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Which Way Wednesday – Testing the Weak Bounce Lines – Again

Are we having fun yet?

Well, yesterday was a bust but they are going to try it again this morning with the Futures pumped up 250 Dow points driven by a diving Dollar, driven down by Trump's talk about a Government shutdown and theories that the Fed will not raise rates next week – especially after Trump said Powell is a "good guy" suddenly, after spening the past 3 months insulting him.

At this point, Trump is in the same position that Bernie Madoff was in after he was caught in his Ponzi Scheme only Trump hasn't ceased operations yet.  Still, no one came to Bernie Madoff for financial advice after that and you could see from Trump's meeting with Schumer and Pelosi yesterday that no one is coming to him expecting him to be Presidential anymore.  He's a joke and he's being treated like a joke but that's a dysfunctional Government and not very good for the Dollar – or the markets.

Image result for trump ransom noteAfter selling out our Nation's morals on Saudi Arabia's murder of Kashoghi, Trump is offering to ignore whatever it is he's saying Huawei's Founder's Daughter (their CFO) did in violation of the Iran sanctions in exchange for better trade terms.  He should have tweeted that using the "Cut up pieces of newpaper" font.

"Trump’s remarks appeared to undercut other officials in his administration who contended that Meng’s arrest — which came the same day he and Xi announced plans to break the trade impasse — was unconnected to the broader negotiations…

"'These remarks by Trump are extremely dangerous and reckless as he could be fueling thoughts about arresting American executives in China as bargaining chips,' said James McGregor, China chairman of the consultancy APCO Worldwide, which advises foreign companies. 'He is also feeding into the belief in China that the U.S. doesn’t really have an independent judicial system.'" (Bloomberg)

Related imageThat's right folks, the rest of the World now views us the way we used to view the Soviet Union.  Isn't that great?  

We made no progress in the markets yesterday and today we've got another chance to make those weak bounce lines (see yesterday's Morning Report).  The Nasdaq isn't even back to it's -10% line at 6,870 (/NQ) and the Russell (/RTY) is still below 10% (1,485) so we'll see if the NYSE can break the tie and hold it's 10% line at 11,880 and the Dow willl be the first to test a weak bounce at 24,800, which would be up 400 points and, sadly, failing to hold a 400-point gain on the day will be nothing more than a sign of weakness.

Be careful out there…


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  1. The War on Huawei

  2. Hertz, Clear partner to speed rentals with biometric scans

  3. Are they talking about shutting down the Mexican government for refusing to pay for the wall? It's not clear to me right now. 

  4. Good morning All!

    Join us for our webinar at 1pm!

  5. Good Morning.

  6. MJ stocks could see some strength on news that Governor Cuomo is pushing a plan to legalize recreational marijuana in New York state.  

  7. Barry's take on the market:

    It wasn’t smart to dump a dovish Fed chief, run up the deficit, and start a trade war. Trump did all three.

  8. Good morning! 

    S&P/StJ – Well, there was that one time they went up….

    Well, it's going to be a short Webinar today as I have to get across town by 1pm (4pm in the real world).

    Oil ($52.35) and Gasoline ($1.46) are recovering a bit but /NG is collapsing:

    /KC still cheap:

    MJ/Albo – Someone asked about a new entry on MJ yesterday and I want to reiterate that I think ALL of the Marijuana stocks that are public are massively overpriced but that doesn't mean they won't go higher.  New Age is making more sales and more money than CRON and we decided it's still too early to go public as we can put up some stunning numbers in another year or two and THEN we will go public.  So I firmly believe the best way to invest in Cannabis is through private equity but, if you MUST play in the public market – THEN I like the MJ ETF as it spreads the risk and it's very likely that one or more of their holdings will go on to be 10-baggers.

    So, as a new trade, I like:

    • Sell 10 MJ 2021 $30 puts for $8.25 ($8,250)
    • Buy 20 MJ 2021 $27 calls for $7.50 ($15,000) 
    • Sell 15 MJ 2021 $40 calls for $4 ($6,000) 
    • Sell 5 MJ April $32 calls for $2 ($1,000)

    That's net $250 credit and we'll call it a $26,000 spread since the short April $32s can be rolled to the 2021 $40s if MJ pops but selling the shorter-term calls 8 times for $2 ($1,000) is $8,000 vs one time for $4 ($2,000), so it's worth the effort to have 5 flexible sales to make each quarter (or not make if things look good).  Meanwhile, the upside at $26,000 is $26,250 which is a Bazillion percent – so it's a really good trade and the worst thing that can happen is you can be assigned 1,000 shares at a bit under $30.

