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Toppy Tuesday – Trouble at 2,950 – Again

At least it's not 2,800.

The S&P is back up 150 points from our DOOM!!! line, which didn't turn out to be very doomy when we failed it 27 days ago.  In fact, we bottomed out at 2,740 and now we're up 210 points (7.66%) and we tested 2,860 and failed that but never came close to the +15% line at 2,990.  2,925 is the +12.5% line so we'll keep an eye on that but if the Russell (/RTY) can't get back over 1,550 – there's really nothing to be bullish about.

7,750 on the Nasdaq (/NQ) and 26,800 on the Dow (/YM) are the other lines to watch and we've made good money – over and over again – shorting the Dow Futures at that spot.  We got some good market news this morning as AbbVie (ABBV) is buying Allergan (AGN) for $63Bn, which is 50% over yesterday's closing price.  When investors see one deal like that, they assume the whole sector is undervalued.  ABBV may be overpaying as AGN only has $15Bn in revenues and has lost money consistently and is a bit of a one-trick pony with Botox, which is more than half their total sales but they were supposed to turn things around this year and they did make $2.5Bn last quarter ($5Bn profit projected for 2019) – so I guess they saw something others did not in their due diligence.  

Image result for trump iran cartoonMeanwhile, tensions with Iran continue to heat up as Iran's President Hassan Rouhani called the White House “mentally retarded,” dismissing the Trump administration’s latest round of economic sanctions as pointless and declaring that Iran would not be intimidated.  Rouhani’s personal attacks on Trump are especially significant. In the context of the Iranian political system, Rouhani is regarded as a moderate who is relatively open to negotiations with Washington, and the insults from Rouhani further diminish the already-remote prospects of talks between the two sides. 

Oil (/CL) is hovering around $57.50, which is up 15% for the month so you can thank President Trump when you fill up your gas tank next week.  Gasoline (/RB) is at $1.86 and that's up 12% – so far and we may see $2 for the July 4th weekend at this rate.  Of course that's right on target for the trade idea from our June 19th PSW Morning Report, where we said:

Speaking of justifications, OPEC is acquiescing to Russia's demands to move their meeting to July 1-2 in Vienna and OPEC will do ANYTHING to get the Russians to join them in cutting production – just in time to screw American drivers over the July 4th Holiday.  If you believe in OPEC+, you can play the September Gasoline Futures (/RBU19) long off the $1.65 line ($1.62 has been the lows so I'd plan to DD there for a $1.635 avg and stop below $1.60) or you can play the Gasoling ETF (UGA) and I'd go with:

  • Sell 10 UGA July $28 puts for $1.40 ($1,400) 
  • Buy 20 UGA July $27 calls for $1.70 ($3,400)
  • Sell 20 UGA July $29 calls for 0.75 ($1,500) 

That's net $500 on the $4,000 spread so $3,500 (700%) profit potential in just 30 days and your worst-case scenario is ending up long 1,000 shares of UGA at net $28.50 (assuming your spread is wiped out).  Trump wants the Dollar weaker, which is also good for Oil and Gasoline prices and OPEC certainly wants Oil higher and Tesla (TSLA) may collapse soon as Q2 deliveries end up disappointing people after all – all possible positives for UGA.

UGA is already at $29.75 so we're on our way to the full 700% gain with 24 days to go (you're welcome) and those /RBU19 Futures have blasted up to $1.78, which is up 0.13 and Gasoline Futures pay $420 per penny, per contract – so we're talking about $5,460 PER CONTRACT gains since last Wednesday – not bad for a week's "work"!

Or, you could have just played the Gasoline ETF (UGA) long at $26.75 last week and you'd be up $2 (7.5%) so for $26,750 you could have made $2,000 or you could have used $4,620 per contract of margin on an /RB contract and made $5,460 or you could have used $500 in cash and $4,214 in margin on the option spread to make (so far) net $1,400 – THAT is why we teach our Members how to play the Futures – it's a very valuable tool to have in your trading toolbox!  

Meanwhile, at net $1,400, that UGA play still pays $3,000 if all goes well through July 19th so still a gain of $1,600 (114%) to be had – even if you were slow to join the party (but the path looks more certain now as a trade-off).  There are lots of ways to make very nice returns in the market – even a crazy, rumor-driven market like this one.  The Iran situation was a bonus for Gasoline Bulls – we still have that OPEC meeting coming up.  

