Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Thrilling Thursday – Dow 25,000, Russell 1,500 – What Could Go Wrong?

Wheee, what a ride!  

We came all the way back to Dow 25,000 yesterday as Apple and Boeing (BA) accounted for 2/3 of the gains on the day, both with strong earnings reports that beat expectations.  Both are also major S&P components and Apple (AAPL) is over 15% of the Nasdaq's weighting as well so all the indexes flew higher but we shorted the Dow (/YM) Futures at the 25,000 line, expecting at least some pullback off the run from 24,300 on Monday.

25,000 is up 2.88% from 24,300 and the 2.5% line is 24,907.50 though really the main support line for the Dow is 24,000 (8,000, 16,000, 24,000…) so it's more like a 1,000-point rally since mid-Jan and that means we can expect to see a 200-point pullback (weak) to 23,800 and, at $5 per point per contract – that's a $1,000 per contract upside potential vs losing maybe $50 if /YM pops over 25,010 and stops you out so I certainly like the risk/reward on the play – which is how we like to play the Futures.  

We are, of course, very pleased with AAPL, which I STRONGLY recommended buying back on Dec 20th in "Market Panic Gives Us An Opportunity To Load Up On Apple (AAPL)" – nothing ambiguous about that one!  I followed up on Jan 11th with:  "Apple (AAPL) Trade Trade Idea To Make $1,000+ In 2019."  My trade idea on Dec 20th was:

While other retailers are struggling, Apple has been setting new records year after year for retail sales with the average Apple Store generating $5,546 per square foot in revenues. Tiffany is #2 at $2,951 and they sell diamonds! Unlike diamonds, no one has been successful so far in making artificial iPhones that pass for the real thing so it's amazing to me that AAPL's stock is back at $160, $70 (30%) off it's peak.

We are long APPL in our portfolios and we just made an even more bullish call to buy back all our short calls and wait for the bounce. However, as a new play on AAPL, I like the following and we're going to add it to our Options Opportunity Portfolio:

  • Sell 5 AAPL 2021 $150 puts for $19 ($9,500)
  • Buy 10 AAPL 2021 $150 calls for $34.50 ($34,500)
  • Sell 10 AAPL 2021 $200 calls for $15.50 ($15,500)

Although AAPL got cheaper a few weeks later and is only now back to where we jumped in, the volatility on the play has calmed down (we ended up with a more aggressive play as Apple continued to fall) and now the short 2021 $150 puts are $15 ($7,500) and the $150 ($32.50)/200 ($12) bull call spread is net $20.50 ($20,500) for a net of $13,000, so it's already up $3,500 (36%) off our $9,000 entry and right on track to the full $50,000 we expect from the spread by Jan 2021 so, even as a new trade, it still has $37,000 (284%), not bad for a trade you're very late on…

We also made a bottom call for the indexes, saying:

As to the indexes, we're coming into what is effectively a 2-week holiday in the U.S. with the markets officially closed next Tuesday for Christmas and the following Tuesday for New Years and Monday will be half a day but no one is actually going to work in Christmas Eve and then, between Christmas and New Years – good luck getting anyone to show up for that either! So the volume will be dead and we could drift lower but, officially, we do have new bounce lines off the lower lows so we'll be looking for:

  • Dow 27,000 to 23,000 is 4,000 points so 800-point bounces to 23,800 (weak) and 24,600 (strong)
  • S&P 2,950 to 2,500 is 450 points so 90-point bounces to 2,590 (weak) and 2,680 (strong)
  • Nasdaq 7,700 to 6,350 is 1,350 points so 270-point bounces to 6,620 (weak) and 6,890 (strong)
  • NYSE 13,200 to 11,300 is 2,100 points so 420-point bounces to 11,720 (weak) and 12,140 (strong)
  • Russell 1,750 to 1,350 is 400 points so 80-point bounces to 1,430 (weak) and 1,510 (strong)

As you can see from our color-coding, we're at a very dangerous inflection point as those lows may begin to turn red and then we can begin to calculate the 20% drop lines, rather than the bounce lines, for our next set of targets. Those are Dow 21,600 (not far), S&P 2,360, Nasdaq 6,160, NYSE 10,560 and Russell 1,400 so we're already more than 20% down on the Russell and it's down 350 so a 70-point overshoot (1,330) is not a big deal but lower than that, with another index crossing below 20% – THAT would be a very negative sign!

