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TGIF – Stop the Week – We Want to Get Off!

Well, you can't say we didn't see this coming.  

On the right is where we closed last Friday, just shy of 26,000 on the Dow, just shy of 2,800 on the S&P, 7,039 on the Nasdaq, 12,573 on the NYSe and 1,550 on the Russell.  It may have seemed like we were recovering but this is why we have to ignore our instincts (bullish or bearish) and just watch the bounce lines according to our 5% Rule™ before making drastic changes to our portfolios.

I had warned about being fooled by the bounces in Friday's Morning Report and on Monday we laid out our game plan for the week and I don't go over them to show how right we were but it's good to reveiw what we said then in retrospect so the next time we tell you what is likely to happen, you have better context for how our predictions play out.  

We went long on Gold (/YG) and Silver (/SI) Futures on Monday and that was BRILLIANT but we were way too early getting bullish on Oil (/CL) and Gasoline (/RB) though, fortunately, we did have a plan to lose "just" $420 at each nickel stop on the way down ($1.65, $1.60 and $1.55) as we played for the eventual turn. 

As it stands now, we're long 4 /RB contracts at $1.55 after losing $420 on the first penny at $1.64 and then $840 (2 contracts) at $1.60 but now 4 contracts at $1.55 seem to be working and we're back to $1.585 with a $1,470 gain and, of course, we are taking 3 off the table, leaving us with just the original one long contract at the much better price of $1.55 while we're up net $210 overall on the closed contracts. 

We were wrong on SLW on earnings, they went $1 lower but we still love them long-term and our warning for the week played out as I said on Monday:

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.

So far this week the Dow bottomed out yesterday at 24,800 (-4.6%), S&P 2,670 (-4.6%), Nasdaq  6,828 (-3%), NYSE 12,200 (-3%) and Russell 1,490 (-4%) and we bounced back during the day but BOUNCE is the operative term because of course we're going to bounce off 5% corrections in the Dow and the S&P and of course the other indexes will bounce wtih them – even if they haven't completed their 5% moves. 

Image result for dead cat bounce stockThe question is whether those bounces turn out to be strong or weak and whether or not there is any volume backing them up.  Without strong bounces on good volume – the interim moves up are ridiculous and my main goal of this down cycle is to teach you not to get sucked in by weak bounces!  

As I had noted back on October 18th, when we were also bouncing at 2,800:

Schrodinger's Market.

The bouncing cat is either dead or alive at S&P 2,800 and we won't really know which is which until the weekend as the S&P failed to hold it yesterday and our 5% Rule™ demands 2 full days over the strong bounce line (2,800) before we can put our rally caps back on.  Strong bounces are NORMAL – it's what we expect on the way down as each 5% move lower is followed by a 1% (weak) or 2% (strong) bounce in a healthy correction.  The downtrend isn't broken until the strong bounce line is held – a very simple way to tell whether or not it's a good time to jump back in.

It's a whole good post about not being fooled by these bounces – you should read it – it's good stuff!  Meanwhile, here we are a month later and there's been no improvement at all and we're still watching the same bounce lines and still waiting for a resolution but the good news is that a month spent gyrating between 2,600 and 2,800 is a 7% range and that's a 2.5% range on each side with a 1% overshoot, which is exactly what the 5% Rule™ predicts around the 2,700 line.  

The 5% Rule does not predict whether we'll break up or down from here but Fundamentals, unfortunately, still indicate down.  So much so that we haven't even doubled down on Apple (AAPL) yet as they tested our $184 goal (though we did sell 2021 $195 puts for $26 because – wow – net $179!).  There are many false rallies along the way as a market corrects.  As I had noted on October 17th, the morning after the Dow popped 547 points:

The Dow finished up 547 points yesterday and that was AMAZING – almost as AMAZING as that day we fell 843 points, way back on…. Wednesday of last week.  But hey, 547 points is only 296 points short of catching up to a one-day drop so – RALLY TIME!!!  Right?  No, not right at all – especially when last Wednesday's down volume on the S&P was 275M shares and yesterday's up volume was 118M shares.  If the stocks were really so attractive – what happened to the other 157M shares worth of buyers?  

The thing is – those sellers took their money OUT of the market and yesterday's buyers decided to build things up with a MUCH WEAKER foundation than the one that collapsed last week.  So, while a bounce like we had yesterday is good progress on the way to a hopeful correction – it don't mean a thing unless we can spend two full days over the strong bounce lines which are:  Dow 25,700, S&P 2,800, Nasdaq 7,250, AAPL $226 and Russell 1,630.

Since we drew that chart, we've tested all the way down to 2,600 and haven't made new highs so that blue line has now moved down 50 and we're down from 2,950 in early October so 2,700 is down 250 and that means the bounce lines (or overshoots to the downside) are 50-points to 2,750 (weak) or 2,800 (strong) still – just as we predicted a month ago but failing to hold a break over the strong bounce lines a month later is NOT a good sign.

