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Monday Market Madness – Trump Leaves G20 Early, Skips Asia Summit Entirely

Oh what a beautiful morning!  

We went long on Gasolione (/RB) into the weekend as we expected OPEC to do SOMETHING to prop up Oil (/CL) at the $60 mark and we thought /RB Futures would make a good play into Thanksgiving regardless.  We did, in fact, get noise over the weekend that our freinds the Saudis see the need to cut oil ouput by another 1Mb/d next year to maintain "price stability".   

I had predicted we'd get down to $62 when I was interviewed on Nov 1st at Investing.com, but our first attempt to go long on oil and gasoline failed but this time /RB made the big payout with an almost $5,000 gain on 6 long contracts as we stopped out our last contracts at $1.64 - a nice way to start our week…

The next long attempt can be made over $1.65 on /RB or back at the $1.625 line and, of course, we'd love to give $1.60 another try but you have to use tight stops on Gasoline as the contracs pay OR LOSE $420 per penny of movement on each contract.

When you get a strong move based on a quote – even from a very reliable source – you have to look to take quick profits because, as is the case with Gasoline – nothing has Fundamentally changed – just some Saudi Oil minister says (while oil is failing $60 and US inventories alone are climbing by 5Mb/week) that they "might" need to cut Global Production by 7Mb/week – a month from now – if the other OPEC members agree. 

So, for future reference (and we've done this before but it's like school, I have to repeat things many times before a light bulb appears above the students' heads):  OPEC (now called the new and improved OPEC+ in an effort to rebrand and include Russia, Mexico and Kazakhstan) generally acts to support oil at $60 ($70 for Brent) like it's an emergency so wherever Gasoline is at the time tends to benefit as well and especially when you have a major down move, you can play the 5% Rule™ for a bounce:

We fell from $66 on the 31st, so that was 9 trading days so oil has to be back over $66 a week from Friday (23rd) to get back its bullish mojo.  We don't believe it will get over that line though I'm sure OPEC will try very hard to talk it up but the trade lines up perfectly with our expectations for the Thanksgiving holiday and oil contracts pay $1,000 per $1 move higher ($10/penny) and we're below $61 so you can play /CL long at $61 with a stop below $50.90 ($100 loss) and you would be risking $100 against a potential $5,000 gain at $66 though I would certainly be THRILLED to take 1/2 off the table at $62.50 to lock in gains.

See how easy Fundamental trading is?  Read the paper, think about how it will affect the market and place a bet.  It takes a bit of practice to get used to watching ALL the factors that might affect a trade.  In oil's case, the Dollar can affect the price intra-day and another reason we like the bullish trade is that the Dollar is also high in its channel having pushed very close to a 10% move from 89 in Q1 to 97.4 this morning. 

89 x 1.1 is 97.90 but call it 98 as our expected top and thats a move of 9 so the retraces are 1.8 and we'll call them 2 (it's not an exact science!) back to 96 (weak retrace) and 94 (strong retrace) and you can see on the chart how both of those lines were significant on the way up – as predicted by the 5% Rule long before the move ever happened.  So, if we're expecting the Dollar to pull back, we expect that to provide some lift to all commodities as well as the indexes but the Dollar's effect is short-term and wears off pretty quickly

That means Silver (/SI) and Gold (/YG) are also getting interesting down here at $14.05 and $1,205 and I would play $14 or $1,200 with some conviction so not much harm in scaling into a position here – as long as you don't mind adding one at $14.025 or $1,202.50 and 2 more at $14 and $1,200 which would put you into 4 /SI at an average of $14.0125 with a $250 loss on 4 Silver ($50 per penny, per contract) or 4 /YG at an average of $1,201.25 with a $161 loss on 4 Gold ($32.20 per Dollar, per contract).  

Those losses can double if you set your stops the same distance below our support lines as your cost basis is above them so $13.9875 on /SI and $1,198.75 on /YG.  Of course the hope is that we go up and don't have to worry about doubling down but, if you don't have a plan when you start a trade then you must be planning to fail!  

If the metals go below that price, we simply take our losses and wait for the next opportunity to catch them crossing over and we jump back in over the line with even tighter stops below (assuming we still like our premise, of course).  Don't forget, a large part of the premise is that the Dollar fails the 97 line and heads lower so, if it doesn't – you should be very quick to stop out that trade!  

If you are still Futures-challenged, you can still make the long-term play we liked back on October 31st using Wheaton Prescious Metals (WPM) as a proxy for Silver.  Earnings are this week so kind of risky but we love this trade and, at the time, I said:

Earnings are on Nov 14th and silver is much lower than it was last November ($17) and last quarter averaged $15.25, falling from Q2's $16.50 so estimates are for WPM to make just 0.10/share vs 0.15 least year and 0.16 last quarter but, for the year, they are still on track to make 0.52/share vs 0.63 last year so -20% and WPM was in the low $20s last year so $16.50 may be a bit oversold – especially considering they are a contract streamer and not a miner so, going forward, they stand to reap a huge benefit from rising silver prices as well as a new production deal on their Stillwater project.  As a new trade, I'd go with:

  • Sell 10 WPM 2021 $15 puts for $2.10 ($2,100) 
  • Buy 20 WPM 2021 $15 calls for $3.85 ($7,700) 
  • Sell 20 WPM 2021 $20 calls for $2.05 (4,100) 

The net of that spread is $1,500 and it pays $10,000 if WPM is over $20 in Jan, 2021 and that would be a gain of $8,500 (566%) and the put sale obligates you to buy 1,000 shares if WPM is below $15 for $15 so worst case is owning 1,000 shares for a net of $16.50 ($16,500), which is the current price.  I'ts a very margin-efficient trade as only $1,340 of ordinary margin is tied up on the short puts. 

