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Monday Market Movement – Another Week at the Top

Up and up we go – so far. 

As I said two weeks ago: "Notice how well the 5% Rule is being obeyed.  That also tells us that 2,835 is the 1.25% line but we haven't made that and we are finding resistance at the 0.625% line, which is 2,817.50.  We don't usually bother at that level but it is ineresting that that's exactly where we topped out yesteday, which indicates there is a LOT of technical resistance over 2,800 and it's going to take a lot more than promises of trade progress to get us over that hump."    

So here we are, two weeks later, finally up to the goal line we set way back on March 5th after exactly nailing our downside goal of 2,730, or, as I said at the time:

As you can see, almost all the rejections sent us down 100-200 points so let's not get too bullish as all we got yesterday was a bounce off the fall from 2,820 on Monday to 2,770 yesterday so that's 50 points and that means, per the Fabulous 5% Rule™, that we can expect 10-point bounces to 2,780 (weak) and 2,790 (strong) so now we're watching 2,790 as the fail line and, if we can't hold that, we'll be back to 2,770 and likely on the way to a full 1.25% pullback from 2,800 to 2,765 and, failing that, the next stop is the 2.5% line at 2,730, which we last tested on 2/15.  

Image result for stock market crystal ballRemember, I can only tell you what is likely to happen and how to make money playing it – the rest is up to you!  

So it's taken one month to cycle from 2,730 (2/15) to 2,920 (3/4) back to 2,730 (3/8) and now 2,835 and there's very little data this week and little earnings and the Fed is meeting on Weds but they can't possibly be more doveish so what's the catalyst going to be?  On the other hand – there's not likely to be a downside catalyst either so maybe we'll drift along at the top – which might be bullish – but any move below 2,800 on /ES would be a very weak sign and we're still waiting for the Russell to confirm a rally by getting over its 200 dma at 1,585 (now 1,561).  

For the moment, there's not much to do but watch and wait and gather up what little data there is ahead of next Thursday's GDP Report, surrounded by 6 Fed speakers – so you know it's going to be awful!  

 


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  1. Another weekend of tweet rants from a mad man!


  2. Performances since the lows of 2009:


  3. Probably not good for BA:

    https://talkingpointsmemo.com/news/fed-prosecutors-from-criminal-department-doj-probe-boeing

    A subpoena issued March 11 was sent to at least one person involved in the Boeing 737 MAX jetliner’s development and is signed by a federal prosecutor in the Department of Justice’s criminal division, according to a Sunday Wall Street Journal report.

    The subpoena is reportedly seeking documents, including emails and other correspondence, related to the aircraft’s development.


  4. Hi Phil,

    What are your thoughts on TIF (Tiffany)? They seem to be at a discount and growing approx. 10% a year plus diamonds can be a good hedge for toppy markets.

    Thanks as always

    Pat


  5. Good Morning!


  6. Phil, 

    Your thoughts on a starter position with a Sale of Jan 2021 270P between $16 and $18, say 4 contracts. Thanks as always. I do not need to be a hero, I can sit on my hands if need be.


  7. PiperJaffray raising price target on Chipotle to $725 from $661


  8. Phil, good morning!  I'm in the MDLZ butterfly play you recommended some time ago, but forgot that I had 10 short calls at $45 which expired on Friday, so I was assigned 1,000 short shares.  If you recommended a roll on this one, I missed it.  Can you recommend next best steps for this butterfly position?  TIA!


  9. OPEC+ Affirms Commitment to Oil Cuts, Defers Decision to Extend


  10. Phil / MET -

    Can i get your thoughts on selling puts on MET?  I thought it was in one of the portfolios but I dont see it.  Thanks!


  11. Phil I think you posted before but I cannot find it.  At what point does it become likely short call positions will be called away?  Especially if the stock has a good dividend?


  12. Good morning!

    Oil is up on OPEC comments, that's getting things off to a good start.  

    BA/StJ – This article makes them look very bad, possibly negligent:

    Boeing article in Seattle Times – Read it and weep (literally)

    TIF/Pat – What keeps me out of them is the possibility that artificial diamonds crash the market.  Also, TIF is very dependent on the Top 1%'s confidence and China and both of those may take a bit of a hit next year.  At $96.70 they are priced at $11.8Bn and they'll be lucky to make $600M so 20x is not that big of a bargain and the growth is, so far, all speculative as the had numbers haven't shown it at all.

