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Thursday Thoughts: Trade Progress Trumps Shutdown Impasse

Image result for trump pelosi candyWell candy didn't work.

Trump started his meeting with Pelosi and Schumer yesterday by handing out cofee and snacks (Butterfingers, M&Ms and Baby Ruths) as if they were there to trick or treat but when Pelosi refusted to accept the bribe in exchange for caving on Trump's wall demands – and I'm not kidding:  "A frustrated Mr. Trump put his hands in the air—two open palms on either side of his face—and said, “Bye-bye,” and left the room." 

All in all, the meeting lasted 20 minutes with most of it taken up by Trump trying to get Nancy to have a 500-calorie snack and Pence, who's not allowed to be alone in a room with a woman, could not understand why this one was talking in the first place when there was a perfectly good man around to make decisions.  Trump even wore one of his big, phallic ties and the President could not understand why the House Speaker was not overcome with a desire to please him.  Body language says it all in that photo – we're doomed!  

That makes today day 20 of the Government shut-down and it's only 2 days until we make the record for the longerst shut-down ever – so it would be silly to stop now, right?  Well, there's no danger of that after yesterday's debacle, which included this brief exchange, right before Trump stormed out of the room:

Mrs. Pelosi and Mr. Trump then argued over the White House’s justification for the border wall. Mrs. Pelosi said reducing drugs coming into the country would require additional port-of-entry infrastructure improvements. Mr. Trump said that human trafficking was also an issue, and painted a vivid picture of sexual abuse and human trafficking as women and children attempt to cross the border.

“Mr. President, as I said before, the plural of anecdote is not data,” Mrs. Pelosi said.

Mr. Schumer then told the President that federal workers were being hurt by the shutdown and asked why he wouldn’t reopen the government. “Because you won’t give me what I want,” Mr. Schumer quoted Mr. Trump as saying.

Mr. Trump then turned to Mrs. Pelosi and asked if they would agree to build a wall if he agreed to reopen the government for 30 days. “No,” Mrs. Pelosi said.

“Bye-bye,” Mr. Trump responded.

Image result for government shutdownThat was clearly not the outcome the markets had been hoping for.  Trump thinks he has leverage because the Dems really don't want Friday to pass without 420,000 Government workers who are still at their jobs (380,000 others are furloghed already) missing their paychecks. 

People spend money going to work and eating lunch and putting kids in day care, etc. when they have to work so being forced to work without pay is cruel and quickly drains people's bank accounts.  Trump is counting on the fact that the Demorcrats care about people and he doesn't to give him an advantage in these negotiations by holding America hostage but, so far, Pelosi and Schumer have their eye on the greater good.  

The market sold off as word of the White House Meeting failure spread in the afternoon and we kept going down overnight but progress on the China talks (because Trump was NOT at that meeting) are likely to keep us from failing the weak retrace line at 2,567.50 so I like that on the S&P Futures (/ES) as a bullish play with tight stops below (next stop would be 2,535).  

The Russell Futures (/RTY) we called long for you in yesterday's PSW Morning Report topped out at 1,445 for a lovely $2,250 per contract gain (you're welcome) and now we have to play the game of figuring out how real the optimism is around the trade talks but China's Minister of Commerce said this morning that "Negotiations between the U.S. and China in Beijing this week on trade were extensive, in-depth and detailed and laid the foundation for the resolution of issues of mutual concern" which indicates it's still a long road ahead but at least we're moving forward.  

Talks with China are going very well!

See, why use big words when little ones will do?  Getting confirmation from China that negotiations are progressing is important and that's why we're playing the S&P bullish this morning as a resolution to the trade issue is far more important to the markets than whether or not half a million families can afford to eat this weekend.  Trump says he is prepared to shut the Government all year long.  Oddly, Trump did not feel this was necessary in any of the 8 instances where the GOP voted down his request for wall funding – as documented by Noah Rothman.

While we're not likely to get back over S&P 2,600 ahead of the weekend without a functioning Government, we do get earnings from CitiGroup on Monday and JPM, WFC, PNFP, UAL, DAL and FRC on Tuesday and BK, GS, USB, AA and CSX on Wednesday followed by BBT, SCHW, CBSH, MTB, MTG, AXP, NFLX and PBCT on Thursday and CFG, KSU, SLB and STT on Friday so expect earnings to drive us next week and expectations, at this point, are very low indeed.  

As noted above, the Russell and the S&P were rejected right at their 50-day moving averages and that's certainly going to be expected when you hit a declining average from below.  The question is, how much of a pull back will we get but, given the Shutdown situation – it's very unlikely we get over those lines without good earnings next week so – fingers crossed! 

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  1. Best dig so far from Pelosi:

    During a press conference, Pelosi said that Trump is "insensitive" to the plight of federal workers who are either furloughed or working without pay.

    "He thinks maybe they can just ask their father for more money. But, they can't," she said.

    That probably raised Trump's blood pressure a few points!

  2. China is falling victim to the law of big numbers:

    Well, as the International Monetary Fund reports, China simply seems to have reached a point of diminishing returns with this kind of credit stimulus. So much new debt is either going to pay back old debt or into economically questionable projects that it takes a lot more of it than it used to just to achieve the same amount of growth. Three times as much, in fact. Whereas it had only taken six-and-a-half trillion yuan of new credit to make China’s economy grow by five trillion yuan a year back in 2008, that had risen to 20 trillion yuan of new credit by 2016. Which is why Beijing has had to resort to even more old-fashioned stimulus like tax cuts and infrastructure spending — in particular, it recently announced a new wave of subway construction around Shanghai and Hangzhou — to try to keep growth above the 6 percent that the Party thinks it needs to keep people from protesting.

    Insane numbers – of course here the GOP added $2T to our debt to grow the economy by $190B so we are the masters of that trade!

  3. FU LB!!!!!

  4. M…wow

  5. Wow, may have to wait a day or two and sell a few M puts. BBBY still up almost $1 though!

  6. Good morning, All!

    The webinar replay is now available!

  7. Good morning Phil and the Gang. Phil when you have a second could you share your thoughts on M. TIA.

  8. Good Morning!

  9. Good morning!  

    Pelosi/StJ – LOL, I hope she keeps those up.  