Meanwhile, it's Portfolio Review Day and we've already gone over the Short-Term Portfolio and the Butterfly Portfolio and we can't change the Money Talk Portfolio, which was last adjusted back on October 24th, when we were at $95,645.  We added a TZA hedge at the time as well as short puts on CAT to pay for it and MJ was added along with MU and, despite the rough month, the completely untouched (since then) portfolio is now at $104,467, which is up 108.9% for the year.  

Sorry the image is bad, I'm in Vegas and don't have my usual screen capture program, which handles things better.  Anyway, the point is, nothing beats a well-hedged, well balanced porfolio.  You may perform better over the short-term but this is a much safer, saner way to invest – and this is a portfolio we only adjust once every 3 months – live on TV!

Have a great weekend,

- Phil


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  1. Looks like a one day bounce looking at the futures this morning.

  2. Do your research:

    Annie Duke’s ‘Wanna Bet?’ concept and approach to decision making highlights the pitfalls of investor’s behavior. The idea is predicated on humans frequently stating their beliefs with little to no prior research or due diligence.

    It is often only when these beliefs are challenged, that we then re-evaluate our claims.

    Every day, investors are inundated with financial news, macro forecasts, stock tips, and the ubiquitous predictions touted by market ‘experts’.

    Given this relentless deluge of investment narratives, it is not surprising that many of us fall victim to story-based investing. Instead of financial analysis and empirical research, our investment decisions often stem from the subjective commentary that we’re exposed to on a minute-by-minute basis.

  3. MDLZ expiration. Wide bid/ask spread. Yes, let the short puts expire, but it is the $42 short calls that create the issue. I noticed this on DIS recently on one of the PSW portfolios (the short calls would have expired ITM so the portfolio actually would have been short 1,000 shares of DIS). The MM keep the short calls artificially high until what seems like the last minute of trading on expiration Friday (today), so buying back costs a ridiculous amount of extrinsic premium unless you can time the trade perfectly in the last minute of normal trading hours (highly unlikely). Right now, pre-open the bid/ask looks reasonable on the short calls, but let's see how it evolves during the trading day.

    One approach would be to buy the stock and let it be called away – I know that seems insane – but it might be a way to lock in a known loss? Any alternatives?

  4. An opinion of GE:

    As many of you know, I believe that every valuation has to have a story. With some companies, like Amazon and Google, the story is uplifting and optimistic, and the valuations follow, but they still might not be good investments, since their prices may be even higher. My story for GE is not an upbeat one, but if it (and its management) acts its age, accepts that slower or no growth is what lies in the future and does not over reach, it is a good investment. I believe that the market has over corrected for GE's many faults, and at the current stock price, that it is significantly under valued. I will buy GE, but I will do so with open eyes, not expecting (or wanting) dividends to be paid until the debt gets paid down and the company exits the capital business with as much grace (and as few costs) as it can muster. 

    I guess selling calls while waiting for a recovery!

  5. WSM gets chopped up and blended after light guidance:

    Williams-Sonoma (NYSE: WSM) reported Q3 EPS of $0.95, $0.01 better than the analyst estimate of $0.94. Revenue for the quarter came in at $1.36 billion versus the consensus estimate of $1.37 billion. Comparable brand revenue growth of 3.1%.


    Reiterates Fiscal Year 2018 Guidance

    Non-GAAP net revenue of $5,565 billion – $5,665 billion

    Comparable brand revenue growth of 3.0% – 5.0%

    Non-GAAP operating margin of 8.4% – 9.0%

    Non-GAAP diluted EPS of $4.26 – $4.36

  6. WSM down pre-market to $53.50 from a close of $60.56 yesterday. One to keep an eye on.

  7. That would be a rough couple of month for them, down from close to $75! $50 looks like a decent place to start it seems.

  8. WSM's price move confirms that having a strategy for managing 20% moves in an underlying is not just incidental, it has to be an integral part of how you manage your positions. Some of the favorite names on the board, if not the majority, must have experienced 20% moves during their 2 year trading cycle ( i.e. from when the trade was placed until the furthest away expiration date. So if you don't know what you are going to do after a 20% movement, then it's time to have a plan. Put another way, it is almost guaranteed you are going to need to adjust trades during the life of an options position. That's hardly a revelation, but important to know when you enter a position what you are signing up for (I mean that in relation to the trade, not your PSW membership!). It's important in terms of size, strikes, leverage, net deltas etc, diversification (e.g. how many retail stocks do you really want to own in a single portfolio?).

  9. Good Morning.

  10. I agree Winston and the plan for each position can vary, I don't think that you need to have a standard response like doubling down each time. Some positions are more speculative than others and a 20% move against it could simply mean it's time to fold! There also the possibility of bad surprises that affect your plan! So have a plan and also be agile!

  11. Long /NQ.  Close stop.

  12. Always helpful to hear insight from the more experienced investors and traders on this board. Thx StJ and Winston. Much appreciated.

  13. BJO is showing up as an invalid symbol in my TD account. Strange.

  14. /NQ – Sold 1/3 up 40.  Raising stop on balance.

  15. Retail still getting trashed.  In addition to WSM, TGT, KSS, & BBBY starting to look interesting.

  16. BJO has been changed to JO

  17. Good morning! 

    Very good point, StJ.