    Year End 31st Jan 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 3,794 4,031 4,250 4,105 4,002 4,170 4,456 4,456 4,576 +1.9%
    Operating Profit $m 697.2 304.3 797.7 760.1 721.2 794.5 829.1     +2.6%
    Net Profit $m 416.2 181.4 484.2 463.9 446.1 370.1 443.8 581 602.5 -2.3%
    EPS Reported $ 3.25 1.41 3.73 3.59 3.57 4.13 4.70     +4.9%
    EPS Normalised $ 3.25 4.06 4.20 3.59 3.57 4.13 4.70 4.69 4.92 +4.9%
    EPS Growth % -12.9 +24.8 +3.5 -14.5 -0.8 +15.7 +13.9 +13.6 +5.01  
    PE Ratio x           23.4 20.5 20.6 19.6  
    PEG x           1.72 1.51 4.11 2.13
    Profitability

    Just because people WERE paying a ridiculous price for a stock doesn't mean a more realistic price is now a bargain…

    ???/Jasu – Well, if it's LMT, if you net in for $252 that's a 14.5% discount but still you have to REALLY want to own the stock at net $252 or a 10% dip (which happens to any stock) will double the price of the option and double your margin and if that forces you to sell without being able to wait for a recovery then you have probably a 50/50 chance of being stopped out with a huge loss over 2 years while even total success will only drip slow gains into your portfolio that can be erased any time you have bad luck.  This is why I purged most of the expensive puts from the LTP – too dangerous in a toppy environment. 

    CMG/Jabob – Another stock being priced on where they used to be, ignoring the current Fundamentals.  $645 is $17.8Bn and they made $176.5M last year and $176.2M in 2017 and $32M last Q and $38M the Q before.  How are they going to get to $400M and a normalized p/e for even $645, let alone $725?

    MDLZ/Idi – You're right, I neglected to specify a roll for the Butterfly Portfolio in our 3/6 review.   Those short March $45 calls finished at $2.80 ($47.80) and we sold them for $1.75 so little damage and, this morning, the stock is up at $47.97 so, if you were forced short at $45 on $1,000, you have the $1,750 we collected plus $45,000 for the stock that was called from your account (that you didn't own, leaving you short) so that's a net loss of $1,220 to buy back the stock or $1.22 – just 0.17 worse off than Friday.

    So, if assigned, you can just buy back the stock and we can sell 10 MDLZ May $47 calls for $1.95 ($1,950) in the Butterfly Portfolio and hopefully we have better luck next time.  

    I don't want to sell the short puts as I think we're toppy.

    MET/EMike – In the LTP, we have 10 short MET 2021 $37.50 puts we sold for $5.15 ($5,150) on 12/13/18 and we never got around to adding a bull spread before they took off again.  Those puts are now $2.60 but I think you could sell the $40s ($3.35) as a new play and pair that with 2x the $40 ($8.05)/47.50 ($4.15) bull call spreads at $3.90 for net $2.225 per $7.50 long so the upside at $47.50 is $5.27 so say 5 short puts at $1,675 and 10 long spreads at $4,150 is net $2,475 on the $7,500 spread for an upside potential of $5,025 (203%) on a pretty conservative spread.   

    Short calls/Tangled – It's likely once they have premium that is less than the dividend about to be paid.  


  13. Thanks Phil!


  14. James Grant had an interesting article about mortgage REITS in Barron's.  He pointed out the high yields of these investments and highlighted AGNC as having  a much better return than NLY over the past 10 years. Grant said that AGNC boasts low costs, first class disclosure,and a 10-year return of 368 % vs. NLY's 148%.  (assuming reinvestment of dividends.)

     He also pointed out the risks and the perverse nature of mortgage REITS in general.  Specifically, when rates fall, mortgagers refinance and the appreciating assets get called away.  When rates rise, prepayments plummet and the depreciating assets stay put. 

    FWIW – I continue to hold a small position in MORL, a 2X leveraged mortgage ETN, which pays a huge dividend.  Obviously, it has a lot of risk associated with it.  It's probably a case of whether the 20% + yield comes out ahead of  what will most likely be a declining NAV.


  15. Good morning Phil and the gang.  Phil could you elaborate on your comment to Jasu concerning closing short put positions.

    ???/Jasu – Well, if it's LMT, if you net in for $252 that's a 14.5% discount but still you have to REALLY want to own the stock at net $252 or a 10% dip (which happens to any stock) will double the price of the option and double your margin and if that forces you to sell without being able to wait for a recovery then you have probably a 50/50 chance of being stopped out with a huge loss over 2 years while even total success will only drip slow gains into your portfolio that can be erased any time you have bad luck.  This is why I purged most of the expensive puts from the LTP – too dangerous in a toppy environment. 

    I would expect that at some point of a stock going up a sold short put would have given up the majority of its premium and the risk of the stock going back down and the short put loosing its profit would be greater than the remaining premium.  In your opinion, what point is this?  Do you have a rule?  TIA.