We have, however, gotten more bullish for the moment as even a test of the 20% lines invites a 4% bounce so, when we're this close to 20% – the odds strongly favor playing for a move higher – even if we go lower first…

We did hit those 20% correction lines but, other than the Russell, we've made our strong bounce targets so now we revert back to our non-panic levels and raise our expectations slightly in the hopes of seeing a true recovery (all bounce lines green, no backsies).  Yesterday's surge was almost, but not quite enough and, if that's all earnings has to give us, we'll be very nervous with our now, very bullish portfolios (we pulled our hedges at the -20% mark, anticipating this bounce. 

As I said on Money Talk last night, we finally punched over our strong bounce lines due to a stunning turnaround by the Fed, who wiped out talk of 1% rate hikes for 2019 and even walked back $1Tn of balance sheet ajdustments that were anticipated.  If this is all we can accomplish off that massive does of stimulus – look out below!  

We also discussed the IBM (IBM) and Caterpillar (CAT) trade ideas but, more importantly, we bumped up the TZA hedge to add a bit of protection and that's something we should be doing with all of our portfolios (adding protection) so don't forget to review our recent adjustments and, as a new hedge, we should consider the Dow and the S&P because they are both $15,000 off their lows – in the Futures – and wea already shorted /YM at 25,000 but let's see if we can match that with an option spread.

As I said on TV last night, the short CAT 2021 $100 puts, even at $8 are simply free money.  You are promising to buy Caterpillar for $100 and being given $8 in exchange for that promise and CAT is at $130 so 23% off just to get to $100 and you are netting in for $92, which is 29% off.  But, since we want to use the $8 we collect, call it a $130 net entry.  

As long as you REALLY want to own CAT at $100, then there's no harm in selling the puts.  In our CAT trade yesterday, we had already sold those same puts for $12 last year but collecting $4,000 for selling $5 now is still very good.  You can substitute any stock you REALLY would like to own but remember, if the market does crash, you'll need to have enough money to deal with a potential assignment – selling puts is no joke!  That being said, our trade idea using the Dow 2x Ultra-Short (DXD) is:

  • Sell 5 CAT 2021 $100 puts for $8 ($4,000) 
  • Buy 40 DXD April $30 calls for $2.00 ($8,000)
  • Sell 40 DXD April $35 calls for 0.80 ($3,200) 

The net cost of this spread is $800 in cash and about $5,000 in ordinary margin would be required for the short puts and the DXD spread would pay $20,000 at $35 or higher, which is only half of where we topped out in December.   Ignoring the fact that the point is to protect the rest of your portfolio, if the market did tank and you ended up buying 500 shares of CAT for $100 ($50,000) plus the $800 you paid for this spread, you get back $20,000 and your net cost is $30,800 or $61.60 per share of CAT – seems pretty good to me!  

AAPL is still cheap enough for us to want to sell puts and you can collect $11 for each 2021 $140 put you wish to sell for a net $129 entry.  I'll bet you wish you bought AAPL for $129 on the dip we just had only it never went that low, $142 was the Jan 3rd low – it only seemed like it went lower the way people were freaking out about it!  

So, I love making that put sale the basis of another hedge, and for this one we'll use the S&P 2x Ultra-Short (SDS):

  • Sell 5 AAPL 2021 $140 puts for $11 ($5,500) 
  • Buy 50 SDS June $38 calls for $3 ($15,000)
  • Sell 50 SDS June $43 calls for $1.50 ($7,500) 

Here we're netting into the $25,000 spread for $2,000 so the upside protection is $23,000 and our worst case is owning 500 shares of AAPL for $140 + $4 ($2,000/500) that we paid for the spread so $144 – but that's assuming AAPL goes down and the Nasdaq stays up – so very, very unlikely!  Apple is volatilie so the ordinary margin requirement on the short puts is $7,000 but they are past earnings and the volatility should ease off shortly.

We are, of course, worried about the Trade Talks with China and Factory Activity in China's PMI contracted at 49.5 (below 50 is contraction), it's weakest level in 28 years and that's now two months in a row of negative movement.  If the two sides cannot reach an agreement by March 1st, Trump has said he will increase the tariff rate from 10% to 25% on Chinese goods worth an estimated $200bn and, sadly, I believe Trump WANTS to enact this tax on the American people to help fund the tax breaks he gives to his friends and family of Oligarchs. 