As of Friday's close, the 2021 $15 puts were still $2 ($2,000) and the 2021 $15 calls were $3.75 ($7,500) and the short 2021 $20 calls were $1.85 ($3,700) so that's now net $1,800 up only $300 (20%) since we took the trade but that's a drop in the bucket for a trade that is projected to make $8,500 (566%) if WPM is over $20 in January of 2021.  Of course now, you would only make $8,200 which would be "just" a 455% gain from $1,800 – sorry if you missed it earlier…

We're still playing the markets very cautiously and very skeptically but we also have PLENTY of (well-hedged) bullish positions and our portfolios seem very well-balanced so we'll just continue to look for great sales on good stocks that have bad earnings for good reasons while keeping our eye on Trump, Mueller, China, Russia, Brexit, Inflation, Fed Hikes, Italy… and a dozen other macro concerns that keep us VERY CAUTIOUS as we STILL haven't had a proper correction.

Not much going on this week but 9 Fed speeches will help jerk the markets up and down though 3 of them are repeats by Quarles, Kashkari and Daly.  Still, we hear from the Grand Poobah himself as Powell gets the final say on Wednesday, at 5pm and he's speaking with Robert Kaplan in Dallas.  We get the Atlanta, Philly and Kansas City Fed Reports this week – thouse should be interesting too.  

And, of course, there are still PLENTY of fun earnings reports to take in though the next 3 weeks will give us the last 25% of the S&P 500 stocks as well as all the other slowpokes who put off their book reports until the last minute.  

 Be careful out there!  

 


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  1. DJ L Brands Price Target Raised to $55.00/Share From $30.00 by Wells Fargo



  2. Troubling weekend for POTUS – Danced on the graves of dead Californians to score some political points and then declined to pay respects on the grave of real heroes. Stayed in Paris long enough to get his new instructions from Putin. But promised him that his new AG would start taking care of all the possible problems.


  3. Cigarette use in the USA – MJ can't come soon enough to save the tobacco industry:


  4. Good Morning.


  5. FU GE!!!!


  6. In 2007

    GE No. 1 on Fortune list of Most Admired Companies

    Oh how the mighty have fallen ! ! !


  7. Phil / GLW & BX - 

    Hi Phil, can you let me know your thoughts on GLW and BX.  Specifically on GLW, do you think last year was just a bad year for their earnings or the beginning of some problems?  

    Im looking into selling puts on both.  Thank you!


  8. "If it seems too good to be true, it probably is" 

    StJ – At some point, FNSR puts should be a good sell.  Or perhaps IIVI would be better.

    Current thoughts ?


  9. Bad management for years at GE starting with Jack Welsh who took credit for a lot of lucky things!


  10. FNSR / Albo – I have been wondering the same thing. If the merger price is $26, why not sell the Jan 21 25 puts for $5 or so. Looks like free money to me. Either that or people are worried about the merger or the final price.


  11. In the meantime BABA had $31B of sales in one day when total sales for the year are $45B. Trying to understand the math here…


  12. StJ – The reason IIVI might be a better play is because the merger apparently has to get Chinese approval.


  13. IIVI / Albo – As I posted on Friday, I would not jump in the IIVI bandwagon. If the merger is approved, their debt load will be quite large. I guess if it's not approved, it might be interesting but then I would rather stick with FNSR then. I don't know much about that sector besides that great recommendation from Rheinharden.


  14. GE 2007 – tippy top of consolidated company production. Internet bubble (2000) had come and bottomed (2003-2004), companies were significantly retrenching - Amazon, etc. The companies were still innovating on how the world would do business differently a decade later, but were not in the news cycle. New companies just forming (facebook 2004, netflix), so not a factor yet. GE had massive exposure to mortgage crisis, then in 2010-2015 how the entire world does business shifted irreversibly. Uber is a taxi cab company that uses a smart phone and has the same valuation as GE currently. TSLA barely makes any cars and worth more than F, GM, etc. 


  15. Good morning! 

    I got off track as I was going to discuss this in the post but Trump is just making it worse and worse for our Foreign Policy – something we spent decades building up to Obama's post-Kennedy highs.  Now we're at all-time lows – much worse than Nixon.  

    GLW/EMike – I think they lost their leadership on glass innovation and maybe there simply isn't anything more to innovate with glass (unless they are making it bend) but they do a lot of R&D (which I like) and they are still growing revenues but had a couple of investing quarters with write-offs that are spooking investors so, as noted above, let them get spooked and just keep an eye on them.  In a good year, they should easily drop $2Bn to the bottom line and the stock is $26Bn so p/e 13 going forward means at $30 – I'd certainly be happy to sell some puts in the very least. 

    BX/Emike – Generally I just like them because they make good decisions but rate hikes and lots of real estate holdings also makes them one to watch and also on them, $30 will look very attractive. 

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 4,019 6,613 7,485 4,647 5,126 7,119 8,210 7,146 7,645 +12.1%
    Operating Profit $m 758.8 2,746 3,629 1,638 2,197 3,796 4,589     +38.0%
    Net Profit $m 218.6 1,171 1,585 709.8 1,039 1,471 1,834 3,583 3,898 +46.4%
    EPS Reported $ 0.41 1.98 2.58 1.04 1.56 2.72 3.19     +46.3%
    EPS Normalised $ 2.04 3.11 3.88 1.35 1.77 1.93 1.75 2.98 3.24 -1.1%
    EPS Growth % +48.0 +52.0 +24.8 -65.3 +31.7 +9.1 -29.2 +54.0 +8.96  
    PE Ratio x           17.6 19.4 11.4 10.5  
    PEG x           0.33 0.36 1.27 1.59
    Profitability

    They are actually on track to hit $3.5Bn this year and $33.50 is a $30Bn market cap so cheap but a cyclical really so they should be cheap but yes, I wouldn't be too cheap on BX if they do start to form a bottom before $30.