  16. BA / Phil – The biggest point is this if true:

    Boeing self-certified to regulators the secret computer program was acceptable and indicated it could only push the nose of the plane by less than one degree (.6 actually). The FAA granted Boeing this authority because of budget cuts and time pressure.


  17. CMG does not trade on a normalized p/e (management actually highlights the volatility of the p/e as a risk factor for investors) in their annual reports (not that helps the investing decision). 

    Piper Jaffray seem to be the go to analysts for stretching the valuation parameters. Their analyst Nicole Miller Regan got lucky with a bullish call awhile back so as Top Dog analyst she is given the benefit of the doubt. Other analysts appear to be unwilling to be led by her calls (or know how to do fundamental analysis better). 

    This stock trades on the story of new management brought in by Bill Ackman (and he can't believe that finally he got something right over the last couple of years – SBUX is another), new marketing, new logistics and online systems, and perhaps most importantly they believe they have cracked the food hygiene issues, or at least they have  a professional Corporate Communications departments who can provide damage limitation in case something pops up in the e-coli/rat area.

    It'a a nice story to spin; with the dream team in place, how can they not get back to the glory days of 2015, and start a new chapter of expansion – both in store count and mission. $750 here we come.

    But of course, Q1 earnings on April 24th (after April 18 opex) should define the new financial year's potential. Current option pricing predicting a $60 move. 

    Phil / have you thought about closing out the short June 600 calls ahead of earnings – it would be a bummer if they went down after earnings, but decent EPS and a bullish outlook would make it rather challenging if they touched $700 already by the end of April 2019?


  18. REIT / Albo – Looking back, you can see the risks! Since 99, NLY has suffer at least 3 major corrections (close to 50%) so the dividend is great but risk to capital is there. AGNC doesn't go far back enough to see what they would have done in 2005 and 2008 for example. But since 2009, they are up 285% compared to 125% for NLY. A big difference.


  19. CMG … with the objective of reloading on the short call covers when CMG stock decides to heed the call of the fundamentals.


  20. 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!


  21. STJ – Yes the risk to capital is definitely there.  BTW, the two largest positions in MORL are NLY  at about a 14% weighting and AGNC with about a 10% weighting.


  22. Phil / Anyone

    Basic question that im looking for help on: 

    I netted into an AAPL June 19 175/185 spread for around $3. 

    currently the long call is worth $16.84 and the short $10.30,   so around 100% gain.

    my question : this means the premium on the long call is 30% and on the short call is 80% ? am i crazy to exit at such a crazy premium? should i roll? 

    thanks!


  23. VXXB / Palotay – I'll recap in January the trades I am making with VXXB. My goal is to return 10% of portfolio annually using less than 20% of margin. So far, so good and ahead as far as returns and way below margin. I am contemplating ways to improve – monthly sales or even a big one on a spike to 25/30 for example. I'll do an analysis when I recap. But I do think that it's entirely possible to manage a portfolio that returns at least 10% every year as it's not dependent on market direction, quite safely. And with enough free margin to play on futures for example (or forex if that strikes your fancy). So anything that doesn't tie you up. If you can generate another 5% a year, you are way ahead of 99% of funds. That's my plan for the next 20 years right now.


  24. MYL/QC (from the weekend) – With Pharma companies, it's all about the pipeline and MYL was selling 11Bn in 2016 and projects to sell 12M this year so growth is not exciting and profits last year ($350M) were not exciting for a $14.6Bn company (at $28.40).   MYL has had a lot of issues and a lot of competition and now the political climate has turned against Pharma pricing again – that can put a lot of pressure on them going forward and they are carrying $14Bn in debt (the whole market cap) so any missteps can freak investors out.  In short, not for me!  

    IIPR/QC – Good business model but $823M (at $84) is completely insane for a company with $14M in revenues and $7M in profits. MAYBE they will grow into it (as any MJ company can) but they are not selling pot, they are leasing land to people who are selling pot and, once pot companies have access to regular banking, IIPR will have no reason to exist. 

    Short puts/Robert – It's not a rule because it depends what else there is to invest in.  I guess a rule of thumb would be if you are 2 quarters ahead of schedule, you need to seriously consider getting out.  In other words, if I sell the AAPL 2021 $170 puts for $15 I have 669 days to make $15 so every 30 days I should make about 0.65 or $2/month so I KNOW that in July those puts should be about $13 and $11 in Oct, etc. 

    So, if AAPL pops $20 and the puts are $9 in July, I have to re-consider taking my $6 gain off the table and not waiting 18 more moths to make $9 more but then it depends on whether I have a SAFER way to make $9 than waiting 18 months for AAPL or at least a much more profitable thing to do with my money and margin.  