    MDLZ/Winson – There's almost never a time you can't close out a short put or short call with an 0.05 premium on expiration day – even if it is the last minute.  You don't have to time it perfectly, just pick a number and put in a limit offer.  On MDLZ, for example, we have 5 short $42 calls in the Butterfly Portfolio that we sold for $1.05 and, yesterday, I said we should close them out at $1.75 at 3:30 and they haven't been that low but the idea was to roll them to 6 Jan $44 calls at $1.30 and those will be easy to fill and, if MDLZ is higher this morning, then hopefully the Jan calls will be higher too.  At the day's end, if we can't buy the short calls back at a low enough price to make and even roll, we could adjust the roll, like buying back 5 Nov $40s for $3 (if we get to $45) for $1,500 and then, perhaps we could sell 8 Jan $44 calls for $1.50 ($1,200) instead of 6 or, if we really think $45 is toppy – we could sell March $44s, which are already $2 and we'd only need to sell 7 of those for an even roll.  Meanwhile, the only reason we're having "trouble" here is because our 20 2020 $40/47 spreads have moved $6,000 further into the money so, in the grand scheme of things, I wouldn't sweat the $300 cost of the roll.  

    Also, if you really want to avoid an assignment and fixing that next week, just buy the stock now for $44 and then you'll be called away at the day's end at $42, locking in a $2 loss with no premium at all.  That you could have easily done yesterday at exactly the price we wanted to exit.

    Now that the market is open, the $42 calls are $1.87/2.24 with the last sale at $1.95 and the Jan $44s are $1.40 – not terrible and I'd take the $1.40 and hope for a pullback on Nov calls as the market is weak.

    If DIS was still open (not sure which ones you mean), it's because I failed to log the entry, not failed to close them and took an assignment and, even if I were assigned, I'd simply get out the next day. 

    GE/StJ – That's what I said about them.  I don't care if they don't grow – as long as we can sell options for years to come – I'll be happy with them.  Almost any stock under $10 that isn't going BK makes a great thing to generate an income with.

    WSM/Winston, StJ – We had a lot of trouble with them in the old OOP.  Our ending position was the 2020 $40/47.50 bull call spread (10) at net $3.20 with 5 short 2020 $40 puts at $5 and fortunately we took the money and ran last year, when they were still in the mid $50s as they later went back to the mid $40s.  So nothing surprising about this correction as they were miles over our target, which was conservative at $47.50 but still,  $73?  Ridiculous!  They are a little bit interesting here but nothing I'd buy in a weak market.  Back at $45 they get compelling.

    Unfortunately, we're playing against some very, very irrational people and you have to be careful not to get sucked into their idiocy.  

    Year End 28th Jan 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 4,043 4,388 4,699 4,976 5,084 5,292 5,457 5,652 5,745 +5.5%
    Operating Profit $m 409.2 452.1 502.3 488.6 472.6 453.8 450.5     +2.1%
    Net Profit $m 256.7 278.9 308.9 310.1 305.4 259.5 264 360.1 361.9 +0.2%
    EPS Reported $ 2.54 2.82 3.24 3.37 3.41 3.50 3.67     +6.6%
    EPS Normalised $ 2.62 2.89 3.24 3.37 3.53 3.61 3.85 4.34 4.51 +6.6%
    EPS Growth % +15.6 +10.1 +12.4 +3.8 +4.9 +2.3 +9.4 +20.3 +3.90  
    PE Ratio x           17.1 16.0 14.2 13.7  
    PEG x           0.84 0.79 3.65 3.27

    What in these numbers would lead someone to pay $6Bn for this company (now back to $4.2Bn)?  There's no bottom-line growth here – just a pretty steady $300M a year(ish) and yes, they PROJECT 20% gains because ALL companies project 20% gains otherwise why would the Board keep the management team.  Just because they fail to achieve it 10 years in a row doesn't stop them from promising to do it next year, right?

    So what happened in August when they popped from $56 to $72 to justify that 20% pop?   NOTHING – the same nothing that justifies what the rest of the market did this year.  I know I sound like a broken record but I DON'T GIVE A CRAP ABOUT THE CHARTS!!!  I care about the actual earnings and the actual environment and, at the moment, WSM is caught up in the trade war and until the trade war is resolved, I think 16x ACTUAL earnings ($52) is very generous for a company that is not growing and may be declining.

    Very true about 20% moves and even 40% moves, which is why scaling into properly allocated positions is CRITICAL in options trading (see our Strategy Section). 

    BJO/Soma – Not on ThinkOrSwim – $41.78 but I think they are changing back to JO, which is very annoying.

    Image result for blowjob animal house animated gif

    /NQ/Albo – You're getting very good at this!  

    /RB $1.595 – very nice!  /CL over $57.50 but watch that line. 

    Interesting/Albo – Not until I see the broader indexes stabilizing and the VIX calming down. 

  18. Phil/STT

    my understanding is that State Street stock will make a turnaround in another year and touch $100. If that is the assumption then how would you do the option setup? downside is limited to $60.

    thanks as always.


  19. Dollar down 0.5% so take any moves up with a grain of salt.  

    /SI $14.36, /YG $1,225, /RB $1.60! 