    China numbers getting irrational.

    LB had worse sales but still guiding earnings around $2 for the Quarter, which isn't bad for a stock you can buy for $28 – even if they made $0 in the other 3 quarters (they made 0.69)

    The Columbus, Ohio-based owner of the Victoria’s Secret undergarment brand booked $2.48 billion in sales over a five-week period that ended Jan. 5.

    That is down 1.6% versus the comparable period covering the 2017 holiday shopping season, when the company reported $2.52 billion in sales. Comparable-store sales were flat, L Brands said.

    The company also said Thursday it expects adjusted earnings toward the high end of its guidance $1.90 a share to $2.10 a share for the fourth quarter. That doesn’t include a charge of $80 million, or 15 cents a share, related to the sale of its La Senza brand.


    L Brands said Victoria’s Secret struggled in the most recent holiday shopping season, as same-store sales fell and margins suffered a significant declined.


    The retailer reported a 6% decline in same-store Victoria’s Secret sales in December. That compares with the 1% fall the company reported for the brand in December 2017. Results include sales from company owned stores in the U.S. and Canada and other direct-to-consumer sales.

    Weakening same-store sales were driven by declines in Victoria’s Secret’s lingerie products and its Pink line, Amie Preston, chief investor relations officer, said on a pre-recorded message Thursday.

    “The merchandise margin rate was down significantly to last year driven by increased promotional activity,” Ms. Preston said, referring to Victoria’s Secret. The company is continuing to discount Victoria’s Secret products to start 2019, she said.

    Shares of L Brands fell 8% in pre-market trading Thursday.

    Same-store sales at the company’s Bath & Body Works rose 11% in December, according to the company.

    That's why we didn't change LB or M in the last review, we weren't expecting a pop but now we get to take advantage of two over-reactions:

    Macy’s, which is set to report fourth-quarter results on Feb. 26, now expects net sales to be flat compared with prior guidance of 0.3% to 0.7% growth. The company also cut its earnings forecast to between $3.95 and $4 a share, down from its previous estimate of $4.10 and $4.30.

    Another one that has a p/e below 10 but is being treated like they are going BK.

    Comparable sales from stores it owns rose 0.7% during the months of November and December, the retailer said Thursday. Same-store sales from stores it owns and licenses rose 1.1%.

    For fiscal 2018, the department store now expects comparable sales growth of about 2% compared with its previous guidance in November of 2.3% to 2.5%. Analysts polled by FactSet are expecting same-store sales for the fourth quarter of 1.8%.

    The retailer has been investing in a group of stores it calls magnets, adding new lighting, fixtures, a better assortment of merchandising and technological innovations, while trying to shrink other less-promising locations.

    Macy’s delivered healthy sales growth in the third quarter. Same-store sales grew 3.1% and total sales increased 2.3%.

    Oh no, what a catastrophe! {end sarcasm font}

  10. Year End 03rd Feb 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 27,686 27,931 28,105 27,079 25,778 24,837 25,711 25,023 25,107 -2.1%
    Operating Profit $m 2,524 2,678 2,783 2,039 1,315 1,817 1,834     -6.4%
    Net Profit $m 1,335 1,486 1,526 1,072 619 1,547 1,692 1,307 1,142 +3.0%
    EPS Reported $ 3.24 3.86 4.22 3.22 1.99 3.18 3.63     -0.4%
    EPS Normalised $ 3.46 4.01 4.40 3.77 3.18 2.63 3.24 4.23 3.63 -5.3%
    EPS Growth % +20.0 +16.0 +9.8 -14.4 -15.6 -17.3 +22.0 +60.7 -14.1  
    PE Ratio x           12.1 9.80 7.50 8.73  
    PEG x           0.20 0.16 n/a n/a

    $26 on M is $8Bn and don't forget they have massive real estate assets like their main store in NYC, which is an entire city block worth $3.3Bn.  

    The department store giant’s real estate has an estimated value of $16 billion, according to a report by the New York Times, which cited an analysis by investment management and banking firm Cowen. By comparision, the retailer’s market value is put at $6.4 billion

  11. Jeff Bezos' wife is a better investor than us:

  12. TSLA trade:  Let's ride the volatility wave.  Sold 15 Feb 280/270 put spread for 1.85.

  13. flan – I'm riding the long board. How do I handle this? Take profit at 60-70% when the spread narrows?

  14. BBBY options all over the place. wtf

  15. M nice remarks Phil I have set M to buy at 25.65 and sell the Mar 26 call for 2.22. worth a try

  16. P.S. Alway first sell the call than buy the stock!!!!

  17. somavision:  Yes.  I've placed a closing order to buy the spread  back at .75 GTC.  

  18. ROFL StJ!   Great video too.

    BBBY/Soma – Well crazy moves and, intra-day, it's a function of what people are bidding so bets are flying in both directions at the moment.

    Nice quick pop back as our lines held (barely) now that Trump is done talking. 

    Looks a lot less menacing in the hourly pattern.  That's why I generally don't look at candles less than 15 mins.

  19. thx lflan

  20. Notice in the above picture how Pence stares at Trump like he's wondering what kind of sauce he'd go well with?  Makes me miss Biden/Obama:

    Image result for obama biden press

    Related image

    Not even possible to imagine Trump/Pence having even a single moment like that – not even when they are torturing children together…

  21. Yodi,

    "P.S. Alway first sell the call than buy the stock!!!!"

    Why? For me it's sound safer to buy the stock and then sell the call. 

    Thank you

  22. Kgabor

    In a play I always set limit orders and you will find it is more difficult to close a strangle or staddle or even call or put, than buy the relavant stock. So therefore I close the option first.