    In the LTP, we are swimming in margin from unused allocations so the short puts are mostly just a way to put our idle CASH!!! to work while we wait.  In all cases, you should never sell a put against a stock you wouldn't be HAPPY to have assigned at the net strike – otherwise you can easily get forced into making bad decisions.  

    BA/StJ – Yes, it seems like that program actually killed those people.  Could be huge liability – not to mention loss of reputation and possible expensive regulatory changes.  I'm thinking we'll see $300 again before this is over. 

    CMG/Winston – Nope, not closing them.  Valuation is ridiculous and earnings is when that is proven so why would I get out ahead of the thing most likely to correct the price?   Estimates are already for $2.90 this Q vs $2.13 last year (36%) but last Q was $1.72 vs $1.37 last year (25%) and I don't see where the magic 10% will come from.  As I've said before, we can always buy more longs – we have 20 of the $480/540 spread covering 8 short June $600s but, if CMG is going to $750, then we can add 20 of the 2021 $550 ($175)/700 ($100) bull call spreads at $75 ($150,000) and those are $200,000 in the money and pay $300,000 at $700 while our 8 short calls lose $40,000 (assuming we don't roll them and they never pull back over the next 18 months).  I can live with that…

    You can either trade out of fear of the worst-case scenario or you can trade the statistics.  I very much prefer trading the statistics to trading out of fear.

    VIX/Paloty – I commented on that this morning (Friday's chat).

    AAPL/Potter – Well the bottom line is it's a $10 spread and it's now net $6.50 so $3.50 (53%) more to gain by June is a lot of money so, unless you are not confident with AAPL holding $185, what better do you have to do with $6.50 between now and June.  That's what matters, it's the opportunity cost/benefit on the money and you should look at it like a new trade – it doesn't matter what it did in the past – it matters whether or not you think the AAPL June $175/185 bull call spread is a good deal at $6.50 and, more importantly, is it a better deal than other things you might do with $6.50?

    Also yes, I do often say I'll be damned if I pay, in this case, $10.30 to the June $185 short caller because why should I be the idiot paying that kind of premium?


  25. Phil, I’m not seeing your comment at the end of Friday’s chat. Maybe it didn’t post?


  26. LOL, that's because I guess I still had the previous Friday (before I left) chat box up:

     

    Good morning! 

    I think I'm adjusted back, we'll see how things go…

    Still, I'm a bit behind as I had it in my head I'd be back Sat but really was back yesterday at 4am and had meetings set up and dinner with Mom (can't cancel that!) so didn't get to anything else yet.  

    QC – I will get to yours in morning chat.

    VXXB/Palotay – Not sure how far back you went but just be aware this can happen:

    Lots of times the VIX is over 20 – just not recently and there's that one time when it went from 20 to 60 – ouch! 


  27. VIX / Phil – I think that it's really manageable. VXXB like VXX before doesn't move in as much as the VIX because of their underlying futures. Generally, they move like 40% of the VIX. So, if the VIX doubled to close to 30, VXXB might move to 45 or so and if the VIX jumped to 60, VXXB would end up around 65. Rolls would be OK I believe and in fact, it would be a great selling opportunity! 

    Since 1995, the VIX has been over 60 once, over 50 3 times and over 40 8 times. These do happen, but still quite rare.





  28. VXXB/StJ – It's fine if you are ready for the risk – I just like to make sure people are.

    AAPL still going up:

    /NG can't break $2.85 but another nice run from $2.77 today.

    Ho hum day action-wise (Monday). 


  29. Phil – CMG; I thought you had opted for not increasing the size of the CMG position – based on being too big and increasing the risk for the portfolio. CMG doesn't owe you anything – you could close out the position and make up the losses by trading one of the other favorites on the watch list?


    • Intel (INTC -0.4%announces that the company and the U.S. Department of Energy will release the first supercomputer with a performance of one exaFLOP in the US. The "Aurora" system is being developed in the DOE's Argonne National Laboratory in Chicago.
    • The contract is valued at over $500M and will be delivered to Argonne by Intel and subcontractor Cray (CRAY +2.9%). Delivery is expected by 2021.
    • Aurora is purpose-built for traditional high-performance computing and AI. The supercomputer will contain Intel X?, Intel's future generation Xeon Scalable processor; next-gen Optane DC persistent memory, Cray's Shasta supercomputing system and Slingshot high-performance interconnect, and Intel's One API developer tools for mapping compute engines
    • Analysts see Nvidia's (NASDAQ:NVDA) investor day event scheduled for tomorrow as a potential catalyst.
    • Rosenblatt's Hans Mosesmann says the event "should start the process for investors to move beyond the year of pain inflicted by crypto related GPU inventories."  He expects insight on the recent Mellanox (MLNX -0.1%) acquisition, which "should help the Street understand the reasoning" behind the "unusual move."
    • Bernstein's Stacy Rasgon also wants to hear the rationale behind the Mellanox buy and what could be accomplished with an acquisition that couldn't happen through a partnership. Rasgon wants more detail on the H2 outlook that was lofty, "to put it mildly."
    • Morgan Stanley's Joseph Moore "would love to see a 5 year forecast that is easier to tie to a revenue and earnings model." Moore will watch for a discussion of NVDA's deep learning and training products, cloud gaming, auto chips, and "a strong case for GPU acceleration in other markets."
    • Nvidia's investor day starts tomorrow at 11:30 AM ET with a webcast available here.