In other news the markets should be worried about:

I have said before, these are not the kind of headlines we should be seeing if the markets are heading back to all-time highs.  These are the headlines of a 20% correction that isn't going away, even with the most recent round of Fed stimulus so we'll take our hedges – and it looks like our /YM shorts should hit our primary target this morning (+$1,000/contract) and then we'll look 200 points lower for the next leg of the retracement if 24,800 fails to hold.

See – we have fun no matter what!  


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. Give $1.5T to the top 1% and claim there is no money left for the rest! Hopefully changes on the way:

    “We must maintain efforts to put our Nation on a fiscally sustainable course, and Federal agency budgets cannot sustain such increases,” Trump wrote in a letter he sent to Congress over the summer. The letter made no mention of the 2016 Republican tax bill, which slashed corporate tax rates and blew a hole in the federal budget.

    Congress could override Trump’s decision, but it depends how many Republicans would be willing to break with him. On Wednesday, 29 House Republicans joined Democrats in voting for the raise.

  2. GE

    General Electric Follow Up on Earnings; Shares of GE are up 9% in the pre-market as the stock tries to climb back above the psychological $10 level.

  3. Good morning All!

    The webinar replay is available!

  4. Good Morning!

  5. HRB downgraded to sell by Goldman.  P/T is 22.

  6. Time to sell some puts on HRB?

  7. Good morning!  

    Goaaaaaaaaaaallllllllllllllll! on /YM shorts and now we see if that 200-point drop gets a strong (80) or weak (40) bounce and, if weak, we start the process again at the 24,800 line.  

    That's a very nice way to start the day.  

    /KC also with a nice pop 

    I'm back to 2 long /NG at $2.85 ahead of inventories.  

    /CL testing $55 again.  

    Watch out for a Dollar bounce taking stuff lower.

    PMI was crap! 

    • Initial Jobless Claims +53K to 253K vs. +220K consensus, 200K prior (revised).
    • Continuous Claims: +69K to 1.782M vs. 1.735M consensus, 1.713M prior (unrevised).
    • Q4 Employment Cost Index+0.7% Q/Q vs. +0.8% consensus, +0.8% in Q3.
    • Employment Benefits +0.70% vs. +0.40% in Q3.
    • Employment Wages +0.60% vs. +0.90% in Q3.

  8. GE – Now up 17%.  Covering some.

  9. Big Chart – Really nothing is happening – it's just that the range between the 50 and 200 dmas is so big that it feels like the market is going somewhere but it's really just range-bound between the two.

    GE/Albo – That's another one I wrote a whole article on (12/13).

    GE Bottom Call And A Trade Idea That Can Return 4,185% on Cash!


    While it may be frustrating, the market gyrations may be a bottoming signal.

    We got a great bottom signal on GE as JP Morgan joined us on the bullish analyst side (party of 2 at the moment).

    While cheap GE is already a top holding of ours – here's a trade you can still make before it gets away.

    Sure if this were a teacher saying "nice" things about my kid, I'd be very concerned but as long as GE doesn't go BK, I'm very happy to accumulate them down around $7 which is a $60Bn valuation for a company with $120Bn in sales which led to $9Bn in profits in 2016 and 2014 but write-downs made them negative this year, last year and in 2015. I've been willing to forgive GE for restructuring but, until now, my analyst peers have not.

    As a new trade on GE, I would go with:

    • Sell 30 GE 2021 $8 puts for $2.30 ($6,900)
    • Buy 50 GE 2021 $5 calls for $3.70 ($18,500)
    • Sell 50 GE 2021 $8 calls for $2.25 ($11,250)

    So our target is, of course, $8 and anything below $8 means we end up having to buy 3,000 shares of GE at $8 ($24,000) plus the $350 cash we lay out for the spread so $8.12 would be our net if below $8 but, since we own the $5 calls, our breakeven is the average of ($8.12 + $5)/ 2 or $6.56 per share but our worst case is GE being below $5 and then our shares flat out cost $24,350. The reward is that, at $8, you will get $15,000 back for a gain of $14,650 and it doesn't seem like much of a stretch to imagine GE can make $8 in two years (it's $7.40 this morning), so I love this trade for a potential 1,478% return on cash.