Also coming up today is a speech by Fed Chair Powell at 1pm, just 24 hours after President Trump accused him of behaving like a "stubborn child" in refusing to lower interest rates.  Traders are now pricing in a 100% chance of a July reduction in the Fed Funds rate, and a 73.3% of two more cuts between now and the end of the year, so the only thing Powell can do in this speech is disappoint so, once again, we'll be looking to short the Dow (/YM) on any cross under the 26,800 line – with very tight stops above.

Watch for the Dollar to bounce off the 95.50 line and put some downward pressure on stocks and commodities unless Powell and other Fed speakers, come up with new ways to describe how doveish they can be.

Be careful out there! 

 


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  1. Russell keeping it real so far!


  2. Good Morning!


  3. Good morning!

    • June Consumer Confidence121.5 vs. 132.0 consensus; 131.3 prior in May (revised).
    • Present situation Index 162.6 vs. 170.7 prior.
    • Expectations Index 94.1 vs. 105.0 prior.

    Like I said yesterday, the surprises are getting worse and worse and now we're pricing in certainty of a Fed Cut – what's going to boost us now?

    I missed the /YM short as I was greedy and waiting for 26,800 and we fell shy.

    So good to be back in the Command Center!  I have to figure out how to take this on the road.  I do have my HP Envy, which I do the Webinars on, that's a 34" curved that gets 3 screens and I can throw 2 LCD's on that and I'm happy but it's not practical to take on a plane, unfortunately.  If I drive to Orlando or the Keys though – it's just about as good as being at home.  

    Related image

    I like that so much I think I'm going to get this 49" curved display for my desktop – but it still doesn't solve my airplane problem.  I can't be the only person who would want such a thing?

    Related image

    Phillips, Samsung and Dell all seem to make these (probably all the same thing).  About $1,300 and it's as good as 4 screens without the fancy cards or controllers.  Stack one on top of the other and what more could you need at home?

    Image result for philips 49 inch monitor

    Volume on SPY has been a joke, even Quad Witching was below normal so I don't know what's going on in this market but you can't take anything seriously.

    Date Open High Low Close* Adj Close** Volume
    Jun 25, 2019 293.70 293.73 292.37 292.80 292.80 10,521,613
    Jun 24, 2019 294.23 294.58 293.47 293.64 293.64 47,530,200
    Jun 21, 2019 294.13 295.52 293.76 294.00 294.00 83,309,500
    Jun 21, 2019 1.432 Dividend
    Jun 20, 2019 296.04 296.31 293.13 295.86 294.43 116,570,000
    Jun 19, 2019 292.55 293.65 291.47 293.06 291.64 78,674,400
    Jun 18, 2019 291.39 293.57 290.99 292.40 290.98 85,434,800
    Jun 17, 2019 289.52 290.22 289.18 289.37 287.97 39,205,700
    Jun 14, 2019 289.26 289.93 288.41 289.26 287.86 52,324,700
    Jun 13, 2019 289.40 289.98 288.62 289.58 288.18 48,945,200

    Dollar is still laying around 95.50 so mostly waiting on Powell this morning.


  4. Phil – I like mine and the price was right.

    Has great sound too!

    https://www.costco.com/LG-43UD79-B-43%22-Class-Ultra-HD-4K-IPS-Monitor.product.100378322.html


  5. Good price for a 4K 43" screen 1020! I have 2 27" 4K screen on my desk. Not as practical as the wide screens that Phil is showing but these wide screens don't always have as good a resolution.For example, the Dell has 5120 x 1440 when my 2 4K screens do 7680×2160. So the screen is bigger but you can display less stuff. People don't always look at that.


  6. Phil,

    What are your thoughts on AR, I have 1200 ARs at 8.30 and they are down 50% was thinking if it was a good spot to dd.

    Thanks

    Pat


  7. Phil

    What do you think of ABBV AbbVie Inc.

    With the drop in price today ?

    Thanks


  8. Amazing price on that one, 1020.

    Resolution/StJ – Good point, I'll have to make sure about that.  Wouldn't think there would be such disparity these days.

    AR/Pat – They are pretty small ($1.7Bn) and very erratic with profits, up or down $500M.  If you add up the last 5 years, they've made $1Bn so $200M a year on avg, which happens to be what they project for 2019 and they did make $1Bn last Q but it spun out AM for the cash and would have lost $200M otherwise so really what's left now in just AR?  The new structure is a bit confusing and AR has heavy hedges in /NG that SHOULD keep them profitable this year but it's very, very confusing and I'd rather wait until after early Aug earnings to try to figure out where the money goes.  

