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Lucky Friday the 13th – Markets Retest their All-Time Highs

"Let me tell ya, your love (your love keeps lifting me)

Keep on lifting (love keeps lifting me)

Higher (lifting me)

Higher and higher (higher)

I said your love (your love keeps lifting me)

Keep on (love keeps lifting me)

Lifting me (lifting me)

Higher and higher (higher)" – Jackie Wilson

Here we go again!  

3,028 was our July high on the S&P 500 and we're so close this morning we might actually get there into the weekend – isn't that great!  This is the highest the S&P has been since it dropped 200 points (6.66%) in the last week of July/first week of August but we held that top for a good two weeks so it's not that likely we'll fall right back off the cliff on Monday – especially as the driving catalyst is "progress" on the China deal and we're not actually meeting until October – so we can have a whole month of enthusiasm before the next breakdown.

That's good news because we'll be adjusting our portfolios into next Friday's Options Expiration Day and it's Quad Witching as the quarter is ending as well so Futures contracts expire along with stock options and I'm going to be very hard-pressed for a reason not to take the money and run on a good deal of our positions, rather than risk an uncertain Q4 – keeping in mind that last year we rolled into September making a new all-time high at 2,950 (that's right, the S&P is only up 75 points (2.5%) since last year) but plunged 600 points (20%), below 2,350, into Christmas.  

I think a proper China Trade Deal could take us up to 3,300 but that's up less than 10% from here and that's our "reward" compared to a much larger risk so I'm inclined to cash our out portfolios and start again from scratch.  In fact, to demonstrate that we could just start again from scratch and not miss much, I posted "5 Trade Ideas to Make $25,000 in 5 Months" two weeks ago (Aug 29th) to demonstrate what we could do with our money if we cashed out.

So if, for example, we were to cash out our $300,000 Options Opportunity Portfolio, which we began with $100,000 less than two years ago, we could re-deploy just $6,565 of our cash and $26,659 of our margin on just 5 trades to make up to $33,603 if everything went perfectly.  As silly as it is to worry about the trades after just two weeks – we may as well see how they're doing as the point is to demonstrate that we shouldn't fear cashing out our porfolios over worries we might miss some gains.

These are just the trade ideas – our logic behind them is, of course, back in the original Report:

  • Sell 5 VAC April $85 puts for $5.70 ($2,850) 
  • Buy 7 VAC Jan $80 calls for $20 ($14,000) 
  • Sell 7 VAC Jan $90 calls for $12.80 ($8,960)

As you can see, Marriott Vacations (VAC) really took off and we're way over our goal already.   The April puts have fallen to $2.75 ($1,375) and the Jan $80/90 spread is already $31/22 for net $9 ($6,300) so net $4,925 is already up $3,550 (258%) in just two weeks.  Our max gain on this spread is $4,810 so we can only make $1,260 between now and April so I'd pull the plug on this one if VAC fails to hold $110 (super-tight).

  • Sell 10 WBA Jan $50 puts for $3.70 ($3,700) 
  • Buy 30 WBA Jan $47.50 calls for $5 ($15,000) 
  • Sell 30 WBA Jan $50 calls for $3.60 ($10,800) 

Walgreens (WBA) just got a downgrade yesterday so back to $55 but still a strong play.  The short $50 puts have dropped to $1.60 ($1,600) and the $47.50/50 bull call spread is tight and that works against us but still $9.10/7.10 is net $2 ($6,000) so net $4,400 is up $3,900 (780%) but our max gain here is $7,000 and I think WBA is a fantastic bargain so I'm inclined to keep these for the next $3,100 gain (79% from here) but not if they can't hold $55.  

  • Sell 10 LB Jan $17.50 puts for $2.80 ($2,800) 
  • Buy 25 LB Jan $15 calls for $3 ($7,500) 
  • Sell 25 LB Jan $17.50 calls for $1.85 ($4,625) 

L Brands has been very disappointing but we caught this one right and the short puts are down to $1.60 ($1,600) while the $15/17.50 spread is now $4.75/3 for net $1.75 ($4,375) so net $2,775 is up $2,700 (3,600%) but another $3,400 left to gain is still 122% more than we have now and we only have to hold $17.50 to get paid – this one's a keeper and even good for a new trade – if you don't mind ONLY making a 122% return on cash in 5 months (4.5 now!).  