    You guys mock me when I stick with these value plays on the way down but I find it very satisfying on the way up – enough to put up with all the crap I get for having convictions!  cool

    In the OOP, we have:

    Short Put 2021 15-JAN 10.00 PUT [GE @ $9.10 $0.20] -30 11/30/2018 (715) $-10,860 $3.62 $-1.27 $6.80     $2.36 $-0.23 $3,795 34.9% $-7,065
    Long Call 2021 15-JAN 8.00 CALL [GE @ $9.10 $0.20] 75 11/30/2018 (715) $17,625 $2.35 $0.55     $2.90 $0.25 $4,125 23.4% $21,750
    Short Call 2021 15-JAN 12.00 CALL [GE @ $9.10 $0.20] -75 11/30/2018 (715) $-9,750 $1.30 $0.01     $1.31 $0.11 $-38 -0.4% $-9,788

    That's just net $4,897 out of a potential $30,000 that's back on track!  

    In the LTP we were more aggressive:

    Short Call 2021 15-JAN 15.00 CALL [GE @ $9.86 $0.76] -40 10/1/2018 (715) $-6,000 $1.50 $-0.64 $7.21     $0.86 $0.12 $2,560 42.7% $-3,440
    Long Call 2021 15-JAN 8.00 CALL [GE @ $9.86 $0.76] 100 11/20/2018 (715) $25,000 $2.50 $0.90     $3.40 $0.51 $9,000 36.0% $34,000
    Short Put 2021 15-JAN 10.00 PUT [GE @ $9.86 $0.76] -40 12/4/2018 (715) $-14,000 $3.50 $-1.48     $2.03 $-0.31 $5,900 42.1% $-8,100

    That one is net $22,460 out of $40,000 at $12 but we COULD sell 60 of the 2021 $12 calls now for $2 and take $12,000 off the table but I don't think we have a lot to lose by waiting…

    Congrats to the faithful few on that one! 

    HRB/John – They are trying to chase people out ahead of tax season so their clients can buy. 

    Zacks Equity Research


    H&R Block (HRB) could be a solid choice for investors given its recent upgrade to a Zacks Rank #2 (Buy). An upward trend in earnings estimates — one of the most powerful forces impacting stock prices — has triggered this rating change.

    The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate — the consensus of EPS estimates from the sell-side analysts covering the stock — for the current and following years is tracked by the system.

    The power of a changing earnings picture in determining near-term stock price movements makes the Zacks rating system highly useful for individual investors, since it can be difficult to make decisions based on rating upgrades by Wall Street analysts. These are mostly driven by subjective factors that are hard to see and measure in real time.

    Therefore, the Zacks rating upgrade for H&R Block basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.

    I'd give them a day to settle down before selling puts but I like the idea.

  10. Speaking of convictions, it was just yesterday we rolled GE in the Money Talk Portfolio – glad we did it ahead of the report!  

    GE is crazy cheap at $9 and, despite taking a bath on the original trade, I'd like to stick with them with the following:

    • Buy to close 10 short GE 2020 $18 calls at 0.10 ($100)
    • Roll 10 short GE 2020 $15 puts at $6.10 ($6,100) to 20 short 2021 $12 puts at $3.80 ($7,600)
    • Roll 30 GE 2020 $13 calls at 0.41 ($1,230) to 30 2021 $8 ($2.70)/12 ($1.20) bull call spreads at $1.50 ($4,500)

    Here we're spending net $1,870 to put ourselves into a $12,000 spread that's $3,000 in the money to start.  The GE spread we had was net -4,990 (we had a loss) and that loss is lowered by $1,870 as it's cash that came in from the sidelines so less cash and less loss.  That makes the new position -$3,120 and, if we collect the full $12,000, it will be a +$15,000 for the portfolio less the $1,870 adjustment cash equals a potential gain of $13,250.  

    That's what we've been emphasizing all month – if your'e not going to dump a losing trade then you MUST put it into a position where it can win.  Just sitting on a losing trade and HOPING it comes all the way back is not a realistic strategy and you are missing HUGE opportunities to adjust the stock while the longs are cheap.  

  11. More on HRB downgrade:

    UPDATE: Goldman Downgrades H&R Block As Firm Believes 'U.S. tax reform structurally alters the tax preparation landscape, giving rise to headwinds to HRB's core assisted tax preparation business due to doubling of the standard deduction'

    9:48 am ET January 31, 2019 (Benzinga) Print

    Latest Ratings for HRB DateFirmActionFromTo

    Jan 2019Goldman SachsDowngradesNeutralSell Dec 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight Aug 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight

  12. HRB/John – I love how official they make it sound when it's just one guy's opinion and he's basing it on 0 facts.  You could argue that any change to the tax code will send more people to HRB – as it's not like they sit at home studying tax law and say "gee, now I don't need help."  

