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Monday, September 26, 2022

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Tariffic Tuesday – Markets Bounce Back – Again

What a month this has been! 

It's all over now because Monday is a holiday and EVERYONE (who matters) is out the door early on Friday or Thursday or Wednesday for that matter and they don't come back until next Tuesday or Wednesday or, if they do – they sure aren't working much.  While Americans complain that they don't get many holidays – they certainly seem to stretch the ones they do have out quite a bit

I said we shouldn't expect much volume and yesterday's SPY volume was 60% of Friday's and I think we'll see even lower transaction numbers as the week goes on.  In other words, the whole thing is a joke – you may as well take the week off.  Our picks from yesterday morning were no joke as the Nasdaq (/NQ) Futures popped back to 7,450 this morning for a lovely $1,000 per contract gain from the long play we discussed in Monday Monring's PSW Report.  Likewise the S&P Futures (/ES) gained 10 points at 2,860 (again) and that was good for $500 per contract – not a bad way to start our trading week.  

This morning we're playing JULY Gasoline (/RBN19) Futures at $1.99 and I'll be very surprised if we're not at $2.05 by Thursday and, at $420 per penny, per contract, that could be good for $2,520 per contract – good enough to barbeque some steaks instead of hot dogs this weekend.  A stop below the $198 line limits the risk to $420.  

This weekend is the start of "Summer Driving Season" and the EIA forecasts a slight increase in consumption vs. last year, despite a 1% increase in overall fuel efficiency for the motor vehicle fleet:

For summer 2019, EIA forecasts U.S. motor gasoline consumption will average 9.54 million barrels per day (b/d), up 29,000 b/d (0.3%) compared with last summer’s level and nearly the same as the record summer average set in 2017. Highway travel is forecast to be 1.3% higher than last summer. The forecast increase in highway travel is largely because of growth in employment and population. The effect of the increase in highway travel is forecast to be partially offset by a 1.0% increase in fleet-wide vehicle fuel efficiency.

Last summer, in late May, Gasoline Futures peaked out at $2.25 and stayed between $2 and $2.15 for the rest of the summer so we like to jump in at $2 with tight stops below as we should have multiple chances to make money this summer – isn't that a nice, simple trading premise?  It's the same premise we had on May 7th (in the PSW Morning Report), when we went in at $1.92 and cashed out Thursday at $2.03 for a gain of $4,720 per contract!

In fact, we have a July spread on UGA in our Short-Term Portfolio, also from 5/7's PSW Morning Report, and that's a spread we started with a net credit that's already up over $2,000 in just a couple of weeks, so congratulations to all who played along at home!  The trade is already at our goal but just net $2,425 out of a potential $6,000 if UGA holds $32 so another $3,575 (147%) left to gain over the next 60 days if our premise holds up so – good for a new trade!

UGA Long Call 2019 19-JUL 29.00 CALL [UGA @ $32.04 $0.00] 20 5/7/2019 (59) $5,500 $2.75 $0.70 $2.75     $3.45 $0.00 $1,400 25.5% $6,900
UGA Short Call 2019 19-JUL 32.00 CALL [UGA @ $32.04 $0.00] -20 5/16/2019 (59) $-4,000 $2.00 $-0.50     $1.50 $0.00 $1,000 25.0% $-3,000
UGA Short Put 2019 19-JUL 32.00 PUT [UGA @ $32.04 $0.00] -10 5/7/2019 (59) $-2,250 $2.25 $-0.78     $1.48 $0.00 $775 34.4% $-1,475

You can subscribe the the PSW Report HERE and have these trade ideas delivered to you every morning

Part of the reason the markets are up this morning is because the Dollar, once again, has been rejected at 98 and that's because (please hold your laughter), Theresa May has a new Brexit deal!  Just look how excited the Pound is about that news – up half a point in two hours.  We don't know what the deal is yet but she's giving a speech later today and everyone is very excited – for some reason.