  16. Wow, I lost a ton of stuff as the system kept booting my comment and now unretrievable! 

    Was making a long point on LB relating to weekend discussion on how we work stocks over time.  This is the last rant I had re. sticking with LB despite all the FU's:

    By the way, that's why the LTP is kicking ass in this downturn, we dumped all the high-flyers and doubled down on the value plays like LB, which then pops 8% on the tiniest bit of good news.

    As i often have to explain to Jabob, it's not a bug but a FEATURE when we go from a 1x entry to a 2x entry to a 4x entry as we roll and DD to lower and lower strikes.  That's how we work into our value positions over time and the goal is to have large positions in value stocks that get very cheap.  

    Yes, occasionally our value proposition is wrong and they go all the way down but we rarely lose more than 1/2 an allocation block – even in a disaster and the times we make money make up for that in spades.  This LB position is currently down $26,825 (not counting today's move) but, at $35, it pays $37,500 while currently showing a $13,550 loss in the current position so we can turn around over $50,000, despite the drastic sell-off, if LB just gets to our adjusted $35 goal.

    LB
    50 LB 2021 15-JAN 35.00 CALL SC $ 35,000.00 9/21/2018 $ 21,650.00   20
    $ -13,350.00 -61.7 %
    50 LB 2021 15-JAN 27.50 CALL LC $ 34,750.00 9/21/2018 $ 30,000.00   20
    $ -4,750.00 -13.7 %
    10 LB 2018 20-JUL 35.00 CALL SC $ 0.00 5/24/2018 $ 1,600.00 7/20/2018 57
    $ 1,600.00 100 %
    15 LB 2020 17-JAN 30.00 PUT SP $ 9,300.00 5/23/2018 $ 7,800.00   141
    $ -1,500.00 -19.2 %
    20 LB 2020 17-JAN 35.00 CALL SC $ 5,000.00 5/24/2018 $ 11,000.00 8/23/2018 91
    $ 6,000.00 54.5 %
    30 LB 2020 17-JAN 20.00 CALL LC $ 42,000.00 5/23/2018 $ 32,400.00 9/21/2018 121
    $ -9,600.00 -22.9 %
    15 LB 2020 17-JAN 40.00 CALL SC $ 3,750.00 4/24/2018 $ 6,375.00 5/23/2018 29
    $ 2,625.00 41.2 %
    30 LB 2020 17-JAN 30.00 CALL LC $ 23,400.00 4/20/2018 $ 27,900.00 6/5/2018 46
    $ 4,500.00 19.2 %
    15 LB 2020 17-JAN 37.50 PUT SP $ 16,800.00 5/11/2018 $ 14,550.00   153
    $ -2,250.00 -15.5 %
    10 LB 2020 17-JAN 45.00 PUT SP $ 14,650.00 3/1/2018 $ 11,000.00 4/23/2018 53
    $ -3,650.00 -33.2 %
    30 LB 2020 17-JAN 50.00 CALL SC $ 6,000.00 3/1/2018 $ 20,550.00 4/20/2018 50
    $ 14,550.00 70.8 %
    30 LB 2020 17-JAN 35.00 CALL LC $ 39,000.00 3/1/2018 $ 18,000.00 4/26/2018 56
    $ -21,000.00 -53.8 %
    Total Gain/Loss for LB
    $ -26,825.00 -11.7 %

  17. We initiated the position on 3/1, with LB at $45 and we targeted $50 with an $18,350 entry on the $45,000 spread so we HOPED to make $26,650 off our initial 1/3 allocation ($50,000 blocks) and now, after all the chagrin, we're down $26,825 – about as much as we hoped to make on a position that went totally against us all the way down.  So we could have cut and run with 1/4 or 1/2 allocation losses but we decided to press it and completed our last roll on 9/21 – still down 1/2 an allocation but now in a much better position to hit our new targets.  

    On the whole, it's just the first 6 months of a two-year trade (now a 3-year trade) but think back on all the drama we've had over this one.  The point is, this happens as often as not when we're scaling into value positions.  We don't know when traders will stop panicking – they are clueless as to the Fundamentals and the actual VALUE of the company so, to them, $45, $40, $35, $30 are just numbers and the company is only worth what the chart says it is and the chart is simply a summary of the mob's opinion – it has nothing to do with proper analysis. 

    Fundamental traders take advantage of that but sometimes we're wrong but sometimes we end up with a huge portfolio filled with value positions – right when value comes back into fashion.  Those are the times we have been positioning for all along! 

    Short Put 2020 17-JAN 37.50 PUT [LB @ $31.80 $3.28] -15 5/11/2018 (463) $-14,550 $9.70 $-0.30 $-12.05     $9.40 - $450 3.1% $-14,100
    Short Put 2020 17-JAN 30.00 PUT [LB @ $31.80 $3.28] -15 5/24/2018 (463) $-7,800 $5.20 $-0.20     $5.00 - $300 3.8% $-7,500
    Long Call 2021 15-JAN 27.50 CALL [LB @ $31.80 $3.28] 50 9/21/2018 (827) $34,750 $6.95 $1.30     $8.25 - $6,500 18.7% $41,250
    Short Call 2021 15-JAN 35.00 CALL [LB @ $31.80 $3.28] -50 9/21/2018 (827) $-21,650 $4.33 $0.82     $5.15 - $-4,100 -18.9% $-25,750

    Now it's net -$6,100 that one position in the LTP just popped $20,000 this morning but ONLY because we didn't panic on the way down and stuck with our trading plan!  

    Submitted on 2018/05/11 at 10:46 am

    LB/Batman – Does that include Pink?  Seems to be doing very well.  