  13. Almost as if the opposite.  More like "damn, more tax changes, I need help."  There are also reports that some payroll systems have been a little overzealous and changed their tax tables so drastically that now not ENOUGH taxes were withheld.  I believe the threshhold for withholding has been reduced to 85% before penalty.  So there will be plenty of people running to get tax help.  I am on a church council with the lead attorney for TaxSlayer and he feels they have received more calls already at the end of Dec / beginning of Jan than usual.

  14. /NG report was a bit light so we're down a little.  Not getting out though.

    Other than the Dow, we're actually getting great follow-through on the indexes from yesterday's rally.

    AAPL $168.50!

    GE $10.50!   It's like a short squeeze, people can't believe they aren't a $60Bn company? 

  15. Phil, in your recent butterfly portfolio review you stated you wanted to wait until after earnings before taking any action on MDLZ.  What are your thoughts on this now?  TIA.

  16. RE HRB-heard that 91% of tax filer's will be doing the standard deduction? Could not verify this but I imagine any business has to do the long form. Also we have free help for filers for seniors offered here which is a county thing. It's difficult for me to believe that there are so many with low incomes that they can do the short 1040, but there are limits on deductions now that is new so…maybe.

  17. MDLZ/Idi – They had great earnings with expanding margins, up 5% today.  And at the top of the range but I don't think they get to $50, as they'll be lucky to hit $2.50 in earnings so that's 20x though they are aggressively buying back stock – it probably accounts for half of their earnings PER SHARE improvement.  Of course, that's good for the Butterfly so we can add a play but we'll lean towards being a little channel bearish as follows:

    • Buy 20 MDLZ 2021 $38 puts for $2 ($4,000) 
    • Buy 20 MDLZ 2021 $55 calls for $1.70 ($3,400) 
    • Sell 5 MDLZ 2020 $42 puts for $1.80 ($900)
    • Sell 10 MDLZ March $45 calls for $1.67 ($1,670)

    So we're netting into this trade for $4,830 and we're using 43 out of 715 days to make $1,670 (though already included in the net) so that's one of 16 periods we can sell.  15 left x $1,670 is $25,050, which would be a lovely return on $4,830 but, of course, not all the sales go perfectly but it's a great start and we can sell more puts if they go lower (and roll down our long calls) but, for now, I love spreads where we spend $4,830 and look forward to 6+ $1,670 (35%) sales during the year – beats the crap out of waiting for dividends!  

    For Top Trade Members:  Remember we do not follow up on these short-term call sales in Top Trades, that's something you can follow in our Butterfly Portfolio in the Live Chat Room if you wish to upgrade.

  18. Phil – GE,

    I'm looking to cover my long shares with $8.14 basis but don't want to get in the way of a nice run up.  Any advice on what level you'd consider covering.  Thinking of June timeframe for calls.

  19. Consumer Gloom Descends on Sweden as Sun Sets on Economic Boom

  20. How to tax the rich

  21. Phil — follow-up question on the MDLZ recommendation.  You currently have a 2020 $40/$47 BCS and some short puts in the butterfly portfolio.  I have a similar position, just 2021 instead of 2020.  Are you leaving that in place, and ADDING this new 2021 strangle, along with the put and call sales?  I just want to fully understand the strategy before executing the trade.  Thanks!

  22. Phil, thoughts on QCOM earnings and new trade setup?  Thanks.

  23. Whew… so much margin relief from GE rallying as the puts go way OTM. Maybe I added a little too much at the bottom but it's a good day!

  24. Phil,

    Thanks for the GE trade. I waited until after the rolls and set up as a new trade.  Looking really good today. 

  25. GE/Jeddah – Well, we're into greed here as we're up more than 20% for the month.  As long as $10 holds, I'm willing to wait and see if we get another leg up but this ($10.30) may be it for a while as $10.50 is 50% over $7, where GE bottomed out so a $3.50 run means an 0.70 weak retrace ($9.80) would be expected, even if we're just pausing for a huge move higher.  

    Even if we were going to double up to $14, that would make a weak retrace $1.40 ($12.60) and a strong retrace would be $11.20 so, either way, we'll likely see that line more than once on the way up and you can see how there was brief support at $11.20 on the way down and back to $14 in Sept/Oct.