Meanwhile, Boeing (BA) says one of the crashes was caused by a bird and NOT their faulty design or faulty software, faulty training or (new information) faulty flight simulators.  A bird strike makes me feel so much better because there are hardly any birds in the sky so hitting one is considered an "Act of God" – and not at all something BA would have to compensate people for.  Ethiopian Arilines thinks this is nonsense, but they are foriegn and our Government could care less what they think.  

BA is up 2.5% this morning at $362 but we already put our foot down and sold the 2021 $280 puts for $21 last week (15th in our Live Member Chat Room) as it netted us in for $259 and that seemed like a stupidly low price for BA.  Of course, we don't expect to get BA for $259 as the sell-off is a bit overdone but we promised to buy 1,000 shares for $280 and collected $21,000 against $28,000 in ordinary margin and that's what we'll "win" if BA manages to not drop $80 (22%) between now and Jan 15th, 2021.  That's all there is to put selling! 

All that glitters may not be gold but Silver (/SI) will do for us at $14.35 this morning – that's a no-brainer of a long and silver contracts pay $50 per penny, per contract so don't be a hero if $14.35 doesn't hold and take the quick loss but /SI should be at least $14.60 and hopefully the Dollar comes down to help it out.  /SI is another one we always play when it's down at these levels.  

And, of course, if we're playing /SI we can also play Gold (/YG) at $1,270 though it's not as stupidly cheap as silver, they do both tend to bounce at the same time and, like silver, if it fails here, it's not worth sticking with…  Copper (/HG) is also back to our buy line at $2.72 so a very good morning for commodities trading it seems. 

The sustatined downturn in copper (caused by the trade war and slow building in the US) has been killing Freeport-McMoRan (FCX) and they are back down to $10.25 and you can sell the 2021 $10 puts for $2 to net in for $8 – so I love that as a solo trade but, since I think $10.25 is a fine price to pay for FCX as it's a $15Bn market cap for a company that made $2.9Bn last year but we'll call it $2Bn as they paid no taxes (thanks Donald!) and that's only 7.5x earnings but this year will suck and MAYBE they make $750M but it's a cyclical company – you are supposed to buy them when they are low! 

Anyway, so if we did own FCX at $10.25, we could sell the 2021 $10 calls for $2.40 and the $10 puts for $2 and that would lower our net basis to $5.85 with a nice $4.15 (71%) gain if called away at $10 so I REALLY don't mind being assigned at $10 which means we can treat the $2 we collect on the $10 puts like free money and set up the following spread:

  • Sell 20 FCX 2021 $10 puts for $2 ($2,000) 
  • Buy 20 FCX 2021 $8 calls for $3.40 ($6,800) 
  • Sell 20 FCX 2021 $12 calls for $1.70 ($3,400) 

That's net $1,400 on the $8,000 spread so the upside potential is $6,600 (471%) if FCX is at $12 or better in Jan, 2021 and the worst-case is you get assigned 2,000 shares of FCX at net $10.70 ($21,400) but then we sell 20 of the 2023 puts and calls for $4+ ($8,000) and our net becomes just $13,400 or $6.70/share so, if you don't mind owning FCX for $6.70/share (33% off) or getting paid $6,600 for not owning it – this is the trade for you!  

See how much fun options are!  

Meanwhile, we're still watching our bounce lines and, as I noted last week, they keep us from doing dumb things like chasing weak bounces and, with this low trading volume, it's mostly a watch and wait week anyway.  BA has pushed the Dow (/YM) over the Strong Bounce Line but the S&P (/ES) is still right at it's -5% line and the Nasdaq (/NQ) and the Russell (/RTY) are below theirs and BA is responsible for half the Dow's gains this morning so, like the Nigerian Air Traffic Investigators – we'll take it with a grain of salt:

  • Dow 25,200 is the 5% line and the bounce lines are 25,450 (weak) and 25,700 (strong)  
  • S&P 2,860 is the 5% line and the bounce lines are 2,875 (weak) and 2,890 (strong)
  • Nasdaq 7,475 is the 5% line and the bounce lines are 7,540 (weak) and 7,605 (strong) 
  • Russell 1,550 is the 5% line and the bounce lines are 1,565 (weak) and 1,580 (strong)

 

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The house didn't have a chance against this guy:

https://thehustle.co/professor-who-beat-roulette/

Good Morning!