    I think they are interesting enough to sell the 2021 $7.50 puts for $2.75 as a start, that nets you in for $4.75, so about 15% off the current price and it's a nice upside – even if that is all you end up with and, if they do find a bottom and go higher – then even the $5/10 spread is just $1.25 so you could buy 2 or 3 per short put if things seem like they are heading higher. 

    If you already have 1,200 at $8.30, I think I'd sell the puts, which drops your net to $5.55 – about the current price and, if they get worse, you can sell the $5 puts for $1+ (now $1.75) and drop your basis below $4.50 so, rather than doubling down here at $5.50 and averaging $6.90 – you instead put cash in your pocket from the puts and remain much more flexible with a worst case at $4.50, 22% lower than if you DD now.

    ABBV/QC – I think they are overpaying and 15% is a reasonable haircut $17Bn considering they just spent $63Bn for AGN, who were $41Bn yesterday.  I don't see a lot of synergies to the deal either – they are just buying a pipeline for top Dollar but, as I noted above, I'm going to assume they are not complete idiots and did see something they liked in development.  

    Unlike AGN, ABBV makes $5Bn a year (supposedly $10Bn this year) and $66.6 is $98Bn so reasonably priced and they certainly have the cash flow to pay for the deal so I'd let the downgrade police have at them and see if $60 holds but the $60 puts are already $8 for a net $52 entry, so that's another 20% off from here – getting very reasonable – almost good enough for the LTP, in fact.  

    I think, ideally, I'd like to sell the 2021 $55 puts for $7 (now $5.75) so I'd keep an eye on those but nothing wrong with getting $10 for the $60 puts if you want to be more aggressive. 


  9. stjean/Phil/LG  It really does a great job and was a steal at Christmas…. :)







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  11. Powell not saying anything too negative but Bullard already did the damage by saying 0.50 rate drop was simply not going to happen.  On the other hand, Powell is upbeat on the economy and doveish on rates so no reason to be too gloomy. 

    Dollar climbing a bit but was clearly too weak anyway.

    /RB over $1.80!  

    /KC with a hell of a week:

    $97 was our buy line from way back on 6/12 ($100 on /KCZ19, now $110) and it's a lovely $375 per $1 per contract!   Our main pick started a month earlier:

    now my attention is on /KCZ19, which is right near the 94 line, where I can DD to average $95 at $375/$1 per contract and I don't see any reason I can't get $105 out of that for $3,750 per contract or, if we're lucky $115 for $7,500 per contract.

    So goaaaaallllllllllllllllll!!!! (again)

    Submitted on 2019/05/02 at 12:26 pm

    /KC back where we like them.  /KCN20 takes you all the way to next summer (July) at $106 – you're paying a penny a month not to have to roll…

    /KCN20 now $117 – so the whole strip is up about a dime.

    If /NQ crosses back over 7,675 then I like it long with tight stops below.  Lined up with 26,675, 2,937.50 and 1,535


  12. Phil, any more thoughts on CCL now that you are back in the command centre?



  13. It's amazing how addicted we are to low rates. If you look at a chart, we are still way lower than average:

    Image result for fed rate history chart

    Think of times where between 1960 and 2000 when we had growth of less than 3% and rate over where they are today. Sure, inflation in the 80's was nuts but otherwise very similar to what we see today:

    Image result for inflation history chart


    • Federal Reserve Chairman Jerome Powell emphasizes the Federal Open Market Committee's stance last week that it will "closely monitor implications" of data for the economic outlook and will "act as appropriate to sustain" the U.S.'s economic expansion, in comments made at the Council of Foreign Relations in New York.
    • He's carefully balancing his words, of course.
    • Though FOMC's baseline outlook "remains favorable," risks to the outlook have increased.
    • "The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation," he said.
    • Though acknowledging that many FOMC participants feel the case for easing policy has strengthened,  he's careful to note that "monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook."
    • The 10-year Treasury yield, which had fallen below 2% earlier, now at 2.01%. (TLT +0.4%), (TBT-0.9%).
    • Dollar Index rises 0.4% to 96.34.
    • The Congressional Budget Office's annual federal budget projections sees federal debt rising to unprecedented levels--from 78% of gross domestic product in 2019 to 144% by 2049.
    • The expected rise in government borrowing will lead to significantly higher interest costs, eventually exceeding all discretionary spending by 2046, according to the report.
    • Projections of federal debt, though are down slightly from last year's, due to projections of lower discretionary and net interest spending, which are partly offset by a small reduction in project revenue.
    • Low interest rates has continued to surprise the CBO, which  has revised its projections of interest rates downward several times. For example, from 2030 to 2035, the average rate on federal debt is now projected to be 3.5%, 1.7 percentage points lower than the agency projected for that period in June 2010.
    • But the lower-than-expected interest rates can have a negative effect, especially during an economic downturn.
    • "Persistently low and declining interest rates could affect the Federal Reserve’s ability to use monetary policy to respond sufficiently to a negative shock," the report explains.

    • Lennar (NYSE:LENfalls 6.3%, wiping out an earlier gain, as executives warned of lower average sales prices on the company's Q2 earnings call.
    • "As many new entry-level communities come online," the average selling price will continue to slip, they said, particularly in Texas.
    • Tariffs on materials pose another headwind: "On average, the impact to us is about $500 per home."
    • Higher land and labor costs also add to pressures.
    • Previously: Lennar +5.2% as Q2 results beats; sees fatter margins (June 25)
    • Ahead of its IPO later this year, Airbnb (AIRBlaunches the Luxe site, which includes more than 2K homes with an average price of $2,000 per night.
    • The Luxe listings offer high-end rentals like castles and luxury city stays. The platform currently has urban listings in London, L.A., and Sydney with plans to add at least 12 more cities by year's end.
    • Luxe renters can add on the service of a "trip designer," who can organize local activities and hire in-house staff.
    • Related: In 2017, AIRB acquired the Luxury Retreats high-end travel site.

    CTL/Albo – Is today finally the day?

    CCL/Alter – They are generally good for $3Bn a year on $20Bn in sales and there's not too much variation so not a bad point of entry at $45 ($31Bn).   They lowered guidance to $4.30 from $4.50 so the drop is a bit crazy considering 

    One of their ships had an issue that cost them 3 cruises but, then again, there's always something when you are running 100 ships though this was unusual in that the dock that would have usually repaired the ship was out of service due to the last hurricane – so it was a combination of bad luck.

    Another issue impacting them is weakness in China and Europe – mostly leading to people cutting back on tours, which are extra charges the company counts on.  Overall, however, I don't think much of CCL as an operator and it doesn't seem to me they have flexibility to cut expenses as they are already crap compared to other cruise lines.  

    RCL, on the other hand, makes $2Bn and you can buy them for $24Bn at $116 but they have been delivering profit and sales growth consistently and they have "just" 60 ships which, to me, means more room to expand and a fleet that's much less aged than CCL.  RCL also owns Celebrity and Sivlersea – both luxury brands and they drop their $2Bn off $11Bn in sales while CCL gets $3Bn out of $20Bn in sales so better margins means better able to weather a storm.

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 7,960 8,074 8,299 8,496 8,778 9,494 9,906 11,042 11,839 +3.6%
    Operating Profit $m 793.9 941.9 874.9 1,477 1,744 1,895 1,939     +19.0%
    Net Profit $m 473.7 764.1 665.8 1,283 1,625 1,811 1,842 2,045 2,253 +30.8%
    EPS Reported $ 2.14 3.43 3.02 5.93 7.53 8.56 8.75     +31.9%
    EPS Normalised $ 2.42 3.58 4.88 5.95 7.53 8.87 8.75 9.77 10.9 +29.7%
    EPS Growth % +29.2 +47.9 +36.3 +21.9 +26.7 +17.8 +15.6 +10.0 +11.4  
    PE Ratio x           13.2 13.4 12.0 10.8  
    PEG x           1.31 1.33 1.05 0.74
    Profitability

    • RCL has good options pricing, you can sell the 2021 $90 puts for $7 and ToS hits you for $9K in margin on 10 short put, so not terribly efficient but you can use the $7,000 to buy the 2021 $90 ($32)/$115 ($17) bull call spread for $15 ($15,000) and you net in for $8,000 on the $25,000 spread that's 100% in the money to start.  
    • With CCL, you can sell the 2021 $40 puts for $4.20 so let's say you sold 20 of those for $8,400.  The margin on ToS is $8,021, so not very different and the 2021 $37.50 ($9.70)/$45 ($5.30) bull call spreads are $4.40 so let's say you bought 30 of those for $13,200, then you'd net in for $5,179 on the $30,000 spread that's also in the money.