  23. Phil / LB – I Was in this for bout 18 months and rode this from 40 to 25 and exited with a small profit  at the mid 30's after lots of trading around it.   I'm looking at this again – my price target for this is at 29 to 32 for and am wondering  what you are looking at.   I think they are at least 12 to 18 months around from improving VS ( if they change the marketing approach, and increase the tech in bras) then they are only 2 to 3 % Rev gainer with Margins flat…   What is your price target on this 

  24. Phil / AEO – I've been staring at this one for a few days now.   I like the fact that they have no debt, they have a solid brand in American Eagle growing at 7% ish, and Aerie ( much smaller footprint and rev) growing at +25% + percent. ROIC is in the 16 to 20%, GM steady in the 35 to 37%, and lots of room to grow store count especially in Aerie.  Only 3.5N market cap.  I've modeled this one They also have a pretty so  good div at 3% with 35% payout.  I have a price target of 24 and am looking at buying the stock and selling selling some short term puts and calls – Maybe the May 22 calls at 1.2, and the 18 Puts at 1.2 and buy the stock at 19.4 ish.   Any feedback on this?

  25. Phil / AEO – also the marking message is much looks to be aimed at women ( for women by women) – which I think is missing with LB –   trying to decide between this and selling some Jan '21 putss on LB for 6.5 ish.

  26. Phil / AEO / LB– also the marking message is much looks to be aimed at women ( for women by women) – which I think is missing with LB –  

    CORRECTION trying to decide between the AEO position and selling some Jan '21 puts on LB for 5.5  ish.

  27. LB/Batman – Like HBI, very steady sales and profits means I'm very comfortable at 10x, so let's say $7Bn as a floor, which is where we are now ($26) and, of course, any good news can put them up to 15x so range should be from $26 to $39 and LOOK – that's the range:

    I wish this stuff were more complicated but it isn't…

    Year End 03rd Feb 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 10,459 10,773 11,454 12,154 12,574 12,632 13,208 13,298 13,480 +3.8%
    Operating Profit $m 1,573 1,743 1,953 2,192 2,003 1,728 1,423     +1.9%
    Net Profit $m 753 903 1,042 1,253 1,158 983 768 749.5 743.8 +5.5%
    EPS Reported $ 2.54 3.05 3.50 4.22 3.98 3.11 2.39     +4.2%
    EPS Normalised $ 2.81 3.05 3.50 4.22 3.98 3.11 2.39 2.70 2.73 +2.1%
    EPS Growth % -7.2 +8.7 +14.7 +20.5 -5.7 -21.9 -27.2 -13.2 +1.04  
    PE Ratio x           9.08 11.8 10.5 10.4  
    PEG x           n/a n/a 10.0 2.34

    So what's our position in the LTP:

    Short Put 2020 17-JAN 37.50 PUT [LB @ $26.92 $-1.31] -15 5/11/2018 (372) $-14,550 $9.70 $2.35 $-13.45     $12.05 - $-3,525 -24.2% $-18,075
    Long Call 2021 15-JAN 27.50 CALL [LB @ $26.92 $-1.31] 50 9/21/2018 (736) $34,750 $6.95 $-1.55     $5.40 - $-7,750 -22.3% $27,000
    Short Call 2021 15-JAN 35.00 CALL [LB @ $26.92 $-1.31] -50 9/21/2018 (736) $-21,650 $4.33 $-1.38     $2.95 - $6,900 31.9% $-14,750

    So we're just playing the range and the $27.50s are now $5.50 and the $22.50s are $7 so not worth rolling (don't like to spend more than $1.25) so we just leave it alone.  The spread is a net $1,450 credit and pays $37,500 at $35 so 27x on cash if all goes well and, if not, we only obligate to own 1,500 shares at $37.50 and we can already roll the 15 short LB 2020 $37.50 puts at $12 ($18,000) to 20 of the 2021 $30 puts at $8 ($16,000) so that's a move we should make for the LTP but we're going to sell the 15 2021 $30 puts for $8 and leave the short 2020 $37.50 puts with a stop at $14 ($21,000) so we risk $3,000 but a nice recovery will make us a ton of money!  

    As a new trade in the OOP, let's add the following:

    • Sell 5 LB 2021 $27.50 puts for $6.70 ($3,350)
    • Buy 15 LB 2021 $20 calls for $9 ($13,500)
    • Sell 15 LB 2021 $27.50 calls for $5.50 ($8,250) 

    That's net $1,900 on the $11,250 trade so $9,350 (492%) upside potential for a trade that's essentially in the money to start so we're just waiting to get paid on this one but we do have room to sell 5 short-term  short calls if we get a good pop.  

    AEO/Batman – $200M in earnings for $3.4Bn is 17x so I'm not going to warm up to them when I can buy LB or HBI at 6x (and now M too).  I don't bet on whether or not I like a marketing campaign as those change every season – as do the fashions.  I look for management teams that deliver results consistently.  AEO was ridiculously priced and now reasonably priced but I'd rather buy things that are ridiculously low while I can.

  28. Phil or anyone / /ES – just got approved to trade futures. If one were going to enter a trade in /ES, what does "tight stop below" mean – how tight? Also, when you guys are trading futures, are you just trading the next date?

  29. dawg – please go slowly, don't risk more than you can afford to lose. I guess you've paper traded for a year. Better to lose all your paper trading money than the money you have worked so hard to earn. If you insist on going one step beyond, then share your trade ideas on the board with the rationale, the trade size, the planned entry and exits etc and I'm sure Phil et al will critique and advise.

  30. Phil / LB – thanks – I'll take a another look at this one with your 26 to 39 range – I do think 39 is a stretch at 15 – but it could spike there….. but even 13 would be a reasonable target on PE

  31. Tight/Dawg – Well, /ES Futures are $50/point so a 2.5-point move against you is $125 and, with any Futures contract you want to trade, you have to be realistic about how volatile it is and how much you can afford to risk on what is essentially a craps roll when you make an entry.  Generally, I'll certainly risk $100-200 on a play, especially when my expectations are making more than 2x what I could lose because then I only have to be right 1 out of 3 times to break even.  

    So, on the morning play, I called the long at 2,667.50 early this morning and we had a quick win on the first pop but the re-entry failed if you were strict at 2,265 but, as it was a quick spike down, that did not shake me out – especially with a win under my belt already.  The next cross over 2,667.50 was no trouble at all (though a very quick spike back down, which is why we never set auto stops) and on to a stop-out at 2,585 for a nice $875 per contract gain and the next time I'd want to play is back  over the 2,575 line (as it's more reliable) or over the 2,600 line but back to tight stops then.  