  20. VZ  -  I have the stock at 51 with Jan 20 50 Calls sold for 5.80 (now 10.85) I think it has had a good run and would like to sell here, but the ITM sold Cs are the problem.  The roll out to Jan 2021 is not much so that does not fix it. Should I wait or is there a way to profit here without selling the stock and going naked on the calls?  Thanks

  21. I'm done with /RB here – finally turned a nice profit after all that aggravation.  

    I still think we go up next week but, unfortunately, it would now be irresponsible to leave that on over the weekend – or even while I'm not watching it so better to just close out and hope it doesn't blow higher before I have a chance to get back in.

    I have a breakfast meeting at 7:30 (10:30, EST), probably another long one but I'll be back around 9-9:30 and we'll do the OOP and LTP reviews but, like the MTP – best just to leave things alone in this kind of market.

    F'ing thing, /RB is already popping higher.  angry

    Honey badger feeling better after retracing to $4.

    VZ/Tx – Yeah, a bit overdone.  You can cash the stock for $59.75 now and I'd do that and cover the 2020 $50 calls ($11) with the 2021 $50 calls ($11.50) is you can't do a spread as you get $48.25 off the table and still keep the net premium on the long calls at worst (the 2020s currently have $1.50 in premium) and you can roll to a vertical over time.  If you can take a vertical now, I'd go with 2x the 2021 $57.50 ($7.00)/67.50 ($3.40) bull call spreads at $3.60 as they have a net delta of 0.32 so not too bothered by a 5% drop (they'll lose about $1) but gives you $20 cover on the 2020 $50s while taking $52.55 off the table, which is over your call strike and you're left with an uncovered $7.50 (so you're bearish for now) but even if VZ doesn't pull back, you can sell 2021 $52.50 puts for $4.65 and put that money into rolling the 2020 $50 calls ($11) to the 2020 $57.50 calls ($6) for almost even and that would erase your deficit and leave you 2x covered over $57.50 with still a year to roll.

  22. BBBY at 5 P/E. Ridiculous and $12.50 per share. lol

  23. /NQ

    Sold another 1/3 up 80.  Raised stops on last 1/3.

    Somavision – I agree with you.  The May 12.50 puts look interesting to me at ~ 1.90-1.95..

    The P/E is probably misleading.  But if exercised, and the dividend holds, you would be getting 6% and the chance to sell some OTM calls.calls.

  24. Phil, I have the following (small) CELG position. This was open when they were around $80. They are now at $69.65. What adjustment would you recommend:

    - Sold 2 Jan '20 80 puts for $6.56, now $14.87

    - Bought 2 Jan '20 90 calls for $13.12, now $4.21

    - Sold 2 Jan' 20 100 calls for $8.84, now $2.46


  25. sweet play albo

  26. Tommyt – Thanks.  More luck than skill.

    Still not totally comfortable trading futures.

  27. albo – do you receive dividends when you sell the puts or only on the long and short calls?

  28. RB/  reenter RB and NQ long

  29. crazy mkt..


    still in timeout?

  30. …also, where did you lookup that put to call ratio yesterday that made you think a short squeeze was coming? TIA

  31. the GE 2020 $8 puts are 1.75 which so you can make around 22% in a year if it "bounces" back to 8

    or it could go to $6 and you're out 3% so not a bad win/loss ratio there

  32. albo-soma/BBBY – those May $12.5 puts look good – nibbled at a few and they filled easily, too easily. When that happens normally means further storms ahead. Will add further on the way down. Stock will have to prove itself before I layer on long spreads.

    Thanks for the heads up.

  33. Yeah. Got an easy fill as well on those BBBY puts. 2.10. Tell all of your friends and family to shop at BBBY for the holidays!!!! LMAO!!

  34. Hello Phil and the Gang,

    As a new member I have been studying old posts and the new members section.  There is a lot of great stuff in there – especially on position sizing.  

    One thing I haven't been able to find is an explanation on the Butterfly Portfolio.  I am looking for information on the creation of positions – ie why did Phil pick "this" strike verses a different strike.  Or, I am looking for information on typical setups – ie "we pick  .3 / -.3 delta options as our wings of the butterfly" – the premise for selecting strikes.

    Thanks in advance.

  35. Somavision -You only get the dividends if you get put the stock.

    I saw the put/call ratio mentioned on Briefing Trader yesterday.  It's also available here :

    Winston, I sold the same puts, but too early.  Only got $1.95.

  36. /RB giving up its gains again. I got done at 1.575. 

  37. Got some at 1.575

  38. Out of NQ but still waiting for RB to pop up :)


    Markets lifting after President Trump reportedly signals China is open to a trade deal.


  40. Back from meeting but now I have to crank out those portfolio updates! 

    Crazy moves since I left I see.   Trump saying he will have a great relationship with China – that's all it takes, apparently…

    /RB all the way back to $1.56 – I feel way better about my exit.