    So those are our lines of contention on the way up as well.  I'd look to get $2+ for the 2020 $10s as the June $10s are $1.20 so selling them twice is only $2.40 and I'd rather get the $2 now than play games over 0.40.  If GE goes to $12, those will be about $2.30 (the price of the Feb $8s now) and easy to roll higher but, in the shorter run – they provide better protection and give you 25% of your cash back while still giving you 60% upside potential at $10.  

    MDLZ/Idi – Damn, I forgot we already had those.  You confused me the way you asked, I though I had said we were going to add it.  No wonder I liked it!   I would consider the new position a roll – closing the old one!  

    Short Call 2020 17-JAN 47.00 CALL [MDLZ @ $46.00 $2.19] -20 7/13/2018 (351) $-4,600 $2.30 $0.65 $-2.69     $2.95 $0.99 $-1,300 -28.3% $-5,900
    Short Put 2020 17-JAN 40.00 PUT [MDLZ @ $46.00 $2.19] -10 7/9/2018 (351) $-2,700 $2.70 $-1.34     $1.36 $-0.44 $1,340 49.6% $-1,360
    Long Call 2020 17-JAN 40.00 CALL [MDLZ @ $46.00 $2.19] 20 7/9/2018 (351) $10,800 $5.40 $2.05     $7.45 - $4,100 38.0% $14,900

    We were waiting for earnings to decide on new short calls but the new position buys us another year of sales and, as noted above – those are good sales!  

    Damn, I thought I was adding a new position, now I have to find something else.

    GE/Ati – If you were tight on margin, you may want to consider locking in the margin gains by trimming a bit.  Always remember:  Once you are up 50%, if you take 1/2 off the table, even if the other half goes up 100%, you still capture 75% of the potential gains but, even if the other half goes back against you to 0, you have still locked in a 25% profit.  Can't lose vs still winning 75% of max into uncertainty is a good, conservative adjustment.

    GE/Ross – Very smart!  The best way to play PSW is to wait for a trade to go against us and come in fresh while we're doubling down!  

  26. Oil took a big step back:

    I have 3 @ $2.84 avg now. To get to $2.83, I'd have to get another at under $2.81 so that's my current goal or, of course, if we get back to $2.84, I go back to 1 long for the weekend as it's hard to predict the warming weather in the front-month contract.  

    QCOM/Mike – Sorry, missed that.  I was never a big QCOM fan.  We added it back in April with short puts when they took a tumble and our longs are the 2021 $50s that we added on the second drop and we sold the $70s with the $50 puts but mostly it's for an income-producer on the next bounce (selling shorter-term calls), not because I think we're going back to $70.  

    Too much of QCom's future is tied up in lawsuits and too much of their income is from patents – hard to say how much of that survives the transition to 5G but at least Trump is trying to eliminate Huawei from the competition for them.  $50 is still $60Bn for QCOM and that seems to be well-covered but revenues are in decline and a loss of patents would be very hurtful to them as it's not likely their victims are clamoring to do new business with them.

    Year End 30th Sep 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 24,866 26,487 25,281 23,554 22,291 22,732 20,557 22,240 -1.8%
    Operating Profit $m 7,157 7,381 5,596 6,315 2,469 640     -38.3%
    Net Profit $m 6,853 7,967 5,271 5,705 2,466 -4,864 4,471 4,931  
    EPS Reported $ 3.91 4.40 3.22 3.81 1.66 -3.03      
    EPS Normalised $ 4.10 4.64 3.61 3.93 3.07 -2.05 3.83 4.42  
    EPS Growth % +30.2 +13.1 -22.2 +8.8 -21.9     +15.3  
    PE Ratio x           n/a 13.1 11.4  
    PEG x           n/a 0.86 0.53

    [$$] German Court Throws Out Four Qualcomm Patent Suits Against Apple

    Loss of Apple Orders Dents Qualcomm’s Q1 2019 Earnings

    As a new trade, I'd go conservative and play for income so something like:

    • Buy 15 QCOM 2021 $45 ($8.50)/60 ($3.10) bull call spreads for net $5.40 ($8,100) 
    • Sell 5 QCOM 2021 $50 puts for $8.75 ($4,375) 

    That's net $3,725 on the $22,500 spread but the key is you can comfortably sell 5 short calls when we get back around $55 and, even now, the April $52.50s are $1.25 so, if you can get that for the $57.50s (now 0.35), that's $625 or 16.7% of your spread cost for 1/10th of your time.  10 sales like that is $6,250 so QCOM doesn't have to be over $50 for the overall trade to make a profit (if you are able to trigger the sales on occasional moves up, of course).  With 3x coverage in the back – rolling should not be a problem.  

