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TGIF – Terrific Week Ends with a Bang

Up and up we go! 

It's been an all bull week after Monday's weak start and we're up 600 points (2.4%) on the Dow (despite BA falling apart), to 25,900 though that's nothing compared to the S&P 500's 5.5% rise from 2,730 on Friday to 2,825 at yesterday's close.  

Are things 5.5% better than they were last Friday?  What can you think of that's changed for the better?  If you can't think of 3 things – or at least one really good one – you have to question WTF the market is doing…

The Nasdaq was at 6,975 last Friday and this morning we're looking at 7,310, which is up 335 points and that's 4.8% while the Russell bottomed out at 1,520 and is now 1,560 – that's just 2.6% and we can't blame Boeing for that one, can we?  And, let's not forget that a 2.5% gain in the Dow still doesn't get us back to where we were at February Expiration Day (15th):

Still, without BA dragging the Dow, we'd be up 5% on the majors and that's a pretty good week though today is Options Expiration Day so it's not over yet.  We do have strong-looking Futures at the moment (8:30) and I don't see any news likely to derail things though there was a terrorist attack against 2 New Zealand Mosques where 49 people were killed and dozens more injured by explosions.  

Not that the market cares about such things – especially when they happen far away to people we don't know but it should remind us that the World is still a bit unstable and we shouldn't be pricing stocks as if we don't have a care in the World about the future…

Despite our doubts, we can't fight the tape on this one as the indexes are all over their 200 dmas (except the Russell) and we'll probably come down to test them again but, if we pass that test and the Russell gets back over 1,585 and holds that – then we may be looking at a brand new rally.  

Still, we haven't found a Top Trade Idea all week and that indicates that bargains are few and far between at the monent.   Even in our Long-Term Portfolio Review, we did not find many positions that were still good for a new trade.  When opportunities dry up, it's time to start questioning the things you are holding – no matter how good they seem.

Have a great weekend,

- Phil

 


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  1. Markets / Phil – As posted in the crazy market facts yesterday. markets do not reflect the world at large in real time and are more likely lagging badly. I guess historically speaking when we have had market crashes, the factors behind it had been at work for a while. I expect the same today!


  2. I really wonder what these rich idiots were thinking about when bribing people to get their kids into good colleges. If you are going to spend $500K, do what the Trump family does – make a donation to the university so that your unqualified kids get in. All very cool and very legal.


  3. eCommerce has ways to go:

    https://www.shopify.com/enterprise/the-future-of-ecommerce

    Here’s the uncomfortable twist: brick-and-mortar still dominates online sales by over $20 trillion. And the gap will widen. After a quarter century, ecommerce’s spread is slowing, 80% of 2018’s gains belonged to Amazon, and (in the U.S.) the top five online retailers own 64.7% of sales:

    Retail ecommerce sales growth worldwide and brick-and-mortar versus ecommerce share of retail (2021)



  4. Good morning!

    College/StJ – The NYT points out this morning that simply paying full price for college gives you a big advantage as colleges often limit how many students they will give aid to and a lot of them actively prefer kids who are paying the full boat to get in.   

    Still, savvy guidance counselors and private consultants know all about this advantage. And it’s available at most private schools across the country, including selective institutions like American University, Boston University, Brandeis, Carleton, Case Western, Colgate, Colorado College, George Washington, Macalester, Mount Holyoke, Northeastern, Oberlin, Pitzer, Reed, Skidmore, Smith, Tufts, Wesleyan and Washington University.

    What do these schools — and so many others — have in common? They all practice some version of “need-aware” or “need-sensitive” admissions.

    Need-aware schools don’t have unlimited aid budgets and generally don’t want to overload families with debt. So they sometimes consider financial need when deciding whether to admit a student — even though they will often meet the full need of every admitted student. It’s like a twisted, real-world SAT logic problem: You can get help if you’re admitted, but you might not be admitted if you need help.


  5. Phil / Holding the following AAPL spread:

    10 Jan 2020 130's
    10 Short Jan 2020 140 Puts
    10 Short Jan 2020 155 Calls

    Spread is up about 30%. Is there more room to run on this or is it time to close and move on? I was asking a more experienced trader (then myself) about this and this was his response:

    "Basically when the price of the stock reaches close to or exceeds the strike price of the calls that you sold then the spread is pretty much maxed out. In your case you sold the 155 calls and the stock is in the 180s. At the time when the stock price reaches your call strike that you sold the amount of money you make on your long calls pretty much equals the amount of money use lose on your sold calls. Time to exit and reestablish another spread."

    TIA


  6. Good Morning!


  7. StJ / What exactly constitutes being an alcoholic on that Live Long chart? Does it mean that I can't enjoy my whisky a cpl of times per week?!? Ha! I've known a few folks that drank and lived for quite a long time. Lol.