    • Google (GOOG -0.1%)(GOOGL -0.2%) is trying to boost price comparison rivals in the EU in a bid to please antitrust regulators and avoid a follow-up fine to the $2.7B penalty from nearly two years ago.
    • Google had been accused of unfairly promoting its own comparison shopping service in Google search results.
    • In response, the tech giant offered to let rivals a chance to bid for ad space at the top of a search page. But competitors said the move still didn't provide an even chance at promotion.
    • Earlier this month, Google introduced a new link on search results to drive more traffic to competitors. British company Kelkoo writes on its blog that it was one of the competitors selected to try out the new link, which will become available in Germany, France, and the Netherlands.
    • Tesla (TSLA -2%) again turns its employees to help speed up deliveries before the end of the quarter, according to an e-mail seen by Business Insider.
    • "We have to deliver 30,000 more cars in next 15 days," urges Senior VP Sanjay Shah to department heads.
    • It's not the first time the EV automaker has asked employee volunteers to deliver new vehicles at crunch time.
    • Tesla's Q1 deliveries guidance (from January 30): "While the number of Model 3 vehicles produced should increase sequentially in Q1, deliveries in North America during Q1 will be lower than the prior quarter as we start delivering cars in Europe and China for the first time. As a result of the start of Model 3 expansion into Europe and China, deliveries will be lower than production by about 10,000 units due to vehicle transit times to these markets."
    • Lyft (LYFT) co-founder John Zimmer hits out at rival Uber (UBER) in the roadshow video ahead of Lyft's March 29 Nasdaq debut.
    • Zimmer: "We are founder-led. We have one of the largest and fastest-growing multimodal transportation networks. We are solely focused on consumer transportation. Not food. Not trucking. We have a strong brand based on our strong values. And we have the right autonomous strategy.”
    • While Zimmer doesn't mention Uber by name, the parallels are a bit on the nose.
    • Uber is expected to kick off its IPO roadshow in April and will reportedly seek a valuation as much as $120B.
    • Previously: Lyft IPO seeks $23B (March 18)
    • Victoria's Secret is selling a limited assortment of swimwear online in response to "overwhelming demand" for the discontinued products.
    • On the brick and mortar side of things, the women's apparel chain is in the middle of trimming its store base with 53 closings planned for this year alone.
    • Shares of parent L Brands (NYSE:LB) are down 32% over the last 52 weeks amid ongoing sales pressure at the company.
    • General Electric (GE +2.1%) is on the move as Barclays analyst Julian Mitchell reiterates his Overweight rating and $13 price target, saying that even though he lowered his earnings estimates following last week’s guidance update, he still thinks GE’s industrial business can deliver free cash flow of $6.5B-$7B in 2021 despite projected negative returns this year.
    • Mitchell expects GE shares will remain volatile as investors digest the free cash flow forecast but projections in 2021 for its industrial unit, do “not look out of step with the CEO's stated aspiration for a double-digit FCF margin in the long term, or GE's history,” and sees GE’s Power business turning from free cash flow negative to positive by 2021.
    • Mitchell is “dismayed” by the extent of the guidance for 2019-20 net losses for GE Capital, which could total more than $1.5B, but he thinks asset sales will help and that management is taking seriously a broad range of options to de-risk the business.
    • Curaleaf (OTCPK:CURLF +7.5%announced acquisition of Acres Cannabis, with 269,000 sq. ft. of operating cultivation facilities and further expansion as needed on its 37 acres of land in Amargosa Valley, Nevada, significantly increasing Curaleaf's cultivation and manufacturing operations.
    • The addition of Acres' cultivation platform will provide Curaleaf with 42,000 sq. ft. of functioning climate-controlled greenhouses and 227,000 sq. ft. of outdoor cultivation in Amargosa Valley. At over 400,000 sq. ft., the facility is expected to generate 100,000 pounds of dry flower per year at full scale. During Q4 Acres harvested over 5,000 pounds of flower.
    • The transaction, valued at $70M, with $25M to be paid in cash, $45M to be paid in Curaleaf stock.
    • The transaction is subject to customary closing conditions and expected to close in 2019.
    • Several steel company shares including U.S. Steel (X +0.7%) could rally along with a rise in the commodity’s price, but investors also should use caution on the stocks because of historical volatility, Barron's reported over the weekend.
    • The article also cites Commercial Metals (CMC +0.6%) and Steel Dynamics (STLD -0.7%) as other inexpensive stocks that could benefit from defensive positions as low-cost producers, while Nucor (NUE +0.1%) also is a low-cost, scrap-based steelmaker but it trades at a higher valuation.
    • BofA analyst Timna Tanners expects steel prices to rise another $100/ton to $795 on average, and she particularly likes U.S. Steel, believing it has more to gain from rising prices as a higher-cost producer with more fixed costs.
    • Tanners expects the company to post $3.00 in 2019 EPS vs. $5.36 in 2018, when steel prices were higher; the stock trades at just 7.2x current earnings, a 35% discount to its historical average, and her $31 target price works out to a ~10x multiple.
    • ETF: SLX