    Again, this "disaster" company where we have 30 $30 calls and 15 short $37.50 puts at net $6,600 (break-even around $35) also pays a $2.40 dividend if we convert.  We initiated on 3/1, when the stock was $45 so even if we lose 100% on the calls and get assigned at net $39.50 – we still have a 10% discount from where we first entered and then we could DD at $32.50 to average $35.50 on 3,000 shares and we could sell the 2020 $35 calls for $4.50 and the $25 puts for $3.90 to drop our net to $27.10/26.05, which makes the $2.40 dividend almost 10% while we wait to see if we get called away with an $8 profit (29%).

    Even from that, the worst/worst case is we end up being assigned another 3,000 shares giving us 6,000 @ 26.05 (156,300) and I'm pretty sure I would love owning that long-term!  

    So, from a 1x net $7,450 entry at $45, if all had gone perfectly we would have gotten back $45,000 for a $37,550 profit at $50 but now we're still in a 1x spread but, even at 2x after an assignment ($81,300), we get back $7,200 in dividends plus $105,000 if called away at $35 – still a $30,900 profit. 

    It's not bad for a stock that dropped 33% on us!  


  18. keep explaining Phil!!!!

    Way to go LB!!!

    Now we just need HMNY, GE, CHK, HOV, F, MU, IBM, FTR, GNC, MVEN, CBI, NAK, ABX, HBI, WHR, WPM, IMAX to follow suit!!!


  19. Jabo any more ? You got a basquet of nice apples


  20. yodi--those are some sour apples ;-)


  21. Big move down for AAPL.  Seems similar to other times where traders overreact to suppliers discussing reduced orders.  The same thing happened with the release of the iPhone X, and then it turned out to be a cash cow.  The only change this time is that Apple decided to stop giving info on sales volume going forward.  But how low can it go?  


  22. So now, a month later, the exact same LB position is like this:

    LB
    50 LB 2021 15-JAN 35.00 CALL SC $ 41,500.00 9/21/2018 $ 21,650.00   52
    $ -19,850.00 -91.7 %
    50 LB 2021 15-JAN 27.50 CALL LC $ 34,750.00 9/21/2018 $ 44,000.00   52
    $ 9,250.00 26.6 %
    10 LB 2018 20-JUL 35.00 CALL SC $ 0.00 5/24/2018 $ 1,600.00 7/20/2018 57
    $ 1,600.00 100 %
    15 LB 2020 17-JAN 30.00 PUT SP $ 4,950.00 5/23/2018 $ 7,800.00   173
    $ 2,850.00 36.5 %
    20 LB 2020 17-JAN 35.00 CALL SC $ 5,000.00 5/24/2018 $ 11,000.00 8/23/2018 91
    $ 6,000.00 54.5 %
    30 LB 2020 17-JAN 20.00 CALL LC $ 42,000.00 5/23/2018 $ 32,400.00 9/21/2018 121
    $ -9,600.00 -22.9 %
    15 LB 2020 17-JAN 40.00 CALL SC $ 3,750.00 4/24/2018 $ 6,375.00 5/23/2018 29
    $ 2,625.00 41.2 %
    30 LB 2020 17-JAN 30.00 CALL LC $ 23,400.00 4/20/2018 $ 27,900.00 6/5/2018 46
    $ 4,500.00 19.2 %
    15 LB 2020 17-JAN 37.50 PUT SP $ 10,800.00 5/11/2018 $ 14,550.00   185
    $ 3,750.00 25.8 %
    10 LB 2020 17-JAN 45.00 PUT SP $ 14,650.00 3/1/2018 $ 11,000.00 4/23/2018 53
    $ -3,650.00 -33.2 %
    30 LB 2020 17-JAN 50.00 CALL SC $ 6,000.00 3/1/2018 $ 20,550.00 4/20/2018 50
    $ 14,550.00 70.8 %
    30 LB 2020 17-JAN 35.00 CALL LC $ 39,000.00 3/1/2018 $ 18,000.00 4/26/2018 56
    $ -21,000.00 -53.8 %
    Total Gain/Loss for LB
    $ -8,975.00 -4.0 %

    For the LTP, that's +$17,000 and another $37,500 net if they finish over $35 from a $4,550 current value and the point is that, like the GE example on the weekend – it doesn't matter that we had lost $27,000 playing LB through Oct 11th, what matters is that ON October 11th, we thought the -$27,000 LB trade had, given the FACTS we knew about the company and their FUNDAMENTALS, a good chance of hitting $35 and making a $62,000 profit over the next two years.

    It doesn't matter what the stock did in the past – it didn't personally go out to get you.  It doesn't care that you lost money playing it before.  You have to play the stock where it is today and where you think it will be tomorrow and lose all that baggage but, unfortunately, that's all charting encourages people to do – to look at past performance like it's some kind of voodoo prediction of future actions.  

    Fundamentals are REAL, they may be hard to understand but they are real things that tend to affect stocks I'd say 100x more than chart action over the long haul but, sadly, people don't have the patience for the long haul and they think the long-haul is a year or two years at the most.  My attitude is, I want a company that's there for 10 years because almost ANY company that's around for 10 years will pay me 100% selling short calls – especially when they are under $10 so the lower a stock goes – the more I like them, because the more likely it is I can at least recover my money selling calls.

    If you are a fan of a baseball team, do you dump them if they have a 3-game losing streak?  5 games?  10 games?  If they are at the bottom of their division after 32 games are played (20%) – do you quit on them?  With a baseball team you know your players, the manager the other teams and you know your chances down the road because you KNOW YOUR FUNDAMENTALS and you would laugh at a friend of yours who stopped being a fan over those meaningless things.  Even if the whole season is a loser – you still know whether or not your franchise is building or declining and you look back on YEARS of data – not quarters. 

    That's because you understand the FUNDAMENTALS of the game you're playing so you can follow with confidence and ignore the day to day, week to week noise of a season.  If you put more time into learning about a baseball team than you do a stock you hold – you're doing it all wrong!  