    /NQ rejected at 6,800 – not good!

    This is with a down Dollar so super-weak action.   

    /SI is loving it.

  9. Hi Phil, I know you discussed FDX the other day. If one wanted to take a starter position on the idea that the AMZN air operation overtaking them fears are overblown, would you suggest a LEAP put? The Jan 2020 $150’s seem to be more liquid and tighter spread than the 2021’s.. Thanks

  10. I believe FDX earnings are next week, so maybe wait until after…

  11. Phil – Thanks for the MJ comments.  The stocks are very expensive, for sure.

  12. AVGO up sharply this week.  Looking spiky.  Covered some.

  13. SGYP shareholders getting hosed today…..

  14. So here's some MJ math:  New Age buys pot for about $300/lb – it's not the best and has lots of stems and seeds (the flower is what people smoke) but that doesn't matter as we extract the THC through various processes and about 15 pounds of Biomass makes a liter of pure THC oil so it costs us $4,500 and, currently, a liter of THC oil is selling for $10,000 and we can make 15-20 liters a day but we're about to triple up production and the orders are already there.  That's why I like manufacturing!  

    Normally, a liter is $6,000 but changes in the law have caused a shortage of manufacturers (they didn't pass inspection – we did) so the prices shot up.  We'll have something like this advantage every time we go into a new state as the product can't cross state lines so every state starts off with no manufacturers, which causes a bottle-neck until it's resolved (and also puts us in the drivers seat since we have the expertise to start producing quickly).   

    As a bonus, while there is not enough manufacturing the product piles up because pot is, on the whole, easy to grow (the lower-quality stuff) so the priced keep dropping until the manufacturing catches up.

    That's why we're setting up a brand new $20M (maybe more) MJ Investing Fund for a July launch, so we can expedite the process of setting up partnerships in every state, owning pieces of dozens of operations which will spread our risk a lot better than the MJ ETF and the way we structure it, we should be able to turn it into an ETF down the road.   MJ has $650M in assets already and they started AFTER these companies IPO'd – we'll be going public BEFORE most of our companies are at IPO stage.  

    FDX/Sun – I think a bigger threat to them than AMZN is a reclassification of their drivers, who are being treated as independent contractors.  That can get messy for them down the road.  Still, AMZN fears are WAY overblown since AMZN sells $200Bn out of $5,000Bn in retail sales and doesn't use FDX anyway so why would FDX really care?  

    Amazon Air was previously known as Amazon Prime Air but that's the drones now so they changed the name but the service isn't new, AMZN bought 20% of Air Transport's stock in 2016 and, in 2017 they began building a hub in Cincinnati which is a $1.5Bn project they are working on and about 2 decades and 12 more air hubs and 25 ground hubs away from matching FDX's capacity (not to mention 300,000 employees and over 1M "contractors" that need to be hired).

    So, assuming AMZN can't match that in 2 years, selling the FDX 2021 $180 puts for $22 is the way I'd go as it's net $158 with FDX at $190, which is $50Bn with about $3Bn in ordinary profits (last year they paid no tax on $4.5Bn in income).

    Let's sell 5 of those for the LTP.

    AVGO/Albo – Up on the AAPL ruling in China but it's only on old phones so not a very big deal. 

    SGYP/1020 – Chapter 11…

    Indexes perking back up.  Glad we sold those TZAs!

  15. Short-Term Portfolio Review (STP):  $366,625 is up just $12,000 since our last review as our hedges don't really start to look good until they get closer to their dates, which we pushed back as we were disappointed not to have a better drop by mid-November.   Now that we are making a triple bottom – I'm a bit more nervous of a deeper leg down but not enough so yet to change our stance.  

    Meahwhile, we are bursting with CASH!!! at $347,670 and $266,000 of it is profits we could deploy to buy more stock if we get a really good sell-off but, as the LTP is still going strong – we don't need the money so it's just sitting around here for now.