    • Oil refineries in Europe and the U.S. are scaling back planned maintenance later this year in anticipation of a surge in demand and fatter margins, Bloomberg reports, as the shipping industry prepares for the January 2020 introduction of new rules to cut sulfur emissions.
    • Refiners in the Mediterranean and northwest Europe so far have arranged to take 60% less capacity offline for routine work from September to November than a year ago, and a similar plunge has been seen in planned U.S. work, according to the report.
    • “We are seeing, not just in Europe but also in other regions, that refinery maintenance is definitely being front-loaded towards the spring rather than the autumn,” says Wood Mackenzie's Jonathan Leitch. “We think that refiners will be trying to maximize their production of middle distillates in the second half of the year.”
    • A study conducted by Marketplace Pulse found that consumers aren't flocking to buy productsfrom Amazon (AMZN +1.5%) brands, even with the magnitude of the e-commerce giant's platform and ability to promote itself.
    • Marketplace notes that the disruption from new Amazon brands in categories such as apparel has been much less than feared.
    • "This idea that Amazon can introduce a product and magically use data to dominate a category is just a conspiracy theory," says Marketplace Pulse founder Juozas Kaziukenas.
    • In the last year, reports of new Amazon brands or private label initiatives have sent a shudder through a wide variety of consumer stocks, including Mattel (MAT +0.9%), Hasbro (HAS +0.2%), Ethan Allen (ETH +0.3%), Hooker Furniture (HOFT -1.2%), La-Z-Boy (LZB -0.9%), Blue Apron (APRN), Kroger (KR +0.1%), Pier 1 Imports (PIR -3.9%), Tempur Sealy (TPX -0.2%), Sleep Number (SNBR) and even Target (TGT +1.2%)
    • Barrick Gold (GOLD +0.8%) says a ruling by Chile's Supreme Court revokes the permanent closure of the Pascua-Lama gold and silver project, overturning an October administrative decision of the Antofagasta Environmental Court.
    • But the ruling on procedural grounds does not determine the final fate of the long-delayed project, as it sends the case back to the Environmental Court for review by a different panel of judges, a process that could last several months.
    • Barrick President and CEO Mark Bristow, says the verdict was not helpful because it had only delayed a decision on the future of the Pascua-Lama project.
    • The mine straddling the border with Argentina has been shuttered since 2013, when a court ordered the company to halt construction over environmental concerns' later that year, Barrick shelved the project, citing massive cost overruns and lower metal prices.
    • Caesars Entertainment (CZR +2.8%) and Eldorado Resorts (ERI -1.6%) trade in different directions after Reuters reported on merger talks between the two casino companies.
    • Analysts have speculated on a Caesars-Eldorado combination in the past due to their complementary casino portfolios. Eldorado owns and operates 26 properties across 12 U.S. states, while Caesars is one of the two dominant players on the Las Vegas Strip.
    • Macquarie thinks Eldorado would pay up to $10 to $14 per Caesars share if the companies combine, per Bloomberg.
    • Previously: Eldorado Resorts, Caesars explore merger (March 18)
    • Apple (NASDAQ:AAPLlaunches a new 10.5-inch iPad Air and an iPad mini with Pencil support.
    • The iPad Air has the in-house A12 Bionic chip for a 70% performance boost and 2x the graphics capability, according to Apple. The Air also has an advanced Retina display with True Tone and support for the Pencil and Smart Keyboard.
    • The 7.9-inch iPad mini has the A12 Bionic for 3x the performance and 9x faster graphics, an advanced Retina display with True Tone tech that's 25% brighter, and Apple Pencil support.
    • The iPads are available to order today and will hit stores next week. Both models come in 64GB and 256GB configurations and the mini starts at $399 for wi-fi (or $529 for wi-fi and cellular) while the Air starts at $499 for wi-fi (or $629 for wi-fi and cellular).