    Of course then you have the asshole "fans" like Jabob who, for some unknown reason, go the park looking for reasons to boo.  They add nothing to the game and ruin it for other people.  Fortunately, we can ignore Jabob more easily than the fat guy in the left field bleachers…

    We don't own any HOV, MU is doing great, GNC puts only in the LTP are up 28%, MU is now a winner, IBM also a winner – I don't even understand that one, MVEN isn't in any portfolio, CBI doesn't exist anymore but was a winner when we sold them, NAK also not in a portfolio, ABX is even on a huge position now, HBI down $2,000, WHR is a big winner and we only initiated it on 10/22, WPM we love and it's down at the moment and IMAX is flat so, just so the rest of you know, that's why I'm putting Jabob back on ignore at least until I'm back from Vegas – he's like those idiot old muppets except he's not even a little funny and he seems to make it a mission to make up negatives if he can't find legitimate ones.  I don't need that crap. 


  23. Jabo We need to sweetening the up Rolling my T Jan20 30 To Jan 21 28 and selling 1/2 the Jan 21 28 put for 3$

    Paying good div also good for an armchair trade


  24. Hi Yodi, been looking at your style of slow and easy – will share ideas later, but for interest what was the original T trade that you are now adjusting?


  25. I figured you couldn't handle a little ribbing… 

    good grief.. you really are thin skinned.


  26. Playing with the numbers on straddles covering long stock, just to see how the returns stack up and also following up a point Phil made that the quarterly options are often more 'juiced up' as compared to the LEAP options – I looked at premium value per day of the sold contracts – Jan 19 vs. Jan 21. Often there is a big disparity. First example (I did the calcs over the w/end so numbers slightly different today:

    PepsiCo, Inc.     PEP                 price     117.48  

    Jan 19 120 straddle       dte: 68           per day 0.10       premium 6.99      net 110.49  

    Jan 21 120 straddle       dte: 796         per day 0.03       premium 24.07    net 93.41    

    dividend               $3.71       yield 3.2%      

    I notice the big disparity in per day premium sold if you go for selling the shorter dated straddle vs. the LEAP straddle. If you could pick up that kind of premium each quarter that would shoot the returns out of the park. 

    Apologies for the awkward layout (make that crazy if the format displays out of wack here).


  27. LEAPS / Winston – I noticed that as well, thanks for doing the math though. The premium always look juicy on the LEAP but you have to do the calculations. Another advantage of the quarterly is that the spread is generally better and you are more flexible to roll if needed.


  28. THANK YOU WINSTON!!!!


  29. Playing long in Europe close,

    NQ long til 6905 then 6985

    RB long


  30. I'll keep going until I hear the screaming…………

    Williams-Sonoma, Inc.   WSM               curr price $63.44        

    Jan 19 65 straddle          dte: 68          per day: 0.13      premium: 8.6       net:  55.4      

    Jan 21 65 straddle          dte: 796        per day: 0.03      premium: 24.05   net: 39.95    

    dividend               $1.72       2.7%        


  31. Phil / GLW & BX-

    Thank you for the insight, Ill add those names to my watch list and wait for a better entry.  Much appreciated!


  32. Maybe it's the exception that proves the rule, but IBM does not offer such advantage to the shorter dated straddles:

    IBM Corp.           IBM                                     $123.54  

    Jan 19 125 straddle         dte: 68          per day: 0.06       premium: 4.07       net:119.47  

    Jan 21 125 straddle         dte: 796        per day: 0.04       premium: 32.77     net: 90.77    

    dividend              $6.29       5.1%  

     

    I ran the numbers on a series of solid dividend paying stocks that pop up on most of the popular lists – strong balance sheets, and record of consistent dividend increases.

     

    Now I need to find an appropriate hedge that is smart in time and consistency. The rate of decay on the ultra short ETF products, particularly when used every month has always been a challenge. The mattress plays (buying DIA puts) could be an alternative. But if we could only find a reliable predictive timing signal which warned one month in advance when a period of hyper volatility is coming would be great. 


  33. GE/Albo – Actually they only dropped down to 30 – not that bad.  Good list to watch to see whose moving up and down over the years.  

    FNSR/StJ – They bottomed out at $15 after Q1 earnings so $20 not a terrible entry, even if things do fall apart.  Bottom line though is FNSR doesn't make any money and IV doesn't make much money ($100M to be generous) yet they are buying FNSR for $3.2Bn and AAPL is major client of FNSR so, as with any AAPL supplier – things can get ugly fast if this move causes AAPL to shop elsewhere.  I'm happy with our 2020 $10/22 spreads but I was happy before the offer – not going to push our luck.

    BABA/StJ – Last year they claimed $100Bn and that made no sense either.  I think maybe it reflects gross sales while what they collect from their partners is much less.  I did see a number that 1.2Bn packages were shipped in China yesterday due to the sale so I could see $100Bn gross.. possibly but I'd be more comfortable with $50Bn ($40/per package avg.) 

    AAPL/Palotay – Big reason for the downturn with a 5% drop to $194 and $184 is where I said it would fall to, worst case.  5% Rule is very good about these things…  AAPL costing the Dow almost 100 points.

    NQ down 200 – wow!  

    I know it's boring when we just sit there while the market recovers 40% of it's drop but that's the point of the 5% Rule, a 40% recovery is a strong bounce and only if that is held for a couple of days (forming a new base) can you really be confident that it's a good bottom.  Now we're heading back to test the weak bounce lines again and THEN we'll see if we can form a base there but, if not – DOOM!!!

    It's those silly Fundamentals we worked out at the beginning of the year that told us that 2,750 on /ES should be the high for the year (25% over our Must Hold line) – we were wrong about the high (2,950) but, since the Fundamentals didn't change – there was no reason to change our target expectations.  