  8. AVGO up 10% boy!!!


  9. Yodi – Yes.

    Tempted to cover a little with some OTM puts.


  10. HEAR

    Another falling knife.  Sold some Jul 12.5 puts for $2.60.



  11. albo OTM put ? I sell puts when the stock is on the bottom of the scale not at the top!


  12. Yodi – DUH !   I misspoke. 

    Of course OTM calls.  Thanks.






  13. Chinese lawmakers endorse technology law amid US pressure




  14. AVGO – Yodi . Albo – i have this as a core holding, had a solid quarter and conference call was very positive.  I think they are being very conservative relative to to CA integration and growth in wireless – I think they are sandbagging as much as $500M in revenue.  probably hedging on Huawei risk…. but the FCF is strong, and margins are great, they are planning a massive increase is dividends next year.   I've got and eps of 22.5 in '19 and 22.4 and 24.6 in '20… this pegs them at a solid 290 to 330 price.   Having said that I sold some March '29 $292.5 puts for 8.2 this am as I think they are ahead of themselves and will pull back…  looking to pick up more in the 240 to 250 range….


  15. Well, so much for the Dow rally but /NQ still flying high and /RTY also up 0.7%.

    AAPL/Soma – I don't think you can make a rule – it's just about how much you have vs. how much you can make and how confident you are.  Oh, and whether or not you have something better to do with the money.  Once you know all those things, THEN you can decide.  The 2020 $130/155 bull call spread is $57.50/36.20 so net $21.30 out of a possible $25 means only $3.70 (17.4%) left to gain and the 2020 $140 puts are $2.40.  

    The 2020 $140 puts can be rolled to the June 2021 $150 puts at $11 and that's + $8.60 and the June 2021 $150 ($47.50)/190 ($26) bull call spread is $21.50 so you would pocket $8.40 doing that roll and have another $40 coming to you if all goes well in 28 months so I think that's a better use of $21,300 but consider you could just do 5 (1/2) of them (still 10 puts) and that would drop about $19,000 in your pocket (out of $25,000 potential) AND you'd still have $20,000 worth of the June 2021 spreads – that's a good compromise.  

    Whisky/Soma – My Grandpa Max lived until 98 and, even in the nursing home he always had his whiskey before bed.  

    Too early/Albo – That's why scaling in is very important.

    AVGO – Such a good company.


  16. Phil/AAPL,

    similar to one that soma had…

    I picked up OCT 170/180 BCS for $5 when AAPL was at 174.50. Now it is $10 up and the spread is still at $5. So this plan did not work…. what went wrong here. did I choose a shorter timeline or the strikes were too close?

    appreciate your advise as always

    regards


  17. Any news on SKT?  Down quite a bit today.


  18. Holding 20 AAPL '21 140c

    Sold 5 short AAPL 22 Mar'19  175c for $2.92, now $10.75

    Should I just buy them back and lose $3,900 .. sell some further out higher calls?

    THX!


  19. anyone heard if boeing software fix in ten days story popping ba ten buks ts real or fake yet


  20. tommy / just came across this on zerohedge:

    Update: Boeing appears to deny the AFP report, as Reuters reports the company says the software upgrade for the 737 Max will be rolled out in the coming weeks,. the timeline has not changed.


  21. Spot VIX under 13, no one is worried!


  22. And now the markets are flying again – crazy!  BA supposed fix on the way.

    AAPL/Pat – The spreads tend not to pay off until you get close to expiration – unless they are deep in the money.  Since AAPL is going up, the short callers are getting a lot of premium while your $170s are going into the money and losing their premium.  This is what I call "on track" when we're doing the portfolio reviews – there's nothing wrong with the position – just your patience… cool

    And yes, close strikes make it worse.  That's why I often spend more to buy in-the-money longs.  In your case, you paid a lot of premium for your $170s and barely offset it with the premium you sold on the $180s.

    SKT/Jeff – I see nothing.

    AAPL/Wing – It's only a 25% cover and the March $175s are now $11.40 but you can roll them to 2x July $195 calls at $6 for better than even and then you are 1/2 covered but still $55 over your long call strike is nothing to complain about! 

    BA/Tommy -  Not confirmed by the company.  

    And what Soma said.

    VIX/SJ – It certainly bothers me!


  23. Hi Phil, Just following up on the WPM short Mar 20 Call in the OOP. It expires today so will need to roll it. Thanks. 


  24. WPM/OOP, Leaps – Well, it's $2.40 to close it out and we HAVE to do that so now the question is whether or not we still want the cover (we sold them for $1, so the loss is a non-issue) and $22.50 is usually the top of the range and it's the top of our spread so I'd rather keep it locked in and we have 22 months to go (and we're only 1/2 covered on the longs) so, for those many reasons, we're just going to sell 10 WPM June $20 calls for $2.75 so net 0.35 on the roll in our pocket and we still have good downside protection and the short calls can't hurt us and we still have 5 uncovered calls. 