    • UGA – Not working so far.
    • AAPL – Not worried about short $170 puts.
    • DIS – Not worried about short $90 puts.  
    • SKT – Not worried about short $22.50 puts. 

    The short puts represent $28,600 worth of offsets against hedges we had taken along the way.  Since we have tons of cash, the margin isn't an issue and they are all stocks we'd be THRILLED to own at the net price – so why not sell some puts to generate cash against some unused money?

    • SCO – The short puts will expire worthless and we expect oil to come back and weak down the short calls (we already took the longs off the table). 
    • CELG – Well, this one fell apart.  We're going to take the loss next month but we won't wait to set up a position in the LTP, effectively "rolling" from the STP to the LTP, which is one of the ways we kind of transfer funds to the LTP, taking the speculative loss here and setting up the cheaper long-term position there (this works from taxable accounts to IRAs as well).  

    • MJ – Another one we'll put in the LTP.
    • MSFT – This was one of our winter bear place and it's right on track at $13,992 out of a potential $20,000 and I don't think MSFT will pop $115 but let's take $9.60 and run on the $120 puts as that's almost double the spread and we can always roll the short puts if MSFT fails $110 but, if it holds $110, then we pay back less than $5 and make more than $4.60 anyway.

    • SQQQ – Heavy hedge good for $180,000 at $22 and $2 ($36,000) in the money at $14.
    • TSLA – I'm super-confident we'll collect the full $6,000 on this one.  
    • TZA – Like the OOP, we're cashing the long calls and that leaves us pretty darned bullish and we'll have to scramble if 1,450 fails but up 25 today is a good start.  
    • XRT – We should collect the full $10,000 on this one at expiration.

  16. Phil in the portfolio reviews yesterday you said NLY was on track…  on track to what?

  17. So that's two we're adding to the LTP:

    • Sell 20 MJ 2021 $30 puts for $8.25 ($16,500)
    • Buy 40 MJ 2021 $27 calls for $7.50 ($30,000) 
    • Sell 30 MJ 2021 $40 calls for $4 ($12,000) 
    • Sell 10 MJ April $32 calls for $2 ($2,000)

    That's a $500 credit on the $52,000 spread so well worth playing.  

    • Sell 10 CELG 2021 $70 puts for $11 ($11,000) 
    • Buy 20 CELG 2021 $60 calls for $21 ($42,000) 
    • Sell 20 CELG 2021 $80 calls for $11.50 ($23,000) 

    That's net $8,000 on the $40,000 spread that's 50% in the money to start so think about that, for $8,000 we're getting a position at $71.50 that's $23,000 in the money.  Don't you just love options?!

    In the STP, we took pokes at MJ and CELG as short-term plays and it would have been nice if they popped but they didn't and we took a $7,500 loss on CELG and an $8,000 loss on MJ so the loss is booked in the STP so, if it were a taxable account – tax losses, while the gains will show up in the LTP, which could be the IRA account.  

    That's another way scaling into positions can work very much to your advantage.  

    NLY/Tangled – On track to holding $10.  You can't expect a stock that pays out 90% of it's profits to grow very much so we just hope it holds $10 while we collect $1.20 in dividends each year (plus what we make selling puts and calls).

    We sold the $10 puts for $1.80 so either we double down at net $9.20 for a $9.60 average on 2,000 shares or they expire worthless and we make $3.60 per $10.20 share that we bought (35%) in our first year and, if they get a nice pop, we'll sell calls too for another 10% or so.  That's it, that's all we want to do with this position is grind out a nice 15-20% a year.  Anything more than that is a bonus but take $10,000 and grind out 20% a year for 20 years and you have $383,376 - that's an average return of almost 100% each year!  Do we really need to get greedy?  

    What you do need is PATIENCE!!!

    And, by the way, anyone who has a baby they want to send to college who isn't doing this with $10,000 is crazy!  