  30. CMG/Winston – I'm saying we CAN do that.  This is from the Jan review:

    • CMG – Yikes, they blasted higher but we already cashed out a huge winner so they deserve to get some back.  Our 2012 $480/540 spread is potentially $140,000 and now showing $58,000 and I'm not worried about the 10 short 2020 $580s but they are even so let's just close them.  We'll have to roll the 20 short Jan $485 calls at $32 ($64,000).  We sold them for $19.75 though so not a huge loss ($24,500) so we're just going to roll those to 12 of the March $550 calls at $15 ($18,000) and we'll see how earnings go.  If they go lower, we have room to sell puts and if they go higher, we could still sell puts and roll the longs higher and we're double-covered with $82,000 in potential gains at "just" $540. 

    CMG/Winston – These are just time slices of the stock.  On this day, it's this price but so what?  Yes, if you are in a position that's over your allocation and you have margin pressure – it's a big deal – which is why you should never mess around with $500 stocks in a portfolio that doesn't have $1M liquid in it!  The "flaw" to the strategy is if you let yourself get forced out of positions – otherwise, trading in a rational fashion doesn't generally have a huge downside in the long run.  

    We are down about net $10,000 in our current position and, since we have the $480/540 bull call spread showing just $77,000 out of $120,000, we KNOW we have another $43,000 coming to us if we're going to owe the short callers a penny.  The 12 short March $550 callers are at $68.50 and they have no premium and we sold 8 June $600 calls for $50 as a pre-roll and those are now $52 and only worth $20 at $620 - so hardly a panic here.  

    Long Call 2021 15-JAN 480.00 CALL [CMG @ $618.24 $6.61] 20 11/20/2018 (683) $180,000 $90.00 $104.80 $-10.03     $194.80 - $209,600 116.4% $389,600
    Short Call 2021 15-JAN 540.00 CALL [CMG @ $618.24 $6.61] -20 11/20/2018 (683) $-133,000 $66.50 $89.90     $156.40 - $-179,800 -135.2% $-312,800
    Short Call 2019 15-MAR 550.00 CALL [CMG @ $618.24 $6.61] -12 1/18/2019 (11) $-19,440 $16.20 $52.30     $68.50 $5.70 $-62,760 -322.8% $-82,200
    Short Put 2021 15-JAN 450.00 PUT [CMG @ $618.24 $6.61] -10 2/19/2019 (683) $-30,400 $30.40 $-5.45     $24.95 - $5,450 17.9% $-24,950
    Short Call 2019 21-JUN 600.00 CALL [CMG @ $618.24 $6.61] -8 2/15/2019 (109) $-40,400 $50.50 $1.50 $-50.50     $52.00 $3.02 $-1,200 -3.0% $-41,600

    The "plan" for the March $550 calls is to buy them back – hopefully for less than $60.  We already sold the June calls to replace them – we simply hoped CMG would go down, not up but the risk is 12 calls going $12,000 or $24,000 more against us but we pay that money, say $100,000 at $630 and then we have 20 of the 2021 $480/540 bull call spreads covered by 8 of the short June $600 calls and the 10 short 2021 $450 puts (which we just sold) so our net is $97,160 on the $120,000 spread but, of course, we're in this mess because we already cashed out 20 Jan $460s for a $92,480 profit on 10/25 and 15 Jan $400s for a $78,600 profit on 8/27 – these short calls are the leftovers that we didn't want to pay off at the time – hoping for a better price that never came.  

    If, in the end, we net a $21,400 profit on these leftover short calls, that would be a miracle and we'd be up about $200,000 on the overall position so I don't think we NEED to do anything special with the March calls – those were a fail and we already rolled them to 8 short June calls – it's just a question of how much we'll actually have to pay the March callers.  

    Now, rather than spend $100,000 buying back 12 short March $550s, we COULD cash our 20 2021 Bull Call Spreads for $77,000 and buy 40 of the 2021 $550 ($152)/650 ($102) bull call spreads for $50 ($200,000) so $23,000 more than buying back the short calls and then we have $400,000 worth of longs covering the 8 short June $600s and we could roll the 12 March $550s ($70) to 12 more June $600s ($53) for net $17 ($20,400) and now we've spent $43,400 instead of $100,000 and we have a $400,000 spread 1/2 covered with 20 June $600s and, if we can roll up $50 each quarter for $17 ($34,000) that's $650 in Sept and $700 in Jan and $750 in March and $800 in June 2020 for another $136,000 and we'd be in our deep in the money $400,000 spread with 20 short June $800 calls (still rollable) for net net $97,160 (our current spread) + $43,400 (our rolls) + $136,000 (our prospective adjustments to the short calls if CMG goes up another 30% by next June) for net $276,560 on our $400,000 spread.