    Short Put 2020 17-JAN 20.00 PUT [WPM @ $22.39 $0.45] -10 2/7/2018 (308) $-3,300 $3.30 $-2.12 $-5.25     $1.18 $-0.14 $2,120 64.2% $-1,180
    Long Call 2020 17-JAN 15.00 CALL [WPM @ $22.39 $0.45] 30 3/2/2018 (308) $14,550 $4.85 $2.85     $7.70 - $8,550 58.8% $23,100
    Short Call 2021 15-JAN 22.50 CALL [WPM @ $22.39 $0.45] -15 12/26/2018 (672) $-3,900 $2.60 $1.05     $3.65 $0.20 $-1,575 -40.4% $-5,475
    Short Call 2019 15-MAR 20.00 CALL [WPM @ $22.39 $0.45] -10 12/26/2018 (0) $-1,000 $1.00 $1.40     $2.40 $0.46 $-1,400 -140.0% $-2,400



  25. Hello Phil.  A quick question on FTR.  On your review on Wednesday you did not mention if you felt the fundamentals for FTR have changed.  Are the fundamentals in your opinion the same or have things changed for the worse?  TIA.




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  28. AAPL playing out pretty much exactly how Phil called it at mid 140s


  29. FTR/Robert – No change in FTR.  They are engaging in a massive restructuring that will play out over years.  I think the worst is over but, so far, the market doesn't agree but I think they are just doing what every growing Telco does when they are building up the infrastructure that will pay off for the next decade.  

    Aftermath/Aug – That's true, it does happen sometimes. 

    Still, this +5% week in itself gives us an additional hedge so there's no sense spending money to add more hedges just to keep gains we probably shouldn't have gotten in the first place.  We'll just have to see what sticks next week but this week was very strong technically.

    I'm off to another meeting, back in the Command Center on Sunday, just in time for next week's Fed meeting but not too much other data, so expect attention to go back to China – assuming Brexit gets the extension but, if not, it will be all about Brexit with 10 days to go!

    Have a great weekend,

    - Phil


  30. MSFT making a strong move today! 


  31. Warren Buffett Is No Fan of Modern Monetary Theory





  32. RE-POST

    MYL/QC – Fortunately, we're close enough to the weekend for me to ask you to ask me again Sat/Sun when I have the time and screens to check them out.  It's been a while since I looked at pipelines and MYL isn't one I follow closely, so I'd have to research but I don't mind as it's good to check them all out once in a while. 

    Phil

    Any trades on Mylan N.V. MYL  ?

     Thanks

     

     

     

    Phil

     

    What are you thoughts on Innovative Industrial Properties, Inc. (IIPR)

    Any trade ?

     

    Thanks

     

    Description  ( from Yahoo)

    Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Innovative Industrial Properties, Inc. has elected to be taxed as a real estate investment trust, commencing with the year ended December 31, 2017.

     

     






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  38. In an effort to be conservative, considering how late we are in the cycle, and expectations of future market returns (very low), I have decided to keep 15% of my liquid net-worth in cash, so I have a significant amount of dry capital to deploy if we finally see a recession and the resulting reduction in asset prices.  My plan is to leave the money in a newly setup Interactive Brokers account, that currently pays 1.89%. Since I hate the idea of only making this paltry interest on my money, I've been thinking about potential high-probability option trades I can make opportunistically to goose the return a bit, using only a tiny percentage of the margin.  

    One idea I had was to sell a small amount of calls against VXXB when volatility spikes, following a strategy similar to what STJ does (and I have on occasion).  I've spent some time back testing today, and it doesn't seem like I would need to take much risk in order to make another 5-10% on this money.  For example, if I had $500k in this account, it seems like there are multiple times per year where you could sell $7-10k worth of calls after volatility has spiked above 20, at a very conservative strike price.  It doesn't take many of these trades to make 5-10% per year.  The high strike price, coupled with VXXB's built in decay, makes this an acceptable risk in my view (as long as a meteor doesn't hit the earth).  I would have plenty of margin to easily ride out the trade going against me by 5-10x without batting an eye, and I would feel secure that VXXB would be below my strike at expiration.  One downside would be if volatility had doubled or more from my entry point, and my margin requirement (and inversely my account value) would be impacted, which could tie my hands if I wanted to deploy the capital, but at the size I would use, it seems like it wouldn't make much of a dent.  

    It seems like this strategy could capture average (for the SPY) annual returns, while staying very flexible, unless the vix stays below 15-20 all year, and I never get to do the trade. When something sounds good, I have usually missed something obvious, so I wanted to lay out my thoughts here, to see if anyone has any feedback.  Thanks!