    CELG/Alter – I was going to look over CELG if someone reminds me on Monday, when I have more screens.  Without an opinion on whether it's worth it, mechanically, if you want to stick with it, I would:

    • Roll the 2 short 2020 $80 puts at $15 ($3,000) to 3 2021 $70 puts at $11.20 ($3,600) 
    • Roll the 2 long 2020 $90 calls at $4 ($800) to 2 2021 $80 calls at $10.50 ($2,100) 

    OR, if you can hold two naked short 2020 $100s, 

    • Roll the 2 long 2020 $90 calls at $4 ($800) to 2 2021 $55 ($23)/$80 ($10.50) bull call spreads at $12.50 ($2,500)

    In case number 1, you have the same spread and you wait for the short $100s to be more worthless to buy them back and sell 2021s (you could roll into the same spread) or, if CELG goes up, then you could roll the short calls to higher 2021s.  

    In case number 2, you were in for a $556 credit on the $2,000 spread but that's gone and now you are spending net $1,900 less the credit is net net $1,344 to be in a $5,000 spread at a much lower strike.  Then you could put a stop on 1 2020 $100 call at $3.50 and the other at $5 so the most you spend is $850 buying those back and you'd still only be in for about $2,000 with a 150% upside potential at just $80!  

    GE/Pstas – Relentless.

    Good job on /RB Lionel and Jeff!  

    Butterfly/Robert – I'm in Vegas and tight for time but ask again on Monday and I'll be happy to catch up.

  41. Back to 1 /RB now with a profit. Stop on the remaining one at 1.58

  42. Hi Phil,

    Sorry to follow up again but was curious to know your thoughts on STT and what can be a good set up ?

    Thanks as always


  43. Market appears to be somewhat skeptical about Trump's words. He's got to hate that.

  44. Hi Robert, Welcome to the club. As Phil says he will answer your question on Monday.
    My stronger range are armchair trades and Tree planting. Both subjects you can find in members corner. Worthwhile reading.
    I do not know your knowledge of trading, but I can tell you, your choice of site was a good one. I have even forgotten how long I am now with PSW, but I find you can just about learn from this site every day.
    The learning on this site did turn me from a looser to a winner today, I can happily say.
    One good advice I can give you on the road. Always enter plays in small numbers, they are always easier to correct. Good luck.

  45. Quite a statement!!!

    Amazon founder and CEO Jeff Bezos told employees, in response to a question at an all-hands meeting last week, that the company is not "too big to fail." He said, "In fact, I predict one day Amazon will fail. Amazon will go bankrupt. (CNBC)

  46. Thanks, Phil

  47. Options Opportunity Portfolio (OOP) – Part 1:  Don't forget, this is a quick review just highlighting changes.  Image is from 11/2, not the current but I'll note any adds if I can and please ask about anything I may have missed where action may be required.

    • BJO – is now JO, apparently and on track at $42.81.
    • TZA – Hedge is doing it's magic, now up $8,000 but max payout is $25,000 from $7,500 net entry so +$17,500 is our goal – still more than 50% left to gain.  
    • SCO – Like the STP, we're rolling our 10 short Nov $16 calls at $5.60 ($5,600) to 15 short Jan $20 calls at $3.50 ($5,250).  
    • CDE – Very good for a new trade down here. 
    • CHK – Still way too cheap  at $3.59.

    Options Opportunity Portfolio (OOP) – Part 2:

    • GE – We're going to roll but no hurry.
    • GNC – Another one that got cheap again
    • LB - Let's take the money and run on the 20 long 2020 $20s, now $15 - that's a nice $30,000 we can pocket off our net $12,000 entry (less as we also sold short calls we closed earlier).
    • OIH – Let's buy back the short 2020 $27 calls for 0.45 and roll our 10 long 2020 $22 calls at $1.40 ($1,400) to 20 2021 $15 ($5.60)/$22 ($2.10) bull call spreads at $3.50 ($7,000) and let's roll our 5 short 2020 $23 puts at $4.90 ($2,450) to 10 short 2021 $22 puts at $4.50 ($4,500) so the whole move is net $3,550 to put us into a $14,000 spread that's mostly in the money at $19.  We put net $1,250 into the original set so net net $4,800 on the $14,000 spread – even though it went 20% against us.  That's why these spreads are so powerful!  

    • SPWR – We're likely to press this one but not yet. 
    • WPM – I though earnings were fine so no changes yet, now down $8,000.


  48. there's some real probability that bitcoin and all crypto is nothing more than a fad and it all goes to zero (or close enough anyway).

  49. Any reason HBI taking such a hit?

  50. NLY – and probably others too – current price 5 cents below the $10 strike.  Why are the calls so much cheaper than the puts?  Way more difference than 5 cents.  A factor of 2 difference.

  51. Hi Tangled, take this with a grain of salt because I'm not 100% sure, and Phil or others can chime in and confirm….

    But i believe it is because NLY is a REIT and they are mandated to distribute nearly all of their earnings to shareholders in order to maintain their tax status as a REIT. 

    So the options pricing is reflecting the expectation of limited upside in price appreciation (as greater earnings will mostly be paid out). Thats not to see its impossible for the price to go up, just what is probabilistic. 

