price action doesn't confirm. Better to miss out the first 20% of an up move and enjoy the 'fat' middle, than keep getting burnt and having to double down and double down. It seems to work for Phil, but I guess it's a question of horses for courses.

  77. Good morning! 

    Looking kind of flat this morning, which is actually impressive consolidation after those gains but still, we need to wait for the Fed at 2pm.  

    From last night's discussion, it sounds like a lot of you never heard of scaling in and out of positions and setting stops – here's the article from our Strategy Section.  I'd say the most important thing is managing your position sizes – if you do that and you diversify your picks AND you hedge – it's very hard to get badly damaged by any one position.  

    As to FTR, we didn't start playing them until they were $40 and, even then, we hedged them a lot but still ultimately took a loss but then went back in at $10 (also well-hedged) and ended up in our current position.  Stocks under $10 are great, even if they go to $5 (or $4) as long as they don't go BK because we can make a nice revenue stream from short calls and puts for many years to come.  

    Our current FTR position is:

    FTR Frontier Comms. Corp. 10000 1/2/2018 310 $59,500 $5.95 $-1.90 $5.95     $4.06 $-1.21 $-18,950 -31.8% $40,550
    Short Call 2020 17-JAN 8.00 CALL [FTR @ $4.06 $-1.21] -25 1/3/2018 (435) $-3,125 $1.25 $-0.78     $0.48 - $1,938 62.0% $-1,188
    Short Put 2020 17-JAN 8.00 PUT [FTR @ $4.06 $-1.21] -25 1/3/2018 (435) $-10,000 $4.00 $0.25     $4.25 $0.55 $-625 -6.3% $-10,625

     We started with 2,500 shares in Jan at $7.15 ($17,875) and we sold the short $8 puts and calls for $13,125 so our net entry on 2,500 shares was $4,750 or $1.90/share and, if assigned another 2,500 at $8, then the average would be $4.95 share on 5,000 shares ($24,750).   On October 31st, as FTR dropped to  $4.75, we took advantage and added 7,500 more shares ($35,625) to average $5.35, which I'm only now seeing is not what's showing as an average so I have to fix that (when you add shares you have to manually calculate your net entry).  

    Notice we added AFTER we thought we hit a good bottom (hurricane damage took them down) and things were improving until this recent drop, which we feel is unjustified.  

    NOW we will roll our short puts but we'll still wait to sell calls but for now, I think I'd like to roll the 25 short 2020 $8 puts, now $4.30 ($10,750) to 50 2021 $5 puts at $2.50 ($12,500) so we'll still have the $10,000 we originally sold the $8 puts for + another $1,750 so our net entry on 10,000 shares of FTR with 50 short 2021 $5 puts and 25 short 2020 $8 calls we sold for $1.25 ($3,125) is $38,625 or $3.86/share and that's still a 1/3 allocation block in the LTP (20 $100,000 allocation blocks initially alloted, now 40) and we haven't even sold more calls yet but, even now, we could sell 100 2021 $4 calls for $2 ($20,000) and buy back the short 25 $8 calls for 0.45 ($1,125) and our net cost would drop to $19,750 or $1.975/share with a call-away at $4 for a double.

    Since I'm more bullish than that, I'm not going to buy back the short $8 puts when we sell the $5 puts but I will put a stop on them at $5 ($12,500) so risking $2,500 if things get worse but, if they do get worse, then we can sell the calls to lower our basis but I'm also not willing to do that unless they fall to maybe $1.50 but, SINCE I HAVE A TRADING PLAN, I know that I will take that $2,500 loss and collect just $15,000 and that will leave me with 10,000 fully covered shares of FTR at net $26,125 and that's net $2.612/share with a call away at $4 for a $13,880 (53%) profit over 3 years.

    Certainly it's not our best return but it's also still just a 1/4 allocation block "wasted" and, considering that's what we make from a stock that dropped 50% after we bought it – not a terrible outcome and still, that's our worst case (outside of them going even lower) at $4 but, as I said, we're not capitulating and selling calls yet.

    Our goal of this trade was to build into a full allocation block of $100,000 worth of FTR at the lowest price possible and, so far, we're 1/4 of the way there!  We waited patiently, all year, for a chance to get a really good DD entry and it does go against people's nature to buy more of a stock that has fallen 50% and yes, sometimes we do chase a loser and ultimately give up but, again, diversification and allocations are the key to success.  If FTR pops back to $8 before we cover, then it's a $60,000 winner and suddenly worth the time, effort and agony of hanging on.  The portfolios are full of positions like that – it's just that the losers get all the attention.

    Contradictions/Winston – Well who says the sanity is holding?  cheeky

    The same stopping discipline goes to short calls or puts sold against positions.  Again, the scaling out rules apply so if you sell 10 short calls for $5 ($5,000) and they go past $6, you can buy back 2 or 3 for $6 ($1,800) and now you'd sold 7 short calls for net $3,200 ($4.57) while your long are, presumably, gaining ground.  Very simple strategy that is not practical for our portfolios (or we'd spend all days changing positions) but keeps you out of trouble if making bigger adjustments worries you (and it should if you don't allocate properly and don't have plenty of margin available!). 

    While Winston makes a good point about WBA, his examples ignore the VALUE of WBA, which is what leads me to make a cover call and, again, sometimes we get it wrong and get burned but, usually, we get it right and turn a $20,000 projected gain into a $30-40,000 gain by wisely knowing when a stock we like is overpriced and flipping bearish on it until it comes back to reality.  Since our worst-case adjustment is to buy more of a stock we liked in the first place – I don't really consider it a major problem though TSLA burned us for about $50K once, when it suddenly doubled against our short calls in a similar situation – so it does happen.

    FTR/Albo – Our first ever trade on FTR was at $40, not $120 though we did take a loss on our original trades (old LTP, not this one).  This position, as noted above, has nothing to do with that one and the new position we discussed yesterday morning is very compelling due to the tremendous premiums you can collect.  As to why keep averaging down?  Because people are betting FTR goes BK and we're betting it doesn't (and we were wrong about HMNY just this year) and, if it does, we know what we'll lose (no more than $40K) but, if we're right, we can gain not only $80K on the position but tens of thousands of Dollars in annual dividends down the road so the potential reward outweighs the risk so we stick to our plan unless the Fundamentals change and, from their recent report – they haven't.  It's not our fault that most traders are impatient and have no tolerance for short-term difficulties (or losses).  

    As a rule of thumb, ANY position can go 20% against you at any time and if that's going to make you stop out – don't even get in.  I don't get into a position unless I PLAN to double down if they fall 40-50% (assuming I don't agree with the reason) because, as often as you get a 50% winner for no reason, you get a 50% loser too.  If you are not going to buy low – when are you going to buy?  

    Good political commentary BDC. 

    Senate/StJ – Yes, the Senate was a compromise to promise more power to less populated states, not really the original intent of the founding fathers but a way to please the Tea Party Conservative of 1776, who refused to compromise unless they had a way to have more power than they deserved (because they were worried the larger populations would vote to take away their slaves).  We're still suffering for it! 

  78. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

    Warren Buffett

    Not sure if FTR  even qualifies as a fair company.