    And, as noted by Winston, just because you're allowed to trade Futures doesn't mean you should.  It's for fun money only and you can lose it all VERY quickly and then it's not fun at all! 

    $39/Batman – That's why we closed out our old plays up there! 

  32. Stocks We Like for 2019 – I may have missed this, but Phil normally puts out a post (with requests for candidates) covering this topic. See 2018's list here.

  33. Winston

    Always appreciate your posts. provide valuable information with questions or historical posts.


  34. Thanks Pat, what kind words!

  35. Comment content omitted because it is too long.

  36. Hey, I finally found that Post where we discussed 9 Trade Ideas to Make $101,875 into Jan expirations.  I thought it was a post but it was from our Sept 26th Chat and was sent out as a Top Trade Alert that day too.  Keep in mind we were bearish and looking for a big pullback and the idea was to add these things to the LTP as an additional hedge.  Let's see how they did – hopefully educational (all copied from the same comment).  KEEP IN MIND THESE ARE NOT NEW TRADE IDEAS but I will make new adjustment red so they stand out:

    Adding some holiday income (and hedges) for Q4 with a set that you can start a whole new portfolio with:  

    In the LTP, we have BBBY:

    Short Put 2020 17-JAN 17.50 PUT [BBBY @ $19.09 $0.19] -20 1/8/2018 (478) $-5,600 $2.80 $-0.14 $-2.20     $2.67 $-0.18 $270 4.8% $-5,330
    Long Call 2020 17-JAN 15.00 CALL [BBBY @ $19.09 $0.19] 30 4/20/2018 (478) $13,950 $4.65 $1.15     $5.80 - $3,450 24.7% $17,400
    Short Call 2020 17-JAN 22.50 CALL [BBBY @ $19.09 $0.19] -10 4/20/2018 (478) $-2,200 $2.20 $0.25     $2.45 - $-250 -11.4% $-2,450

    Let's sell 20 of the BBBY Jan $20 calls for $1.50 ($3,000) in the LTP and also in the OOP

    That was easy money.  

    As a new trade on CAKE for the LTP:

    • Sell 10 2021 $45 puts for $5.30 ($5,300) 
    • Buy 25 2021 $45 ($13.80)/$60 ($7) bull call spreads for $6.80 ($17,000)
    • Sell 15 Jan $55 calls for $2.85 ($4,275) 

    That's net $7,425 on the $37,500 spread and we have 8 more quarters to sell.  

    So my bottom call at the time was $45-$5.30 ($39.70) and we took the spread, and sold the short-term calls, which are winners.  

    Long Call 2021 15-JAN 45.00 CALL [CAKE @ $46.13 $0.02] 25 9/28/2018 (736) $34,625 $13.85 $-5.85 $13.85     $8.00 $-0.07 $-14,625 -42.2% $20,000
    Short Call 2021 15-JAN 60.00 CALL [CAKE @ $46.13 $0.02] -25 9/26/2018 (736) $-18,000 $7.20 $-4.00     $3.20 $-0.23 $10,000 55.6% $-8,000
    Short Put 2021 15-JAN 45.00 PUT [CAKE @ $46.13 $0.02] -10 10/4/2018 (736) $-5,300 $5.30 $1.90     $7.20 - $-1,900 -35.8% $-7,200
    Short Call 2019 18-JAN 55.00 CALL [CAKE @ $46.13 $0.02] -10 9/26/2018 (8) $-3,000 $3.00 $-2.95     $0.05 - $2,950 98.3% $-50

    Overall, the position is down $3,575 so we're in the $37,500 spread for now $11,000 but we KNEW that was going to happen – the loss is temporary based on a sell-off we expected and the question is, what do we now do to take advantage of it?  

    MECHANICALLY, we're going to roll the 2012 $45 calls ($8.10) down to the $35 calls ($13.10) for $5 ($12,500) and now we have a $62,500 spread that's $27,500 in the money for $23,500 and, of course, as CAKE moves higher, we will be able to sell short-term short calls to generate income.  

    So now I look at the April $50s and see they are $1.60 so those are not worth selling but it indicates I could generate easily $1,600/qtr for 8 quarters or $12,800 so we can look forward to getting 1/2 our money back while we wait.  Since the short $60 calls are down to $3.20 – there's no harm in buying back 10 of $25 there for $3,200 and hopefully we can resell them for more later but, if not, the part cover allows us to sell 50% more short-term calls with almost no risk – so we can expect a return of $6,400 on our $3,200 investment anyway.  

    In the LTP, our CMG position is:

    Short Call 2019 18-JAN 460.00 CALL [CMG @ $465.60 $-0.02] -20 8/27/2018 (114) $-123,600 $61.80 $-24.50 $-139.69     $37.30 $-1.20 $49,000 39.6% $-74,600
    Long Call 2020 17-JAN 460.00 CALL [CMG @ $465.60 $-0.02] 20 8/27/2018 (478) $203,000 $101.50 $-22.55     $78.95 - $-45,100 -22.2% $157,900
    Short Call 2020 17-JAN 580.00 CALL [CMG @ $465.60 $-0.02] -20 8/27/2018 (478) $-97,600 $48.80 $-14.60     $34.20 - $29,200 29.9% $-68,400

    No change to that one but note that we have an $89,500 position (current net of the bull call spread) that pays $240,000 at $580 so massive $150,000 upside potential above $460 and we're collecting $74,600 (current price of short calls) over the next 3 months on the short calls.  That's 83% of the cost of the spread!  Great for a new trade but margin-heavy and, if it goes wrong (only CMG blasting higher would hurt us) you have to have the firepower to DD on the longs, sell puts and roll the short calls.

    With CMG, we already took the profits on that position in November and now we have a new one we're working on.