    Using a chart to predict where a stock will go is like using your GPS history to determine where your car will be going next.  Maybe you can see a normal range of driving and maybe you can determine some favorite spots but it's really a coin-flip trying to figure out long-term movements based on past movements – you never know what obstacles lie ahead BUT, invest in a good vehicle – and you are far more likely to get there – no matter what lies ahead.

    Quarterlies/Winston – That's why we usually do those for the Butterfly and LTP.  A month is too random but quarterlies usually give you good cushion and, if you consistently sell them – a lot more premium revenue – enough to mitigate the risk of a swing wasting one or two quarters (as you roll to get out of trouble with no profit).  

    Of course, with puts, I tend to sell the longest ones I can if I think a stock is going higher because, in that case, you may not get another chance to sell those puts for that price and, if you sell, for example, the PEP Jan $120 puts for $5.20 instead of the 2021 $120 puts for $13 – clearly it's a better deal to sell the Jans but if PEP goes to $130, you'll have to sell April $130s and if it goes to $140, you have to sell July $140s and so on until, at some point, you do get burned on a 10% move down (almost a certainty at some point) and then you lose $10, which will take you 2 successful quarters to make up.  So, $13 in the hand (and only $3 is premium with PEP at $117) beats 8 x $5 in the bush where only $2 3 is premium at the moment so really 8x $3 = $24 projected premium if all goes well but one big loss and it's 5x 3 = $15 and a second loss and you are behind – all the while paying more for margin as well and having less in pocket.  

    There's also the worry that, if the whole market tanks and you get burned on two dozen puts at once, that you will not have the ability to do what you need to do.  On the above chart, I see 6 or 7 10% drops in 4 years so it's 50/50 that you get burned twice and pretty much 100% that you get burned once.  

    Meanwhile, of course, I wouldn't sell PEP puts at all this high in the channel – that's another thing you do have to consider and the only thing charts are actually good for – visualizing the ranges people tend to trade it at.

    Long/Lionel – Good call, I like /ES back over 2,750 (2,741 now) or /NQ over 6,850 since we hit 5% on AAPL and that's good for a 1% bounce (weak) at least.   TIGHT STOPS BELOW!!!

    You're welcome EMike. 

    IBM/Winston – Well that's a sign that selling the 2021 $125s is a great deal.  If you can't do better selling short-term and you like the net strikes – that's just the kind of thing we want to be in.  IBM made $6Bn last year and last year they took a lot of restructuring charges and paid $5.6Bn in tax on $11.4Bn in profits (repatriation).  This year, they made $1.7, $2.4 and $2.7Bn in the first 3 quarters ($6.8Bn) so at least $9Bn for the year yet, at $121, you can buy the whole company for $110Bn.  

    So $90Bn is a p/e of 10 and that's 20% down from here so let's call that a reasonable floor and we can sell the 2021 $120 puts for $16.50 to net in for $103.50, about 15% below the current price.  We already sold 10 2020 $145 puts for $18 in the LTP back in Jan but, as a new entry, I love the short IBM 2021 $120 puts for $16.50.

    For the OOP, we can collect $8,250 and I don't consider the risk owning $50,000 of IBM because IBM is very unlikely to be $50 ($25,000 for 500) so our real risk is well under $25,000 BUT the margin is $11,478 so it's sadly not margin-efficient, so we're not going to do it – tempting though it may be. 

    LB, on the other hand, still has 2021 $30 puts for $4.50 which nets you in for $25.50, which is $12 (32%) below the current price and we can sell 10 of those for $4,500 and the margin is only $3,000 though I'd say the risk of BK is higher with LB than IBM but still, not too likely.  So I'd rather sell 2 diversified like that for $9,000 with $6,000 in margin than have the IBM short puts hanging over my head.


  34. Winston,

    Sorry had lunch! Remember always on vacation now in Spain!

    Now T bought leap 20 T 8/21/18 for 4.48 now 2.80. when stock is on the low scale I like to roll the long calls so that is the reason. As the 1/2 put just about pays for the roll. I always hold back on the short leap call for better entry. And at 28 discounted to 23.50 I do not mind receiving that stock.


  35. IBM / Winston – Might be interesting to take the dividend rate into consideration.


  36. Phil, others/

    Looking for feedback on how to handle my OOP GE position that deviated from the official portfolio.  I wasn't able to roll the short Jan 20 $20 puts to the Jan 21 $15 puts in a timely fashion with the portfolio. As a result on 9/26 I was assigned 1000 shares. Bummer, but not the end of they world as my net entry was $16.55 and GE was at $11.50 at the time.  Decided to start selling calls to work my cost basis down.  Now at $8.20 and no dividend anymore and is that still a strategy or should I be doing something else?


  37. I'm out of GE completely and wait to see where this thing goes.


  38. BABA / Phil – That was also my thinking that they are reporting gross sales but their take is probably less than 10%! I guess if the retailers also report these sales, Single day sales would be $60B… Helping the China GDP right there – count sales twice!


  39. I'm out of most things now, need 12 months to weather a market correction. AAPL could see 150 before it sees 200 again.