    Where as on the downside, if there was some issue, mis-management, greater negative impact of rising rates. The market price could drop (i.e. why the puts are priced higher) 

    coles notes…. the options are pricing in a greater likelyhood of the stock price going down than up. But that is the trade off with something like NLY, you dont expect much price appreciation, but you do get to collect juicy distributions as a consolation. 

    hope that makes sense !

  52. Wow, sorry guys, I laid down to rest for a minute and fell asleep!

     There's nothing urgent or due in the LTP, so we'll do a proper review next week.  Very few positions are even down but the high VIX has cost us about 10% from our highs but still up 94% for the year ($971,726) so nothing really to worry about and well-covered by the STP.

    Trump cheated with trade BS to save the market and Cramer has been yammering all day that the Fed will save us too -  And the weaker Dollar… 

    We'll just have to see what actually sticks next week.  This is the only view that really matters now:

    STT/Pat – Sorry but remind me on Monday, happy to take a good look then.

    BitCoin/BDC – No!  Really???  cheeky

    HBI/CRS – I heard Trump doesn't wear underwear so freesylin' is sweeping the nation in honor of our beloved Commander in Chief – that's not good for HBI…    Actually, I think they are just down with retail and many companies like HBI have a fear of big write-offs from SHLD going BK with their unpaid inventory on the shelves.  Also, HBI does have a lot of debt and the Fed is still looking to tighten – that spooks people.  

    Mr. Market Continues To Misappraise Hanesbrands

    NLY/Tangled – Since they pay out their profits as a dividend, there's little speculation they will go higher vs normal speculation they'll go lower.

    And what CRS said! 

    OK then, CRS is in charge for the rest of the weekend – I have to go do my other job, which I'm late for, including a team-building dinner with New Age employees at 7pm, which is 10pm, EST and THEN I have to go to 2 parties to network and I don't have an excuse of having to work tomorrow.

    Short story – don't expect to hear from me Sunday – even though I'll be home about 8am (redeye) – hopefully I can sleep all day and be back to normal(ish) on Monday.

    Have a great weekend,

    - Phil

  53. Somehow I do like PSA, a stock I should have bought when it was under 200 and we do have a put sale on it Jan 21 200 put I guess in one of Phil’s portfolios. I sold the put for 23.30. The stock has weathered well during the recent ups and downs.
    However I would like the stock for my armchair trades. As the stock carries a div. of 3.78 %.
     But I do not like to buy the stock for 211.00. So what would you do?
    I want a discount on the stock! By Selling the Dec 18 210 put I receive 5$. So if the stock gets assigned to me, my entry is 205.00. If the stock stays above the 210 by expiration, the only thing I can do is try again.
    The March strangle 200/210 stands at present for 15.00.
    So in my armchair trade just 100 shares will give me a combined monthly return of 2.16% per month or 445.00. As the stock, which theoretically would have been assigned to me for a 5$ discount 205, I still would enjoy the 5 $ capital gain on an assignment of 210.
    I know we talk about a bit of a higher priced stock, which cost you to start about 20,500.00 but a cool 445.00 dollar a month is nothing to sneeze at.
    P.S. the PM margin for the put sale is given as 2600.00 for the month.
    You might say I rather go with a Leap BCS.
    I do enter both types of play, as mentioned to our new member Robert on Friday. However if a stock carries a div. above 3% the premiums are relative low and in this case I prefer the more relaxed armchair trade.
    As in this theoretical case, buy the stock in my example through an assigned put first and if assigned start selling strangles or straddles against the stock.
    Have a nice weekend

  54. Top White House Official Involved in Saudi Sanctions Resigns

  55. Trump Will Declare Iran in Breach of Chemical Weapons Conventions

  56. Following up on the earlier discussion on 20%/40% moves and the importance of scaling and size, I thought I would look at the range of price movement on some typical board favorites. The data below shows the range of the 52 week high and low. I'll make some observations later.

    Ticker    Price           52-wk Hi         vs 52-wk Hi        52-wk Low       vs 52-wk Low      vs S&P 500

    AAPL      $193.53      $233.47            83%                   $150.24               129%                  13.4%

    ABX        $13.04        $15.52              84%                  $9.53                   137%                 -12.8%

    ALK        $67.99        $76.06              89%                   $57.53                 118%                  -9.2%

    AMGN   $194.18       $210.19            92%                   $163.31               119%                   12.1%

    BA         $335.95        $394.28           85%                   $262.03               128%                   10.3%

    BBBY    $12.69         $24.74              51%                   $12.28                 103%                  -47.7%

    BHC      $25.33         $28.45              89%                   $14.28                 177%                   16.4%

    C          $64.95          $80.70              81%                   $62.34                 104%                  -14.2%

    CAT      $129.96        $173.24            75%                   $112.06               116%                  -19.2%

    CDE      $4.46           $8.94                50%                    $4.09                  109%                  -43.5%

    CELG    $69.65        $110.81             63%                   $68.91                 101%                  -37.5%

    CHK      $3.58          $5.60                 64%                   $2.53                   142%                  -17.1%

    CLF      $10.30         $13.10               79%                   $5.96                   173%                   42.8%

    DIS       $116.19      $120.20              97%                   $97.68                 119%                     4.2%

    DXD      $30.66        $39.24               78%                   $27.68                 111%                   -15.9%

    FNSR    $22.93        $25.41               90%                   $14.25                 161%                     7.1%

    FTR      $3.92           $11.64               34%                     $3.52                  111%                  -43.3%