    As a new play on GCI:

    • Sell 30 GCI April $10 puts for $1 ($3,000) 
    • Buy 50 GCI April $10 (0.95)/12.50 (0.20) bull call spreads for 0.75 ($3,750)
    • Sell 30 GCI Jan $10 calls for 0.75 ($2,250) 

    That's a net $1,500 credit on the $12,500 spread so $14,000 upside potential but most likely we'll have to give some back to the short caller but, as long as GCI doesn't pop $12 in 3 months – we'll be in great shape.

    Quite the gyration but right on target so the short calls will be worthless next week (now 0.10) and the spread is a work in progress but it's all going according to plan now.

    In the LTP, we currently have 5 short GILD 2020 $70 puts we sold for $8.55, now $6.35. 

    • Let's buy those back and sell 15 of the GILD 2021 $67.50 puts for $8 ($12,000).
    • Buy 25 2021 $65 ($18.50)/80 ($11.50) bull call spreads for $7 ($17,500) 
    • Sell 15 Jan $77.50 calls for $3.30 ($4,950)

    Ignoring the profit on the original short calls, the new trade is net $550 on the $37,500 spread with 8 more quarters to sell going forward.  

    Again our net for the puts was $59.50 and that was pretty much where we dropped to.  Keep in mind these are the numbers I would buy the whole company for, a holdover from my M&A days, so I'm pretty good with my targets – which is also why I tend not to panic just because our downside target is being hit.

    Once again, the short Jan calls do their job and we still like GILD so we're going to roll our 25 2021 $65 calls at $11.70 ($29,250) to the $55 calls at $17 ($42,500) for $5.30 as that's close enough and we've widened our spread by $25,000 for $13,250.  So now it's a $62,500 spread that's $30,000 in the money and we've paid net $13,800 for it and we can sell 10 of the March $70s for $2.50 ($2,500) so we're looking at $20,000 of potential sales easily down the road, which would once again make this a free spread!  

    In the LTP, we have 20 short GPRO 2020 $8 puts at $3.75 and those are now $2.  We've been waiting for them to get moving and now it's starting.

    • Let's add 40 of the 2021 $5 ($3)/10 ($1.10) bull call spreads at $1.90 ($7,600)
    • Sell 20 Jan $8 calls for 0.45 ($900) 

    That nets us into the full spread $20,000 spread for $1,000 with 8 more quarterlies to sell.

    More easy money on the short calls and now we have our spread and the $5s are now $1.45 and the $3s are $2.45 so we should spend $1 to roll the 2021 $5 calls down to the $3 calls and buy back the short $10 calls for 0.50 and wait and see what happens since it's not a big risk.

  37. M has come down far enough to be interesting but let's start small into earnings:

    • Sell 10 M 2021 $30 puts for $5.25 ($5,250)
    • Buy 15 M 2021 $30 ($9)/$40 ($5) bull call spreads for net $4 ($6,000) 
    • Sell 10 M Jan $35 calls for $2.70 ($2,700)

    That's a net $1,950 credit on the $15,000 spread and we have 8 more volatile quarters to sell.  If it goes down – we have a credit, so we don't care and, if it goes up, we're happy to buy more longs and roll the short caller.  

    Well, success on the short calls but our spread got crushed.  Fortunately, it was a small one and, as noted this morning, we still like M so now we can get aggressive as we had no real commitment on the next credit spread with just 10 short puts ($30,000) as our worst case.  We're going to roll the 15 2021 $30 calls at $3.70 ($5,550) to 25 of the 2021 $20 calls at $8 ($20,000) and we'll buy back the 15 short $40 calls for $1.75 ($2,675) as they are pointless and we'll wait for a bounce before selling calls again.  Now we're in the 25 2021 $20 calls with the 10 short puts for net $15,175 or about $6 per long so $26 is our break-even and that's where we are! 

    Of course, once we sell short calls, that number will start dropping so again, this is how our positions are DESIGNED to function.  It would have been nice to make $13,050 with no worries but that didn't happen but now we only need M to get back to $30 (our prior entry) and we net back $25,000 for almost our original gain goal and there's another $25,000 at our old target of $40 if things go really well – 3x what we would have made if just the original play had gone perfectly so let's hear it for imperfections!  

    Also, the 2021 $30 puts are now $9 and we have tons of cash and margin so let's just sell 10 of the 2021 $25 puts for $6 ($6,000) with a stop on the $30 puts at $11, at which point we'd buy those back and sell 10 more $25 puts for probably $7.50 but hopefully we head higher and it's just free money.

    • We've been waiting for PSA to get back to $200 so let's sell 5 2021 $200 puts for $24 ($12,000) 

    Well, they can't all be shorts!  

    TGT is interesting as a short entry as I think the consumers are having trouble and it will start to show up this Q.  What makes them attractive is the high premiums we can collect for the LTP:

    • Sell 10 TGT Jan $85 calls for $6.20 ($6,200) 
    • Buy 10 TGT 2021 $80 ($17)/95 ($10) bull call spreads for $7 ($7,000) 

    Just an initial entry and if they go down, we have a $15,000 spread for net $800 and then we'll sell some puts to roll down the long calls.  If they go up, we're happy to buy more longs and roll the short calls along.

    Once again, the short calls were easy money and the short $95 calls are just $2.20 so no reason not to buy those back for $2,200 and the 2021 $80 calls are $5.80 ($5,800) and the $70s are $9.40 and the $60s are $14 so let's go for the $60s for +$8.20 ($8,200) but no doubling down until we feel better about them but we will sell 5 2021 $65 puts for $10 ($5,000) .  

    Net net we're getting another $400 credit for this adjustment so now net $300 but this time we're obligated to buy 500 shares of TGT for $65 ($32,500), which is 1/3 of an allocation block and we have 10 long $60 calls that are $7,500 in the money.  Gosh I love it when our positions go lower!  

    In the LTP and OOP, THC did so well that we cashed them in but now back to a buy for the LTP:

    • Sell 10 Jan $28 calls for $3 ($3,000) 
    • Sell 10 2021 $23 puts for $5.50 ($5,500) 
    • Buy 15 2021 $27 ($10.50)/37 ($6.50) bull call spreads for $4 ($6,000)

    Once again we have a net $3,500 credit on the $15,000 spread and 8 more quarters to sell premium.