  40. Looking at the chart, I said last week that $190/195 would be the next support line for AAPL as it had been resistance and it's now the 200 MA:

    AAPL Apple Inc. daily Stock Chart


  41. IMO the proper LT/ST portfolio now is

    LT: 20% long, 80% bonds, CD's, and cash funds

    ST: 5% high-risk, short-term long, 20% short building to 45% by EOY and remainder cash

    LT should be 5-10X of total ST value, e.g., $500k LT should have a $50-100K 


  42. Can't be the unsustainable deficits by any chance!


  43. Phil / QCOM – Getting interesting here.  They have settled with lots of governments in the past two quarters and the AAPL seems to be headed either to courts or settlements.  I see this at a minimum of 70 to 75  a as a good price target.  Any thoughts on this or possibly entering  a position…


  44. sorry Dump, markets love gridlocked gov't. Witness Obama's market run from 2010-2016; Clinton's 94-00. In 2017, once the GOP showed its true colors; the only piece of legislation they would actually pass is tax cuts and everything else was BS, then the markets rallied. Back to the drawing board on excuses. Perhaps it's artificial taxation on imports/exports that creates government-induced socialism (actually, communism) economic drag on trade at no offsetting benefit to no one, anywhere, ever? Oops, I mean "tariffs."


  45. StJ / dividend consideration; I'm slow today – could you explain a bit more on that point.

    Phil – straddles; thanks, many valid points and perspectives.


  46. GE/MusicMan – Well, you may have been assigned the $15 puts anyway.  Unfortunately, on 9/26, GE was at $11, now $8 but, as you say, net $16.55 is what it is.  It's tough to sell calls when you are this low and, frankly, with 1,000 shares at net $16, adding 1,000 more at $8 averages you to $12 but adding 2,000 shares at $4 averages you in at $8 so, on the whole, wouldn't you rather have 3,000 shares at $4 than 2,000 shares at $12?  

    That being the case, we can apply that logic to what you do next.  At the moment, you can sell 2021 $10 calls for $3.10 and that's net $7 on 1,000 more (if assigned) but it also knocks $3 off your $16 right now so, if GE does go higher, your break-even is $13, not $16.  You can couple that with the sale of the 2021 $10 calls at $1.90 if you want to get defensive and that drops your basis on 1,000 to $11 and $10.50 if assigned to 2,000 and then adding 1,000 more at $4 would average you to $8.50 – accomplishing the same thing as if you were able to triple down at $4 now.

    That being the case – there's no reason not to do it, right?  You don't HAVE to sell the calls but I'd put a "sell-stop" on them around $1.50 (if $7.50 doesn't hold) as their delta is 0.41 because, if GE is down that low – you may get your $4 on the next round!  Hopefully, GE turns higher and you can sell $12 calls for $2+ (now $1.35).  

    Of course, if your basis is $11 and you sold $10 calls, you lose $1 if GE recovers but that's better than losing $8 and, of course, you can always roll the short calls to 2021 or 2023 or buy more GE if you decide it's really turning, etc.  The key is to have a good, solid plan to make up the loss and then worry about the rest later…

    BABA/StJ – We have those calls in the STP and the Nov $145s are now $2.10, down from $3.10 and we're down $1,000 with 4 days left.  Given that the Nasdaq is down 2.5% and BABA is down 1.25% – I think I want to give them until tomorrow as we may still get lucky.

    Trump/StJ – What a loon.  Sadly though, a lot of the people from Oklahoma, Arkansas, etc that I talked to on the boat actually believe his BS.  Very nice people and we had very civil discussions and there were flat-out surprised when I showed them that working with foreign nationals to influence and election was actually a crime and that the caravan of doom was actually 4,000 men, women and children 2,000 miles away from our borders.  They watch FOX and listen to the President on their local right-wing news stations and read their right-wing papers and that's all they know.  If you could actually take the time to reach those people – a lot of them would likely change their minds but how?  That's why the GOP is making a putcsh to take over the media and quell the opposition – they certainly can't afford to have these people hear the truth.  That's also why the GOP turns the debates into a circus – they don't want the issues discussed in front of their base when there's opposition around.  

    QCOM/Batman – Getting interesting near $50, that's for sure.  We'll certainly sell some puts in the LTP.  

    You're welcome Winston.

    Those weren't even weak bounces on the indexes.


  47. FNSR & IIVI

    Both FNSR & IIVI are getting hit on LITE weakness because of AAPL lowering orders to LITE.  What I think is being overlooked in both companies is the large ramp in VCSELS beginning this quarter for IIVI & FNSR.

    From Rivershore Investment Research :

    Bottom Line for FNSR &  IIVI, -  we think the prudent play is to buy IIVI on the current weakness. FNSR is a customer of IIVI. Any shift of AAPL buying from LITE to IIVI would benefit IIVI even if its proposed acquisition of FNSR falters. Also, under $40, LITE is trading at an attractive price because it will likely earn over $3.90 nonGAAP EPS with a reduced AAPL contribution. At 10x this number, LITE is still a good buy.

    FNSR is the less prudent buy here. A FNSR shareholder will receive $15.60 in cash plus 0.2281 shares of IIVI if the deal is approved. IIVI’s upside is greater.

    FWIW – Sold 20 IIVI Nov 16 $30 puts for $.45.   Would love to buy it at the end of this week for under $30,  if not, $900 isn't a bad premium for 5 days.


  48.  Thanks - Phil, Winston, Jabo, Yodi , Stjean, Bio and others. The last 3 days of chat probably have been the most educational in several months. 


  49. Oh, Albo, you too!


  50. /CL testing $50 again but not looking pretty doing it.  Still, /BZ $70.30 and I like the odds of someone in OPEC saying something supportive. 

    /RB still holding most of the gains.

    No help from the Dollar:


  51. Dividend / Winston – I was wondering if with a higher dividend there might less premium in the quarterly than in the LEAPs. That seemed to be one of the differences between IBM and the other examples that you showed.


  52. supportive/ you mean like this:

    Donald J. Trump‏Verified account @realDonaldTrump20m20 minutes ago

     

     

    Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!