    GE        $8.02           $19.39              41%                     $7.72                  104%                  -57.6%

    GIS       $44.18        $60.69               73%                     $41.01                108%                  -28.1%

    GNC     $3.17           $6.93                46%                     $2.71                   117%                  -18.3%

    GS        $202.12       $275.31            73%                     $198.44               102%                 -24.4%

    HBI       $14.91         $23.33              64%                     $14.83                  101%                -33.8%

    HRB      $28.38         $29.81              95%                     $22.45                  126%                  8.3%

    IBM       $121.57       $171.13            71%                      $114.09                107%               -21.0%

    LB        $35.28          $63.10              56%                      $25.89                  136%               -43.2%

    MDLZ   $44.27          $46.54              95%                      $37.42                  118%                 2.1%

    MJ        $30.64         $45.40               68%                      $25.10                  122%               -11.0%

    MO       $56.78        $74.38                76%                      $53.91                  105%               -22.2%

    MSFT    $108.29     $116.18              93%                      $80.70                   134%                26.1%

    MU        $39.44        $64.66                61%                     $33.82                   117%                 -9.1%

    NAK       $0.68         $2.30                  30%                     $0.43                     160%               -64.8%

    NLY       $9.99          $12.37                81%                     $9.70                     103%               -11.0%

    OIH       $19.31        $29.86                65%                     $18.60                    104%              -29.2%

    PM        $86.33        $111.25              78%                      $76.21                    113%              -18.5%

    SBUX    $68.16        $68.98               99%                      $47.37                    144%               18.5%

    SCO      $21.43        $28.89               74%                      $12.29                    174%              -17.8%

    SKT      $23.57         $26.73               88%                      $19.86                    119%               -8.9%

    SPWR   $6.51          $10.00               65%                      $5.76                      113%               -23.9%

    SQQQ   $14.21        $23.29               61%                      $10.83                    131%              -36.4%

    TSLA     $354.31      $387.46             91%                      $244.59                  145%               11.8%

    TSN      $60.22         $84.65              71%                       $56.79                    106%              -27.1%

    TZA      $11.08          $14.72              75%                       $7.80                      142%             -13.8%

    UGA     $27.40         $37.15               74%                      $26.50                     103%             -16.5%

    WBA     $82.52         $83.18              99%                       $59.07                     140%             12.8%

    WPM     $16.13        $22.86              71%                       $15.08                     107%           -26.6%

    XRT      $46.46         $52.96              88%                       $41.37                     112%            -1.5%

  57. The column 'vs 52-wk Hi' is the current price divided by the 52 week high price. So for AAPL, the current price of $193.53 is 83% of the 52 week high of $233.47. In other words, AAPL is 17% of its 52 week high.

    The column 'vs 52-wk Low' is the current price divided by the 52 week low. So for AAPL, the current price of $193.53 is 29% above the 52 week low of $150.24. 

    The column 'vs S&P 500' is The total return including dividends of the stock minus that of the S&P 500 since the year's start.

  58. Comparative data for SPY:

    Ticker    Price        52-wk Hi         vs 52-wk Hi        52-wk Low       vs 52-wk Low      vs S&P 500

    SPY      $273.73      $293.94               93%                 $252.92              108%                  -

  59. Winston:

    So, if one accepts the 20% decline line as bearish, then a lot of stocks are already in bear market territory. 

    Another dip to buy or beginning of a new bear trend? No one knows.  

  60. LB earnings after the close tomorrow.

  61. The YTD return of SPY is 4.2% and the 1 year return 8.1%.

    pstas – I'm with you, no one knows.

    Even though I have posted the data I am not sure what conclusions can be drawn from one years data. I was somewhat surprised to see the kind of ranges between highs and lows, I would not have thought it would be so high.

    Of course, if you are trading a spread then the highs and lows are irrelevant as long as the stock price at expiration is above the long leg (or vice versa for short spreads). But perhaps it becomes more relevant if you have naked/uncovered positions? 

    And given the depth of declines in many of the picks it makes the virtual portfolio returns impressive. My assumptions/explanations are:

    Enter a position on a stock after a breakdown where the fundamentals may be short term challenged but long term intact. I guess that is the definition of a 'value' play. Big question is, who knows if the long term fundamentals are intact? That debate is probably the biggest reason for the risk to the downside. Timing is critical – when judgement and luck are aligned.

    Keep the initial position small, as the stock may (nay, likely) continue to breakdown. 

    Recognize the need to adjust, doubling down once and then twice if necessary to restore the position to in the money. This is probably the most difficult aspect of the PSW style. Doubling down up to twice is counter-intuitive (adding money to losing positions, rather than adding to a winning position).

    Financing spreads with immediate put sales increases the leverage, maybe better to wait until the breakdown appears to have bottomed.