    Yet another winner on the short calls so we've collected our full $101,875 and then some and we used far less than that to make improvements on these leftover legs.  I love THC so of course we're going to get aggressive now and roll down the 15 2021 $27 calls at $6 ($9,000) to the 2021 $15 calls at $11 ($16,500) and we'll buy 10 more for $11,000 so now we're spending $18,500 less the original $3,500 credit is $15,000 and we have 25 2021 $15 calls that are $6 ($15,000) in the money and we're only 3/5 covered so we can sell 10 of the May $24 calls for $2.10 ($2,100) at least 4 times so we can look forward to cutting our net in half over time (but not selling when this low.  

    So that was a very easy way to make $101,875 in 3 months and, if the market recovers, we'll make another $200,000 on the way up!


  38. 2019/Winston – Well the above (with adjustments) are a good start and, with this sell-off, the old buy list is still valid but I'll update it eventually.  

  39. Speaking of sell-off, while I was buried in that review we got rejected on /ES again.  What we want to look for now is a smaller pullback than the one before – that would be progress.

  40. Hi Phil.  Best wishes for the new year and to everyone on the board. I have been selling calls against an old  CELG BCS which has turned out nicely. I have cashed in all of the short calls. Now holding 5 short Jan21 60 puts, sold on the downturn, basis $10, up  80%; 5 short Jan20 80 puts, basis $9; and long 10 Jan20 80 calls, basis $31. Suggestions for creating a new position, please.

  41. The cascade of shutdown problems grows each week

  42. Does anyone know what the current GE BCS is in the OOP? Having trouble finding it. Thx!

  43. How today’s unions help working people: Giving workers the power to improve their jobs and unrig the economy

  44. Fix the Debt Freakout

  45. Long /NQ

  46. r we going to get a lil' stick?!?!?

  47. Stops up to entry on this move into the money.

  48. CELG/Taihu – They're getting bought so really not a play anymore.  The puts will expire worthless when the deal is done and your calls will be what they'll be, hopefully the deal is done over $100 but I wouldn't add to this position now.   

    GE/Soma – It's pretty new.  OOP review was 12/26:

    Short Put 2021 15-JAN 10.00 PUT [GE @ $8.87 $0.37] -30 11/30/2018 (736) $-10,860 $3.62 $-0.92 $6.80     $2.70 $-0.12 $2,760 25.4% $-8,100
    Long Call 2021 15-JAN 8.00 CALL [GE @ $8.87 $0.37] 75 11/30/2018 (736) $17,625 $2.35 $0.55     $2.90 $0.11 $4,088 23.2% $21,713
    Short Call 2021 15-JAN 12.00 CALL [GE @ $8.87 $0.37] -75 11/30/2018 (736) $-9,750 $1.30 $0.07     $1.37 $0.07 $-488 -5.0% $-10,238

    Stick/Albo – Some way, some how, they want to take out those strong bounce lines.  Good timing on /NQ

    /YM almost 24,000!  

  49. Scalped a piece up 15.  

  50. If you want to play a resolution to China Trade in March, try CAT:

    The May $125s are $14 and the $140s are $6.25 so net $7.75 on the $15 spread is good for 100% upside by itself if the CAT comes back (it usually does).  We only have 5 short 2021 $100 puts in the LTP and we sold them for $10 last time they dipped so plenty of room for more so, for the STP, we'll start with a short-term play as follows:

    • Sell 5 CAT 2021 $120 puts for $15.30 ($7,650) 
    • Buy 10 May $125 calls for $14 ($14,000) 
    • Sell 10 May $140 calls for $6.25 ($6,250)

    That's net $100 on the $15,000 spread so $14,900 of upside if all goes well and, if not – we'll have a CAT spread in the LTP!  


  51. At $132.50 they are trading for $78Bn while dropping $6.5Bn to the bottom line:

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 65,875 55,656 55,184 47,011 38,537 45,462 53,276 54,736 58,544 -7.1%
    Operating Profit $m 8,571 5,627 3,314 3,785 498 4,491 7,571     -12.1%
    Net Profit $m 5,681 3,789 2,452 2,512 -67.0 754 3,800 6,960 7,393 -33.2%
    EPS Reported $ 8.48 5.75 3.90 4.18 -0.11 5.21 10.2     -9.3%
    EPS Normalised $ 8.89 6.03 4.43 6.07 1.67 6.71 11.0 11.6 12.7 -5.5%
    EPS Growth % +20.1 -32.2 -26.4 +36.9 -72.4 +300.8 +64.3 +73.6 +9.44  
    PE Ratio x           19.4 11.8 11.2 10.2  
    PEG x           0.26 0.16 1.19 1.08

  52. Goldman raises 12-month gold price forecast to highest since 2013

    • Gold will climb to $1,425/oz. over the next 12 months, a level not seen in more than five years, the Goldman Sachs analyst team predicts in joining an increasing number of bullish takes on the yellow metal.
    • "With the Fed on pause and increased policy uncertainty, we raise our gold forecasts to $1,325, $1,375 and $1,425/oz. over three, six and 12 months from $1,250, $1,300 and $1,350," Goldman writes.
    • Also, Cantor Fitzgerald expects "the safe haven bid, and to a lesser extent gold’s inflation hedge properties, to remain key drivers of the metal’s price in 2019, complemented by a resurgence of physical demand."
    • Noting ETFs are piling into bullion, Standard Chartered's Suki Cooper says speculative interest signals investors are not only closing bearish bets but also adding to their bullish position.
    • U.S. gold futures settled $4.60 lower today at $1,287.40/oz.
    • Earlier: Gold-backed ETF holdings jumped 3% in December (Jan. 8)

    Stocks dip after Powell says balance sheet runoff will continue

    • Stocks dip back into red after Fed Chair Jerome Powell speaks about returning the Fed's balance sheet to "a more normal level" during an interview at the Economic Club of Washington.
    • What level is "more normal"? "We don't know exactly." He says it will be "smaller than it is now, but nowhere near where it was before."
    • Also says he's "very worried" about the amount of U.S. debt.
    • S&P and Nasdaq each down 0.2% and Dow -0.1%.
    • 10-year Treasury fall, pushing yield up 1 basis point to 2.72%.
    • Dollar index +0.4% to 95.51.