    That's not unappealing but it makes CMG a huge and risky position so, on the whole, I'm more inclined to just kill the short $550s in this cycle and hope to make that last $20K without spending another $100,000 (at least) to hopefully make $150,000 (realistically).  We have other, less stressful ways to make $150,000 with $100,000 over 2 years and also it would be more diversified – so that's how I end up at my decision.

    Long Call 2021 15-JAN 480.00 CALL [CMG @ $651.92 $12.92] 20 11/20/2018 (669) $180,000 $90.00 $134.80 $33.65     $224.80 $8.14 $269,600 149.8% $449,600
    Short Call 2021 15-JAN 540.00 CALL [CMG @ $651.92 $12.92] -20 11/20/2018 (669) $-133,000 $66.50 $117.30     $183.80 - $-234,600 -176.4% $-367,600
    Short Put 2021 15-JAN 450.00 PUT [CMG @ $651.92 $12.92] -10 2/19/2019 (669) $-30,400 $30.40 $-6.10     $24.30 - $6,100 20.1% $-24,300
    Short Call 2019 21-JUN 600.00 CALL [CMG @ $651.92 $12.92] -8 2/15/2019 (95) $-40,000 $50.00 $24.70     $74.70 $9.70 $-19,760 -49.4% $-59,760

    What we have in the LTP now that we paid $89 to close the short March $550s is 20 of the $480/540 bull call spreads that are $100 in the money and it's a $160,000 spread currently at net $82,000 so $78,000 left to gain there + $24,300 on the shorts and we sold the $600 calls for $50 and they are now $50 in the money.  So if CMG pops 10% (your premise this morning) to $720, the $600 calls would be $120 in the money and I would not cash them in and I wouldn't take $82,000 or even $92,000 for the $160,000 spread if it's $180 in the money so the only logical thing I could do is roll the 8 short June $600 calls (now $75) to 2x the short Jan $760 calls (now $40) for about even but then I wouldn't be comfortable with 16/20 of my longs covered so I'd want to buy 10 to 20 of the 2021 $600/750 spreads or something like that – depending on how worried I would be about being burned by CMG going over $800.


  31. CMG is up from 385 to over 655 in less than 3 months….
    Wow!!!!


  32. VIX . Phil – As with everything else, sizing is crucial If people are going to jump in and use 50% margin for an initial position, they will be burned. But that's true with everything else. Keeping it around 10% gives you ton of space to roll if needed. It will be interesting to recap this year next January and see how that played out. of course, then it depends on what kind of year we get – one like 2017 where the VIX never went over 20 or one like last year where we hit 50!


  33. Phil – CMG – it's a $120,000 spread.


  34. Stjeanluc, you are working VXXB on your vix trade.  Have you looked at UVXY?  It is another short term VIX ETN and on my Think or swim the it required less margin and yielded more profit (ATM options).


  35. CMG/Winston – Well then we definitely need to make it bigger!   2021 $540s are $188 and $480s are $228 so net is $40 of $60 potential.  If we sell those for net $40, we can then take the $600 ($150)/$740 ($102) bull call spreads for $48 and simply widen the spread to $140 ($280,000) for net $16,000 – that's a possibility, but only if CMG looks way better than I think they are.  


  36. UVXY / Robert – I actually traded on UVXY in the past but I gave up when these ultras imploded last year when the VIX spiked to 50. So not playing with the ultras anymore… Happy to grind lower amounts on VXXB where I understand the moves better.


  37. Phil – maybe TOS is wrong, but it is showing the CMG Jan 2021 $600/$740 BCS @ $68 not $48, so that is net $56 to widen the spread to $140.




  38. Trump’s Bad Deal with the Taliban




  39. How to build The Matrix


  40. Good morning! 

    Markets flying higher as Merkel says she wants good relationship with UK, even after Brexit.  

    Otherwise, we're just waiting on the Fed tomorrow.

    So the Dollar is down 2% and the S&P is up 100 points, which is 3.6%.

    Still need that Russell breakout:

    CMG/Winston – Well I don't know if it changed or not but, at THIS moment, I see the $600s are still $152.50 and the $740s are down to $87 ($65.50) so we'd have to consider that vs $650 ($125)/800 ($68) @ $57 and that would depend on how we felt about CMG.  If we're just being defensive against the short calls, then the cheaper spread is better and that would add $17 x 20 is $34,000 – but it does change daily so we have to make the best decision at the time – which would more likely be June.