    I think both companies will be fine over the long haul but I'd feel a lot better about adding to RCL in a market crash that takes them down to $100 than loading up on CCL at $37.50.  

    Rates/StJ – And if these are our housing prices at 2% – what happens to the housing market at 4-6%?


  14. Yikes, no luck on /NQ – Getting worse across the board and it's not the Dollar's fault – just 95.69.


  15. albo – CTL – so, you are buying or selling CTL Jan 2021 $10 Calls?

    I have long stock of CTL in a non-marginable acct – 1000 shares that I purchased a month; Received $250 dividend on 06/14. Do I sell covered calls or stay put? Thanks.


  16. phil – RCL/CCL – I have been on both the company cruise ships and my personal opinion is that- the Royal Carribean ships ones are way better and way newer and way sleekier.


  17. Vkat – I added more calls.  I'm already over weighted in the stock.  If I weren't, I'd probably buy more stock and sell some some Jan 2020 $10 puts.  Full Disclosure : I am too heavy in the stock already.  But since I think the stock goes up significantly over the next year and a half, couldn't resist the temptation to add more leverage.

    If I were you, I'd stay put for now.


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  21. Phil / DVA – I've been looking at this one a bit, it just finalized a 4.3B divestiture of doctor management company that was a drag on the company since it purchased back in '12,   sill expanding in EU and should be able to pay down debt ( some) and buyback shares.   I'm thinking a 85 /sh Price in the next 18 to 24 months is reasonable…..  May take a bit longer….  would like your view,.  thanks,


  22. Phil.  I am glad your trip was good.  I have a position in SIG that I would like your advice on.  They did well on the most recent earnings but the price has been driven down over 10% and the market is making new highs.  I am at a point where I am going to DD so I wanted to ask you if you feel any of their fundamentals have changed?  Also, I am concerned to DD at this point because if we do get a pull back i would expect SIG to go down.  What is your advice concerning that?  Go ahead and DD or wait?  Thanks.


  23. So they are offering 100 year bonds and -1% bonds.  If you combine the two, you get a bond where you just give the Government your money and, 100 years later – you get nothing back.  I think we should get into that business!  

    If you are a broker selling those bonds, do you have to pay the commission to the bond buyer?  

    RCL/Vkat – Way better.  Those new RCL ships are an attraction unto themselves.

    DVA/Batman – Up today when nothing else is.  Dialysis is, unfortunately, a booming industry.  Still $54 is $9Bn and these guys made $200M last year and project $700M now that they've unburdened themselves but they only made $30M last Q – so it's a bit speculative.  I think $85 is aggressive but I'm comfortable with $8Bn ($42.50) as a solid bottom so you can lean aggressive with that target and sell the 2021 $52.50 puts for $7 to net in at $45.50 and that money can be put towards 2x the $50 ($12)/60 ($7.50) bull call spreads at $4.50 so net $1,000 if you sell 5 puts for $3,500 and buy 10 spreads for $4,500 on the $10,000 spreads.   That's PLENTY of upside in a fairly conservative spread.  

    SIG/Robert – Down and down they go.  No, I don't feel the Fundamentals have gone down and these guys are on track to make $3 per $16.80 share so ridiculously priced down here but they could remain out of favor for a long time (like BID) before bears capitulate.  Unfortunately, they make ALL of their money in Q4 and last Q they made just 0.08 and Q3 tends to be a loss so don't DD if you can't afford to do it again later – it could go lower still and, if it doesn't – then they'll recover and you should be happy about that, right?

      

    In the OOP, we have 10 2021 $15 calls at $8.50, now $5.10 and we have 5 short 2021 $20 puts at $5.30, now $8.20 so down $3,850 on paper nothing to cry about and I'd rather wait for 2022 to come out before adjusting as we'll be fine if SIG goes up 10% to 18+ as that's net $3,000 on the calls vs – $1,000 on the puts (and we'd still be rolling) so it's not even worth panicking over at this point, with 18 months to play.  We don't even have SIG in the LTP – I guess we should!  

    MU up 5% on earnings.