    Fed's Powell stresses that FOMC is waiting, watching and flexible

    • Federal Reserve Chairman Jerome Powell emphasizes the point that the central bank currently has the ability to wait, watch, and be flexible in an interview at the Economic Club of Washington.
    • Stock perk up, with the S&P and Nasdaq each up 0.3% and the Dow +0.4%.
    • He also stresses that the Fed's dot-plot chart isn't a plan. Rather, the two rates cited from that chart are a median expectations of the FOMC members, "based on a very strong outlook," he said.

    Analysts bail on Macy's

    • Bank of America Merrill Lynch resets expectations on Macy's (M -18.1%) after taking in the retailer's disappointing update on holiday sales and cut in profit guidance.
    • "We think Macy’s will need to continue to invest heavily in its stores to maintain its current level of sales," says the firm.
    • The BAML analyst team notes Macy's FY18 positive same-store sales were partly driven by a healthier consumer, but doesn't see a similar catalyst for FY19 as the comparable periods hit.
    • "With gross margin (NYSE:GM) pressured by shipping costs, asset sales waning, and SG&A cuts needed to offset store and omnichannel investments, we see little to prevent operating deleverage," read the warning.
    • BAML chops its 2019 EPS estimate on Underweight-rated Macy's to $2.88 from $3.62 and more than halves its price target to $18.
    • Also on Wall Street: Citi was already at Sell on Macy's, but clips its PT to $20. Gordon Haskett pulls its Buy rating and settles in at Hold.
    • Macy's trades at its lowest level since last February with today's share price swoon.
    • Previously: Macy's drops 16% after cutting full-year guidance, updating on holiday sales(Jan. 10)

    Nomura expects Macau whales to start 2019 slow

    • Nomura warns that VIP segment revenue in Macau could disappoint during the first six months of the year.
    • "Consensus expectations are for (7.5 percent) VIP compression in the first half of 2019 and up low single digits in the second half, so there would be upside to estimates (and probably sentiment) if it stays flat or declines only low single digits while mass expands mid- to high-single digits," according to analyst Harry Curtis and team.
    • Factors seen dragging on VIP revenue include "conservative" demand at junket operators Suncity Group, Tak Chun Group and Guangdong Group amid weakening property and stock markets values, as well as video-streamed casino games available online to consumers via providers in the Philippines.

    Fed's Bullard – Last rate hike an "overreach"

    • St. Louis Fed President Jim Bullard returns to the tape today, reiterating his concern that the central bank stands on the precipice of a policy mistake.
    • He calls December's rate hike an "overreach," and said he argued against it (he did not have a vote on the FOMC then; he does now). As for now, he says rates are where they should be, and the Fed should not be forecasting any more rate hikes.
    • He takes note of recent data showing a slowdown in China, that may (or may not) worsen.
    • His comments came after a speech in Little Rock.
    • Previously: Fed risking recession – Bullard (Jan. 9)

    Report: Amazon developing game-streaming service

    • (NASDAQ:AMZN) is joining the fray working to develop an online videogame streaming service, The Information reports.
    • The videogame business has already been undergoing a major distribution shift from physical discs to online downloads, and the advent of game streaming services might free players up from buying expensive hardware as the needed processing power shifts to data centers, allowing for simpler user devices.
    • Amazon's service wouldn't be launchd until next year at the earliest, according to the report. Amazon would join Microsoft (NASDAQ:MSFT), Google (GOOGGOOGL) and others building similar game-streaming offerings.

    GameStop on watch after Amazon development

    • Shares of GameStop (GME -1%) broke slightly lower after The Information reported that Amazon is working to develop an online gaming streaming service.
    • The development arrives after GameStop was bid up more than 20% on buyout talk.
    • Previously: Report: Amazon developing game-streaming service (Jan. 10)

    DSW to sell cannabis-laced products

    • DSW (NYSE:DSW) plans to sell hemp-derived cannabidiol personal care products under the Seventh Sense Botanical Therapy brand at select DSW stores throughout the U.S.
    • The initial agreement between the retailer and Green Growth Brands is for 54,960 units and covers sales in 96 of DSW's U.S.-based stores.
    • Seventh Sense's CBD-infused products, include muscle balms, body lotions, body washes and foot creams. The companies say the Seventh Sense products performed well in a test at 10 DSW stores last fall, with 74% of product presented on shelves being sold.
    • "We have seen recent shifts in consumer behavior accelerate changes in the retail industry," says DSW CEO Roger Rawlins. "North America's widespread adoption of the use of CBD products is one of the best examples of these shifts, and we could not be more excited about our partnership with Green Growth Brands and the introduction of their products to our customers," he adds.
    • The passage of the U.S. farm bill legalizing CBD-derived from hemp cleared the path for retailers such as DSW to test out new concepts.
    • Source: Press Release

    Lockheed cut at Morgan Stanley alongside bullish view of Boeing, Raytheon

    • Boeing (BA +2.1%) is higher after Morgan Stanley upgraded shares to Overweight from Equal Weight, but Lockheed Martin (LMT +1.9%) also rises even as Stanley also downgrades LMT to Equal Weight from Overweight with a $300 price target, cut from $366.
    • LMT's ramping production of the F-35 fighter jet and the re-establishment of the F-16 give the company a clear growth trajectory into 2020 and beyond, Stanley analyst Rajeev Lalwani says.
    • But LMT faces headwinds related to its pension program, Lalwani says, as increased contributions of $1.5B/year are set to begin and the company receives $2.5B in recoveries from the U.S. government that will be cut to hundreds of millions due to recouped contributions.
    • The firm considers Raytheon (RTN -0.1%) its top pick in the defense sector, as RTN oversees one of the best product portfolios in the group and the company's 30% international exposure best positions it if defense spending is cut in the coming year.