    Reducing cost base by selling calls to cover should wait until the short leg of a spread is ITM. Start with 25% covers (in terms of number of contracts). Never let the short covers get away from you by maintaining tight stops.

    I know I'm stating the blindingly obvious here, but as usual I'm writing this more as a note to myself. 

  62. Hussman cites weakness in "market internals". Not sure how he defines that metric but perhaps it is a measure of stocks near or exceeding a 20% correction? Your sample shows 63% of the issues below that point. Now the question is this time to buy or just a set up for further deterioration? 

  63. The existentialist’s reluctant guide to life

  64. Pence’s Sharp China Attacks Fuel Fears of New Cold War

  65. A final statistic, of the 504 stocks in the S&P 500, 277 have a +ve 1 year return (as of Friday, Nov 16, 2018 close).

  66. Global shares advance, cheered by Wall Street buying spree

  67. DXD/Phil- so I didn’t roll the short nov calls and I see that you didn’t do for the stp too. I got assigned the shorts, I’m guessing just close at open?

  68. That referendum was in 2003

  69. Good morning!  

    Boy did I sleep a lot yesterday.  Also managed to see Bohemian Rhapsody – good movie. 

    DXD/Dave – My bad as I said:

    Submitted on 2018/11/15 at 10:25 am

    DXD/Dave – We'll have to roll them anyway so may as well wait and see if the Dow can keep it together today, though doesn't look good!

    My bad for not being specific but, as we hoped, DXD sold for $30.66 – closer to strike than they were on the 14th ($1.21), when we did the review.  As a rule of thumb – always close out short positions into the expiration – it''s just not worth the hassle of being assigned though it's not really a big deal, you were just given $30 per long and now you are short $30 x XXX of DXD from the assignment but you have the cash and all you need to do now is buy back DXD to cover – it looks like $30.80 this morning so you'll be out net 0.14 vs had you closed them Friday.  

    We still have our April $27/Jan 34 bull call spread and we sold those DXD calls for $1.20 so, even at 0.80, you made 0.40 while we waited for our insurance to pay us and we're not going to sell again, not at the moment, as the market still looks weak and we're $4 in the money on our spread with $3 more upside potential.

    If anything, I'd sell the April $35 calls for $2 as that still gives us plenty of upside and also makes the hedge net free as our net entry was only $1.80, not even counting the short calls (it was rolled from an earlier spread, of course).  

    Who knows/Winston – Again, this is not roulette, the long-term Fundamentals of a company are intact if you examine that company and its competitors and look at the macro environment and determine that company is likely (or not) to do well over a long-term period.  Ideally, we have a pretty good idea of how much the company is likely to make and then we apply a valuation that is reasonable for the peer group and come up with a proper valuation and, if that valuation is higher than the current price of the stock – it's a value play. 

    Of course we can be wrong – so can the CEOs running these companies and their well-schooled teams and their consultants and economists and analysts, etc. I used to be one of those guys who got paid a great deal of money to fly around and sit down with companies and try to fix their messes and get them going in the right direction (or set them up for sales) and that helps me look at companies of all sorts and come up with fair valuations.  The big difference between us is that I think valuations are absolute numbers and you think they depend on the whim of the crowd and we're both right and you ascribe the errant movement of stocks to this and that voodoo while I tend to blame it on the fact that the average investor is an idiot and that colors each of our perspectives.  

    And yes, it's very "counter-intuitive" which is why I keep running these portfolios – to make sure people have plenty of examples of good and bad performing picks and can look back and see how we do these adjustments over time.  Only when you accept the statistical math of the process (following through on many-diversified positions) will you be able to act "counter-intuitively" when you are supposed to.

    I've had to adapt my style over the years because I did used to wait for a bottom to form and an uptrend to begin before making a call to enter or DD but, you know what, a lot of people used to miss their entries and ended up not getting fills so I adapted my style to make earlier calls and now most people get filled but then they freak out when the stock goes lower.  So I can't win but I can teach people (most people) to learn to deal with the frustration of a stock moving lower but I can't teach them how to go back in time and catch a trade they missed – so I choose to be early.

    Algos/Pstas – That would be tragic.  Hopefully people have learned their lessons but, even as I write that, I know it's not true.  This is why the low-volume rally kept me cautious – there are not enough buyers to unwind all this stuff too and that means, ultimately, the prices are false and can't be sustained.  

    You can SAY or THINK something is worth whatever you want but the VALUE is determined when you attempt to sell it for CASH!!!   Then and only then do you find out what something is worth but even that is a matter of timing as you may have sold too soon, too late or in the wrong place or at the wrong time – this is M&A consulting 101 as well.  In the case of stocks (or companies) when many people are trying to sell the same thing at the same time – they drive the price down because, even if the company is very attractive – there's only so much money in the World available to buy it and that money, too, wants to be diversified and will chase after the equity that offers the best overall return probability – NOT POSSIBILITY.  

    That's why companies with high growth and high p/es tend to crash harder and faster than boring old value plays and, in fact, value plays tend to outperform in a bearish market by a wide margin because people look for companies that actually do make a CURRENT return on their investment – which is suddenly much more important than future promises.  

    OK, time to work.