  27. Phil, quick question: would you adjust following GOLD spread:

    - 5 Short 2020 15 Puts

    - 8 Long 2020 10 Calls

    - 8 Short 2020 20 Calls

    Or would you say better not touch it for now with GOLD at 13.31?

  28. Phil, still beginner, don’t understand 4:1 ratio of puts in Butterfly you recommended on MDLZ?? You only recover less than 25% of the cost of puts you purchase??

  29. GOLD/Alter – If you can't see your target on an annual chart, it's probably not coming!  

    The 2020 $15s have $1 in premium at $2.70 (net $12.30) so not terrible and not a terrible target, the 2021 $15s are $3.20 so not worth a roll for 0.50 as you buy the putter another year to beat you for just 0.50 when you KNOW you will get his $1 in 12 months, no matter what.  

    The 2020 $10s are $3.95 so 0.60 premium and the 2020 $10s are $4.50, so 0.55 to buy yourself another year to be right must be good for you if it's bad for the guy you were selling to, right?  Those are in the money but what else can you do with $3.95 ($3,160)?  You could buy 20 of the 2021 $12 ($3.30)/17 ($1.55) bull call spreads at $1.75 ($3,500)  and that nets you in at $13.75, so the same premium you have now (0.45) but, at $17, you get $8,000 where your current $10s don't hit $8,000 unless you hit $20 so you've lowered your bar for success by 15% at very little cost and you can leave the short 2020 calls to expire or buy them back for 0.40 or put a stop on 1/2 at 0.60 and 1/2 at 0.90 – just to be careful and worst case there is spending $600 on the way up to having a clean long spread (vs just spending $320 now).  

    MDLZ/Millard – Well it isn't about "recovering" the cost of the spread, it's about LOWERING the cost of the spread in a reasonable manner.  I'm simply not bullish on MDLZ up here but I do want to sell some puts in case I'm wrong and they take off (which would put the short calls in the money) so their primary function is to increase the net of the sold premium in the calls by 100% so, if we are wrong, we have more of a cushion to roll with.  When and if MDLZ comes back to the bottom of it's channel, then I'll be happy to sell 5 more puts, probably with a shorter time-frame too.  

    The long spread is there for protection in case of catastrophe, nothing more – though it also reduces the margin required, which is nice.  What we're mostly doing is selling as much short-term premium as we can without overdoing the risk.  Since I'm not getting a good price for the puts today – I don't want to sell too many but I also don't want to sell none.  I feel that I am getting a good price for the calls since I don't expect MDLZ to go over $50 this year, which means our worst case is a couple of rolls on the short calls before things calm down.

  30. By the way, notice in my battle plan for the spread, I did not mention the money we collected from the puts in my forward projections – that trade is all about selling just the calls and those alone can get us where we want to be – any short put income is just a bonus.

  31. AMZN beats – happy days are here again! 

  32. Thanks, Phil, for the advise on GOLD. I like your thinking re puts as well as the "what else can you buy with this money" approach for the long call. Need to work on my creative thinking!

  33. AMZN – market not liking the light Guide

  34. Heads up for Mac / Apple users- scam calls from purported Apple Care rep saying you need a "fix" because "your icloud account has been hacked". 

    Caller ID shows the legit Apple Care phone number but it's bogus. 

    Apple says "we never call customers". Just like the IRS. 

  35. Short Calls/Short term (30-90 days) -  I have a few calls expiring this month that will be cutting it close and a couple more in the pink.  Most expire prior to earnings, however, I have a couple expiring directly (1-2 days) after earnings.  Knowing these calls are covered by my longs which are sucking wind….  I don't mind rolling up and out. 

    My question is… should I wait for the spike before the roll?    Logic tells me 'Yes', as I'll get more premium and I'll be in a better position for them to expire worthless later.   And, if earnings disappoint… then it expires worthless anyways.  So, is there any reason NOT to take this approach?  

    Thoughts???  TIA

  36. Senate Evidence Clarifies Mystery Call Around Trump Tower Meeting

  37. Meet The Robot Whisperer

  38. Bungling The China Deal