    FDX down 3% on warnings that trade wars are hurting them.


  24. FDX bad for the Dow, of course. 


  25. Speaking of BID – there's one I was pounding the table on and it's a great example of a perfectly good business that simply goes in and out of favor as the underlying business goes through normal cycles:

    BID/DC – This is one of those stocks that has a p/e around 10 that I simply can't find any reason not to want to own.  That means, if you spent $5.50 on the Jan $23 calls and they are now $2.70, you can just roll them along to the 2018 $15 ($6.50)/25 ($3.50) bull call spread at $3 and then you're $5 in the money with 2 years to hit goal.  I'd also sell the 2018 $15 puts for $3.40 and sell 1/2x the March $22s for $1.05 because, if you have the discipline to collect net 0.50 per share every couple of months, that's $6 in your pocket while you wait for other people to realize that a company that has a market cap of $1.3Bn that netted $240M in the last 4 quarters might be something they want to own.

    It should be noted that, in the grand scheme of things in September, in the LTP, we sold 10 BID 2018 $35 puts for $7.40 and they are now $16.30 with BID at $20.  If we wanted to adjust them, we could roll them to 2x the $23 puts at $7 and we still would have collected net $5.10 or $2.55 per new share so we'd now be committing to buy 2,000 shares of BID at net $20.45, which is where it is now(ish).  

    If we were assigned we could then sell 2018 $20 calls for $5.50, that would knock our basis down to $14.95 and, if we didn't mind owning 4,000, we could sell 20 more $15 puts for $3.80 and now our basis is $11.15 on 4,000 (if assigned) and that's $44,600 which is exactly one allocation block in the LTP.

    This is why I struggle to worry about things like this.  On the whole – I'd rather end up owning 4,000 shares of BID for net $11.15 than "only" make $5,100 if BID is over $23 in 2018 and the short puts expire worthless.  Most likely, we'll never get another opportunity to own it so cheaply.

    If you have a properly allocated LONG-TERM plan for your positions, you will get excited about downturns like this because it gives you a chance to aggressively build up long-term bargains like BID or F or AAPL or IBM or the rest of our Watch List.  BUT, in order to do this, you have to get away from short-term thinking and stop letting your decisions be dictated by the interim P&L of positions you intend to hold for decades (if you get a good entry). 

    Submitted on 2016/02/26 at 3:50 pm

    BID/Palotay – Would have been a profit without one-time write-off.  People are wimps! 

    BID/JMD – We already did adjust the OOP (2/12).  Now it's 40 2018 $15/23 bull call spreads that were $8.10/4.20 at the time and we have 15 2018 $23 short puts ($7.05) and 15 short March $22 calls we sold for $1.05.  I'm good with that set-up for now, my bigger concern was that March would get away from us. 

    Submitted on 2016/03/03 at 1:33 pm

    BID/OOP, Palotay – Damn, that's unfortunate but we sold 15 out of 40 March $22 calls for $1.05 so we're just going to roll them along as our spread is $15/23 with 15 short $23 puts we sold for $7.77 – essentially the short $22s (now $2.90) are our protection on the play.  The July $27s are $2 so we could roll to 21 of those even and still be only 1/2 covered – no sense worrying when we have such an easy fix.

    BID/Pat – They just had an auction in London that went well.  As I keep saying, the business has ups and downs at various auctions, which makes it a great stock to by low as most suckers are way too impatient and have no concept of art market cycles.  

    Submitted on 2016/04/22 at 10:46 am

    When/Jmd – Like the rabbit says, only when it's funny!  It always depends on what you have vs. what you think you'll need going forward and the risk/reward of making a change.  Unless you are 75% certain you're better off rolling – DON'T.   So with BID, it's at $28 and you sold July $30 puts and calls – that's called being RIGHT ON TARGET – what madness would make you want to change that?  The only reason you'd change it is if you think, for some reason, that BID will be significantly higher or lower than $30 in July that you will pay take a hit on the bid/ask spread on both sides of the roll and pay additional broker fees just to change your target.  If you are that sure of another target – please enlighten us so we can all get rich!  

    Submitted on 2016/05/09 at 4:12 pm

    BID/Palotay – Some guy is buying 10%, it's a stamp of approval but not a buyout.  We only have 15 (if you have the OOP play) vs 40 longs so we could roll to 2x or 3x and be fine and our longs would be $24,000 in the money so unless BID is over $35, won't be an issue.  Also, we sold the July $24 calls for $3.50 and now $5.30 so, rather than go through convulsions – why not just buy a few back and take a tiny loss?