    Junk bond drought reflects worries about volatility, economic growth

    • The last time a U.S. company rated below investment grade issued bonds was in November, marking the longest stretch in more than 20 years in which no junk bonds have been issued.
    • The drought reflects investors' concerns about market volatility and how much longer the economic expansion can last.
    • December marked the first month since 2008 in which no high-yield bonds were sold, according to Dealogic.
    • Weak investor demand recently increased the spread that below investment-grade rated companies have to pay over government debt to the highest level in more than two years, the Wall Street Journal reports.
    • Previously: Gundlach says "get out" of junk bonds (Jan. 8)

    Drug makers floated eye-watering prices for gene therapies at JPM19

    • At JPM19, two gene therapy developers disclosed their prospective prices for products that should hit the U.S. market this year.
    • During its presentation, bluebird bio (BLUE +1.3%) execs stated a $2.1M intrinsic valuefor Phase 3-stage LentiGlobin, but added that the actual price should be less. CEO Nick Leschly wants to allow insurers to pay for LentiGlobin for transfusion-dependent beta-thalassemia patients over a period as long as five years, adding that, after an upfront charge, it will only get paid if the patient benefit is sustained after the one-time infusion. Future price hikes will be limited to the increases in the Consumer Price Index. The company's marketing application in Europe is currently under EMA review under accelerated assessment status. If all goes well, approval should happen this year. U.S. approval may happen in 2020.
    • Novartis (NVS +1.2%) apparently stated in its presentation that its gene therapy for spinal muscular atrophy (SMA), AVXS-101, could cost $4M – 5M. Its U.S. marketing application is currently under FDA review with an action date in May.
    • #JPM19

    Unit revenue woes again in the airline sector

    • There's no hiding in the U.S. airline sector today after American Airlines AAL cut guidance.
    • What began as a premarket sell-off has rolled right into the normal session. The pain is largely centered on unit revenue as usual, with American's Q4 mark of 1.5% arriving at the extreme low end of the guidance range. Most of the major players have now turned in their unit revenue forecasts, which some analysts think could set a floor for the selling pressure today.
    • Airline check: United Continental (UAL -6.2%), Mesa Air (MESA -2.9%), Delta Air Lines (DAL -4%), Spirit Airlines (SAVE -4.1%), JetBlue (JBLU -4.4%), Southwest Airlines (LUV-3.7%), SkyWest (SKYW -1.6%), Alaska Air (ALK -2.8%), Hawaiian Holdings (HA-1.9%), Allegiant Travel (ALGT +0.6%).
    • Previously: American Airlines -7% after guidance slash (Jan. 10)

    Retail declines extend from malls to online

    • Is something bigger going on than just mall retailers disappointing with their holiday sales reports and profit outlook?  After a wave of underwhelming retail reports this morning, several analysts think that either consumers are pulling back on spending or that managment is factoring in trade/China uncertainty to full-year profit guidance updates. Either way, share of retailers (including online players) are swooning.
    • Decliners include L Brands (LB -8%), Nordstrom (JWN -6.6%), (OSTK-8.6%), American Eagle Outfitters (AEO -4.7%), Ascena Retail (ASNA -6.8%), J.C. Penney (JCP -8.2%), Express (EXPR -9.3%), Boot Barn (BOOT -4.9%), Tilly's (TLYS-4.7%), Genesco (GCO -6.2%), The Children's Place (PLCE -3.9%), Tailored Brands (TLRD -4.6%), Abercrombie & Fitch (ANF -10.2%), Urban Outfitters (URBN -4.6%), Francesca's (FRAN -6.8%), Buckle (BKE -6.3%), Gap (GPS -4.5%), RH (RH -3.6%), Fossil (FOSL -11.9%), Etsy (ETSY -4.5%), Dillard's (DDS -7%), Dick's Sporting Goods (DKS -3.8%), Wayfair (W -4.1%), Lululemon (LULU -3.9%), Stitch Fix (SFIX -2.4%), Amazon (AMZN -2%) and Capri (CPRI -4.5%).
    • Previously: Retail sector bruising after disappointing guidance updates (Jan. 10)

    Bed Bath & Beyond talks next-gen stores

    • Bed Bath & Beyond (BBBY +5.6%) management outlined the company's next-gen store initiative during yesterday's post-earnings conference call.
    • "We have identified as many as 40 or so Bed Bath & Beyond stores that will become our working labs in support of our next generation store initiatives. In these lab stores, we are testing new and different assortments and visual merchandising and re-imagining the in-store experience to be able to further reinforce our position as the expert for the home and heartfelt life events," noted CEO Steven Temares.
    • "We are incorporating the learnings from our assortment strategy initiatives and other ongoing tests to assess where we can selectively and efficiently rollout these new experiences to a larger number of stores," he added.
    • Investors have bid up BBBY today following the company's earnings report, but bearish-leaning analysts at Wells Fargo and KeyBanc are still chipping away at the retailer for the underwhelming comparable sales growth (-1.8% vs. -0.3% consensus).
    • Bed Bath & Beyond earnings call transcript
    • Previously: Bed Bath & Beyond +21% after positive outlook (Jan. 9)

  53. Will carry balance of /NQ over night with stops in place.

  54. /ES hit 2,599.5, /YM 23,999 – the bots are firmly in control of this market.

  55. Nothing new there Phil…. 

  56. Speaking of being in control, our corporate overlord are also in control:

    As acting Defense Secretary, Shanahan has earned some increased scrutiny for those industry ties: According to two unnamed former government officials with first-hand knowledge, Shanahan praised his former employer — Boeing — and trashed competitors including Lockheed Martin during internal meetings, Politico reported.

    Shanahan reportedly said in a meeting that Lockheed’s F-35 fighter jet program is “fucked up” and that Lockheed “doesn’t know how to run a program.” He’s not alone in this assessment — many have criticized the trillion-dollar F-35 project as a boondoggle. But Shanahan’s gripe comes shortly after Bloomberg Government reported that he successfully urged the Air Force to request $1.2 billion in Boeing fighter jets that it doesn’t want.

    “If it had gone to Boeing, it would be done much better,” Shanahan reportedly said of the F-35 contract. He also reportedly used “we” when referring to Boeing.

    Pushing for salesman of the year at Being! Defense secretary is simply another sales and marketing channel.

  57. Whither the Chinese Consumer?