  18. Thanks Phil… agree about the air ops… AMZN has a long way to go to catch FDX…. Or UPS for that matter…..

  19. Phil;  does your tracking system have any idea of the amount of margin you are using?  I think you said you use portfolio margin.  I also have plenty of cash in my portfolio but every time the volatility jumps my capital available to trade options gets hammered.  Thanks

  20. Margin/Options – For the purpose of the portfolios, I use ordinary straight margin (2x) as I assume not everyone has PM.  As a rule of thumb, you should never use more than half your margin and PM can jump drastically on you when the market drops 10-20% since the calculations generally give you a 20% window so if, for example, you sell AAPL $180 puts when AAPL is at $220, the margin is essentially $0 but, if AAPL drops to $180, the margin goes to $36 so MASSIVELY higher than it was – that's probably the kind of thing that's running you into trouble.  You have to take the time to learn how your margin works and, most importantly, keep your position sizes reasonable in relation to your buying power!  

    ALWAYS assume the market will drop 20% on you overnight and have a plan for that that you are COMFORTABLE with.  Most brokers have the ability to run "What If" analysis on your portfolio – ask your broker how to do that.  You should be able to see which positions are likely to kill you in a crash.

  21. Phil,

    Any comments on PLAY, they missed expectations and are down about 10%?

  22. Phil;  as an example, what would you assume the margin requirement for the AAPL 5x 190 Puts in the OOP?  It just seems you also have a lot of naked puts that are close to or in the money in that portfolio that is only $132k.  Thanks

  23. Health law sign-ups lagging as Saturday deadline is looming

  24. Under Armour Falls as Long-Term Growth View Disappoints

  25. Phil, based on these portfolio reviews it appears your view is getting more bullish? 

    On the MSFT spread I would not leave the short puts naked. Either close the spread at current profit or wait til Jan to see what develops. Yes you can roll the putters but will be very troubling if the markets take a big dump. Not probable but possible. My risk is real as its real money on the line vs. virtual money for education purposes. 

    Not saying your play will not work just not within my more constrained risk profile (which is different for everyone). 

  26. Webinar?

  27. PLAY/Lotter – I do kind of like them and that 20% drop was undeserved but I'll have to take a closer look and no time at the moment so remind me tomorrow.

    AAPL/Options – It's not an assumption, TOS says they are using $17,129.88 of ordinary margin.  It's high but we collected $6,500 selling the calls and I have a high degree of confidence and we weren't using the margin for anything else but it's one we can always cut if we need margin, right?

    Bullish/Pstas – Well I was looking for a 10-20% correction and we got 10% so far so I'm bullish unless the bounces fail and the 10% lines fail and then I'll be bearish for the next 10% down and then I'll be bullish at the 20% line unless those bounces fail, etc.  It's not complicated to see when I'm going to flip…

    As to MSFT – Sometimes you have to go with your gut – especially when you are up 260% and can afford to.  Actually, going with my gut is a big part of the reason we're up 260% and, keep in mind, the LTP/STP us up about 100% overall for the year so +$600,000 and the worst case from that trade is putting 4,000 shares of MSFT in the LTP at net $110 ($440,000 so let's say they drop to $100 and we lose $40,000 – that would suck but it won't kill us and we just took $40,000 off the table on the short side).  So, if I'm right, we make $24,000 and, if I'm wrong, we might lose our $9,000 entry less $40,000 profit minus $40,000 loss is -$31,000 worst (likely) case while the upside is $64,000 so Its a positive risk/reward.  Isn't that what we're supposed to look for?  If all you see is worst cases – then you are always likely to get ordinary returns at best.

    Yes, webinar time!


  28. Well, I’m on the road and will check in later.  

  29. Spot VIX is still over 20 despite the rally! There are still some worries out there.

  30. /CL got slammed again too – ugh. I don't see any news on it & inventories didn't seem too bad.

  31. TLRD, thoughts on puts?  Big sell off after hours on earnings

    "Shares of Tailored Brands are down 24.86% in AH trading to $15.14."

    "Looking ahead, the company expects FY19 EPS of $2.30 to $2.35"

  32. Trump Moves to Deport Vietnam War Refugees

  33. TLRD  is the old MW – Men's Warehouse.  Not really where I would want to put my money for the long term.  I might be good for a trade but not something I want to leave my kids.  "I Guarantee It"  

  34. NOAA Administrator: I’ve Never Briefed Trump on Climate Change

  35. How U.S.-China tensions could get a lot worse

  36. Nvidia shares lose half their value, Softbank looks to sell up

  37. As protectors abandon Trump, investigation draws closer