Good morning all!

Phil,

What do you think of EMN and INGR. Both are solid dividend player and low in the channel.

Thanks

VOD – Phil, wondering what you think of VOD?  It hit a 22 year low last week and cut its dividend on May 13 which tanked the stock but it still has a good yield.  Was encouraged by the announcement last week that they will partner with Telecom Italia and share tower infrastructure in Italy as I expect to see more network sharing by operators.  Thinking about a Jan  2021 15/20 BCS with a  1/2 $15 put sale for a small net debit with the stock at $16.03 seems like a reasonable bet, especially with 5G and potentially a strengthening euro at some point in the next 1 1/2 years.  

Hi Phil – What's your take on EXPI?  Thanks!

Phil for FCX, I'd like your opinion on the following. I know the rate of return is better at 12, but what about if price in 2021 is somewhere 9-11.

FCX, why not 5/12 BCS instead of 8/12? For $3.88, you're $5.5 in the money instead of $2.3 in the money for 1.75 

Thank you Phil, for EMN. But it's not 2021, just 20 dec 2019. So only 213 days to make that.

Phil – What was it about EXP that Andy did not like? It looks like a modern version of the old RE office with a broker who gave you a generous split – with no franchise fee…. Thanks.

Phil, how do you feel about shorting CMG at this price.  I have a Jan 20 BCS 620/730 that I am considering selling the long, leaving the short 730 ($73.80) and buying 780/840 BCS to cover for $18.95.  BE on this position is around CMG $850 at expiration and if CMG stays at current price or lower profit of $5,485.  I can't imagine how CMG is maintaining this price level.  If CMG does continue to head higher, you can always add more BCS to cover.

I sincerely doubt you could ever have greater than overcome the 5.56% house advantage on a biased roulette wheel. On a US wheel you would need two of the 38 numbers to be completely plugged up with gum just to reduce the house edge to break even. 

Phil – I'm long term bullish on ENPH, but looking for a short-term correction in price along with the overall market. I'm long 20 Call spreads Jan20 $5 ($1.9) / $7.5 ($0.97) and short 10 Jan20 $10 Puts @$3.59.

One possibility is to sell the 20 Jan20 $5 calls and roll into 30 Jan21 $12.5 / $20 call spreads at approx $2.45. 

If ENPH shares decline, the short Jan20 $7.5 call will lose value and I can then widen the spread by rolling the Jan21 $12.5 calls lower. Can also short puts to offset…

If ENPH shares rise, the extra spreads will more than offset the short Jan20 $7.5 calls up to $20.

How would you manage these in the money spreads? Thank you

BDC – What's your take on OSTK ?  Byrne apparently had to sell to meet margin calls.  Is there any value there ?  Thanks.

https://www.cryptoglobe.com/latest/2019/05/overstock-ceo-sells-shares-in-his-company-to-invest-in-blockchain-projects/

https://twitter.com/SamAntar/status/1128731502760595456

Phil – LOL

Freddie and Fannie preferreds have been in nice up trends.  Both hit new highs today.

Long FNMAH and FMCKJ.

I've never been interested in OSTK

Thanks, BDC.  I bought some yesterday when I read about Byrne's possible margin calls. It's up big today, but will keep a close trailing stop.

I remember when Aubrey Mcclendon had to liquidate almost all of his CHK stock to meet margin calls.  Turned out to be a very good buying opportunity.

Phil,

Based on API, do you not think we’ll get to 2.05 on /RB?

Falling knife purchase.

Bought some CNX.  Stock too cheap IMHO.

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