  • Sell 10 THC Jan $20 puts for $2.50 ($2,500) 
  • Buy 20 THC Jan $15 calls for $6.50 ($13,000)
  • Sell 20 THC Jan $20 calls for $3.10 ($7,500) 

Tenet really popped for us and we're miles over our conservative goal so this one will be a keeper too and the short $20 puts are already down to $1.15 ($1,150) while the $15/20 spread is now $11.50/7 for $4.50 ($9,000) so net $7,850 out of a possible $10,000 is already up $4,850 (161%) out of a possible $7,000 but why close it when we have $2,150 (27%) more to gain if THC can just hold $20?  That's now down 20% from where we are! 

   

  • Buy 50 SKT Jan $12.50 calls for $1.85 ($9,250) 
  • Sell 50 SKT Jan $14 calls for 0.95 ($4,750) 
  • Sell 20 SKT Jan $15 puts for $1.85 ($3,700) 

Tanger (SKT) is another one we played fairly conservative and I can't believe this stock is under $20, let alone $16.50.  The puts have dropped to 0.85 ($1,700) for a nice gain and the $12.50/14 spread is now $4.25/2.85 for net $1.40 ($7,000) so that's net $5,300 out of a possible $7,500 but we're already up $4,500 (562%) so I'd put a tight stop at $16 on this one to lock it in as well.

So, in just 2 weeks, we're up $19,500 against our $25,000 goal (we didn't expect to be perfect) and that's a 297% overall gain on the $6,565 cash requirement.  See – it wasn't hard at all to find substitutes for our portfolios, was it?  The reason we did so well is we purposely picked stocks we thought had strong value and we waited PATIENTLY for a good bottom to pull the trigger.  We also had a high VIX (over 20) which gave us great prices on the short puts and short calls we sold while we paid a far lower premium for the in-the-money calls we bought.  That's BEING the House!  

Have a great weekend, 

- Phil

 


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  1. Good Morning!


  2. I am really happy to take the money but we are moving up on a China deal that will basically take us back where we were 2 years ago minus the ag sales we might have lost forever to Brazil or whoever. Trade deficits will be just as high or maybe higher (as it is today). But other than that, great win!



  3. I guess hedge funds are heavily discounted now:

    Tough to justify high fees when you barely match market performances!


  4. Good morning!

    Still leaning towards cashing out while we're at the top.

    Big Chart looks good but could be just the middle of a big "M" leg that's forming into the end of the year.

    China/StJ – Our issues with China were IP protection and market access and we could have accomplished those things with International Support but Trump muddied the water with this idiocy about the Trade Deficit.   I buy burgers at McDonalds and they don't buy anything from me so I have a trade deficit with McDonalds – putting a tariff on the burgers so I pay 25% more doesn't fix anything.  MAYBE it encourages me to go to Burger King but it doesn't fix a thing between me and McDonalds.  Also, the intangibles of industrial waste and pollution that we've also exported to China actually outweigh the loss of factory jobs – we just need to develop new industries selling things people want and train the workers to do that - rather than keeping old industries on life support.  

    Hedge Funds/StJ – You don't need to discount when you are +40% for the year!  cool  There are 9 funds that take half the profits – THERE's something to shoot for!

    Aggregate monthly performance for the hedge fund industry slipped into the red in August at -0.31 per cent, the second negative month the industry has seen this year (May was the first), according to the just-released eVestment August 2019 hedge fund performance data.

    Year to date (YTD) 2019 industry performance sits at +6.97 per cent.

     

    In spite of a mix of positive and negative monthly returns among hedge fund types in August, almost all segments of the industry are in the green for performance YTD, highlighting the continued comeback of the industry from 2018, when the industry and almost every segment ended the year in the red.