    2,489 replies2,956 retweets11,402 likes

     


  53. NQ reached 6905 on the dot…5% rule….very bot driven,,, I am out


  54. QCOM/Phil- have we did any adjustments to our QCOM LTP position?


  55. Lionel – what is not bot driven these days!


  56. Very true Jean-Luc. RB back at todays low for a poke…


  57. Noooooo – Stan Lee is dead! 

    Image result for sad spiderman


  58. Tesla better ramp up production:

    https://arstechnica.com/cars/2018/11/volkswagen-plans-to-make-50-million-electric-cars-ceo-says/

    And today, VW CEO Herbert Diess told the German publication Automobilwoche that total battery earmarks for the company were now up to €50 billion ($56 billion). "We have bought batteries for 50 million vehicles," he told the publication.

    And these guys know how to make a lot of cars quickly!


  59. Yikes, this market can't get it going – another rejection.  

    Good job Lionel! 

    QCOM/Dave – Well, we did the right thing, cashing in the longs back on 9/21, when it was crazy high and we left the short 2020 $70s open and covered them with the 2021 $67.50/$80 bull call spreads and the theory is that if QCOM goes lower, it will be cheap to roll our $67.50s down to the $57.50s.  So now, the QCOM 2021 $67.50s are $4 and the 2021 $55s are $8.30 so yes, let's execute that roll officially in the LTP.  Any other adjustments can wait until we see how it settles out.

    Stan Lee – Our modern-day Homer.  He's the guy responsible for our society's modern mythology.  Possibly he'll be remembered for thousands of years and well-deserved!  


  60. QCOM/Phil- leaving the short 2020 70 calls open or taking profit on those short to roll the 2021 calls for $4.30 each?


  61. QCOM/Dave – If anything we'll add more longs and roll the short $70s and the short $80s to the June somethings and turn it into quarterly sales but, for now, I'm not too nervous about the short 2020 $70s as they are only a 3/4 sale against our 20 longs and far out of the money now.  Keep in mind their Delta is 0.22 and the Delta of the June $62.50s ($1.90) is 0.28 so the short calls we want to roll to will go up in price faster than the 2020s we want to buy back – so they can't hurt us to the downside and they can't hurt us to the upside – which means there's no reason for us to do anything until we see how QCOM finally holds up.


  62. Humanity might not have a thousand years Phil! And we probably reduced the probabilities the last 2 years.


  63. Phil,

     

    What do you think about GNC?


  64. AAPL/Phil- Speaking of which apple dip below $200, looking by the past few posts.. for new trade best to wait for entry at 185-190 range?


  65. covered the Nov 16 SQQQ 10/13 spread for 2.85 just in case we get a bounce into Friday


  66. Oil really falling apart.  I guess no one backed the Saudis up on production cuts.

    Honey badger still don't care:

    GNC/Japar – Well we sold the 2020 $5 puts for $3 so that's net $2 so I'm not too worried.  They are in a turnaround and it's not going great so far and they essentially zero'd out their earnings this Q (0.02) down from 0.32 last year. They did close a round with a Chinese partner ($300M) so I don't really know what the problem is as, obviously, it takes a while for that partnership to translate into sales but, as usual, traders are not patient enough to own investment stocks.  Still, not a raging buy and I think our 20 short puts are risky enough as we may end up owning 2,000 shares at $2 in the LTP and, in the OOP, we have 40 2020 $2.50 calls we paid $2.30 for that are now $1.63 – so now I'm sorry we didn't cover them (we were waiting for $5)!  

    AAPL/Dave – I don't know if they'll get to $184, that's just the point at which I said I would absolutely DD on our current position.  You can sell 2021 $195 puts now for $25.50 and that nets you in for $169.50 and, if you don't like that – then you don't really want to own AAPL, do you?  

    In fact, in the OOP, let's close our AAPL 2020 $145 puts at $5.05 and sell 5 of the 2021 $195 puts for $25.50 ($12,750) to drop some cash into the portfolio.  

    In the Butterfly Portfolio, let's close our AAPL 2020 $160 puts at $8.13 and sell 5 of the 2021 $195 puts for $25.50 

    IN the LTP, let's sell 10 of the 2021 $195 puts for $25.50 and we'll leave our existing 10 short June $160 puts too.  


  67. Adding 2 long /RB at $1.615 – a little gamble on the way to Vegas.  

    Got to go – hopefully I can get right at it with the time difference tomorrow.



  68. Saudi Arabia Is Misusing Mecca


  69. Trump is cracking


  70. Thousands in Gaza demand revenge after deadly Israeli raid


  71. Republicans sharpen ‘fraud’ claims, Democrats compare Scott to a ‘dictator’ as Florida recount ramps up







  72. maybe oil is going down because of fake demand in a fake economy. 


  73. I'm looking for DIA to settle about 181 or so. 6-12 months


  74. That would be some incredible retracement BDC but 180 is a pretty good support line!


  75. In Georgia, a certification deadline and another court fight






  76. Re the reduction in foreign students coming to the US. I'm teaching at a STEM school here in Korea, one of the five "IST"s. We have around 60 -70 foreign students here, from all over (except the US). Lots from India, Pakistan, Bangladesh, Iran. Quite a few from China, Indonesia, Viet Nam, the Phillippines. A few from Egypt & Ghana, and a couple from Europe – Russia & France.

    Most do not put the US on their list at all for further study or jobs. The Muslim students and the dark-skinned students will not even consider it because of the bigotry. It's a shame, because these are very bright students. One friend, a PhD in robotics engineering, invented something that is useful and needed in neonatal intensive care wards. His invention was set up and put it into use in a major university hospital in Busan – he went down there to set it up and train people. He'll never come to the US, especially as his last name is Muhammed. The US's loss.


  77. RB long.

    We are at last year lows. Last year same time RB reached 1.68 around Thanks Giving from the same level.


  78. Good morning!

    Overslept, of course (5:30 here), doing my best to catch up. 

    /RB hit $1.60 while I was flying so I missed my chance to DD, still in the same 2 long and down $500 at the moment.

    Indexes flat – not good but better than down more.