    Submitted on 2016/08/08 at 2:04 pm

    BID/Palotay – Such a great cyclical business.  If you wait long enough, it will come down.  At least you have 30 long so I'd just go with your good plan and roll them up and out and see how it goes over time.  When 2019s come out, you can always cash 10 of your $9 spreads (now $7) and buy, for example, 2x the 2019 $35/45 bull call spreads (the 2018s are $4) so you'd be 40x long to the short 15.

    Submitted on 2017/05/02 at 3:03 pm

    BID/Palotay – Forgot about them, one of the ones we cashed out in the end.  Earnings are a wildcard and WOW, $48 – they were under $20 last year!  Anyway, earnings are random depending on the auction cycles and the mood of the buyers but with the market gaining the way it is, I'm not worried about whether or not they'll find people to drop $20M on a painting.  I think $50 is hard to break and $40 is a likely pullback if anything at all is wrong so you sound well-positioned to me.  Just plan on buying a 2020 spread layer in the Fall if they pop $50.  On the whole, they are really not earning more than last time they were at $47 (mid 2015) though EPS was lower then.   Makes me wonder if they purposely engineered the sell-off so they could buy back their own stock cheaply? 

    Submitted on 2017/10/02 at 1:22 pm

    Bid/EMike – Old favorite but we got in in the $20s so $47 doesn't seem cheap to me.  They go through huge cycles and I prefer to simply wait for them to hold a few bad auctions so analysts can proclaim that the 300 year-old industry has suddenly died out (happens every time) and the stock goes off a cliff and we jump in and buy.  Other than that, they tend to be a total crap shoot.   

    That trade played out over more than 3 years but we cashed out in 2017 in the portfolios as we felt $55 was PLENTY for BID and, unfortunately, we didn't get back in on the recent dip and now they are getting bought out, sadly (this happens to a lot of value stocks we like).  

    It looks like we did value it correctly but think how amazing it is that so many people could value it incorrectly for so long.  That's the nature of Fundamental investing but you very often have to go against the crowd.

    API must have been good as /CL hit $58.50 and /RB over $1.90 – might hit that $2 goal faster than we thought! 

    Crude – larger than expected DRAW -7.55 (-2,540 exp) +0.16 (+0.522 exp) -3.17 (+0.935 exp)

    Wow, that's a good one – net 10Mb draw all of a sudden.  See – cycles!  


  26. Phil, thanks for the comments on SIG.  I haven't sold the put side of the trade that goes with the BCS so maybe instead of DD I will sell some puts instead.


  27. Good adjustment, Robert. 


  28. @Albo – Thanks. Hmmm. I am now wondering if I should slowly add a few hundred more shares every few weeks and keep collecting the dividends and do some out of money covered calls (2-3 months out). Those articles you mentioned were good. Thanks for those as well.


  29. Albo – Sorry I was referring to CTL position.


  30. I listened to a very interesting interview on realvision with Benn Eifert, on how volatility markets have changed.  It is behind a paywall, or I would have linked it, but I think many of you guys will benefit from the discussion.  The key take away for me, is how much more crowded the short volatility trade is than ever before, and its impact on option pricing.  Especially in the last few years.  Big institutions (pension funds, insurance companies etc) have apparently put big money behind covered call strategies in recent years, and now that the trade has become so much more crowded, the pricing has gotten really thin, and does not compensate you enough for the upside risk.  Many market makers and volatility funds have switched to buying up a lot of these underpriced option contracts.  I know we all have seen the statistics about superior risk premium that options typically have, but that may not be the case anymore, at least not in the aggregate.  They also opined that the fact that there has been such cheap insurance available, might have provided additional support for equity prices, since funds can leverage up, and protect against a disaster with cheap insurance.  


  31. Good morning!

    Got a spike up because Mnuchin said trade deal is "90% done" but that's just nonsense as we haven't even had a meeting recently – it's the same 90% done it was before the talks broke down over China's fundamental disagreement with the terms that we considered "done".  

    Still, it seems to work every time and the Dow popped 100 (0.4%) along with the others and FDX turned back up a bit too. 

    /RB $1.94!  /CL $59!

    Just another Wednesday…