     

    Managed Futures funds were the big performance winners in August, returning +4.40 per cent last month. And with YTD performance at +12.74 per cent, Managed Futures funds are among the big performance winners for the year so far as well.

     

    China-focused hedge funds dipped into the red in August, returning -0.73 per cent, but with YTD performance at +15.14 per cent they are the strongest performing hedge fund segment eVestment tracks. Russia- and Brazil-focused funds are performing well YTD as well, at +14.89 per cent and +11.37 per cent so far this year.

     

    India-focused hedge funds continued to suffer in August, with returns at -5.95 per cent for the month and racking up -9.69 per cent returns YTD. This continued the pain these funds experienced in 2018, when India-focused funds saw performance at -16.23 per cent.

     

    Macro funds saw average performance of +1.54 per cent in August, bringing YTD performance to +6.55 per cent.

     

    Long/Short Equity funds saw -1.56 per cent returns in August, putting them second to the bottom in performance among primary strategies for the month. However Long/Short Equity funds’ YTD performance of +8.42 per cent puts them among the strongest primary segments in YTD returns.

    Of course, we need to put up a few years in a row like this before we can start claiming to be better than these guys but we've been very steady this year month-to-month and, if CMG (our biggest loser) comes down to earth, we will blow away our year-end goals.

    TLSA is right in our range:

    And NFLX also was a great short:

    Other than those, they are mostly ordinary LTP-type bets, these shorts were really hedges for the fund – in case everything tanked (and we've shorted all of them in our STP too) but most of the trades are typical LTP blue-chip longs on value stocks or butterfly-type plays.  


  5. ROFL!

    https://talkingpointsmemo.com/news/ivanka-trump-moral-compass-father

    When asked about what personality traits the first daughter inherited from her parents, Ivanka Trump said she learned her business savvy from her mother and her “moral compass” from her father, according to Politico.


  6. Good Morning


  7. Moral compass/StJ – Based on that commend I'd lock her up now before she can do too much damage.  

    Sleeping in late, Savi?

    Oil right at $55, /RB coming off $1.55.  /BZ $60.33 should hold $60 so /CL is not a bad long at this line over the weekend – maybe something will blow up?  

    Or at leas the Dollar could come down:

    Honey badger don't care either way:

    I'm liking Sugar (/SB) here at $10:50, fun to play.  /SBH20 takes you into March, catching Christmas and Easter demand and it's $11.96 so it can be played above $12 with tight stops below.

    CANE is the ETF and this is usually the bottom (around $6) and, for the OOP, I'd like to just buy 20 of the Jan $6 calls for 0.60 ($1,200) and see how that goes.

    SOFTS-Raw sugar prices slump to lowest level in almost one year By Reu

    Dealers said October's discount to March SB-1=R was widening as excess nearby supplies remained a major concern despite expectations that the market to tighten slightly in the upcoming 2019/20 season.

    * "The futures market will eventually raise its focus to next year. The October expiry though looms too large for now," said Commonwealth Bank of Australia analyst Tobin Gorey.

    * Some Brazilian mills have canceled sugar delivery contracts with commodities traders at a cost, an operation known in the market as washout, as New York raw sugar futures touch contract lows and make ethanol even more attractive, millers and analysts said. October white sugar LSUc1 , which expires on Friday, was up $1.10 or 0.4 percent at $310.90 per tonne.

    * India's sugar output could fall 20% to the lowest level in three years in 2019/20 after drought last year forced farmers to curb cane planting and as floods this year damaged crops in key growing areas, a senior industry official said on Thursday. December arabica KCc2 fell 1.55 cents, or 1.5 percent to $1.0185 per lb, falling back after the prior session's advance to a 1-1/2 month high of $1.0470.

    * "Brazil has been witnessing dry weather recently which risks impacting the coffee crop, as the flowering season for coffee has started," ING said in a market note.


  8. Phil / SNAP

    What are your thoughts on shorting SNAP chat? The business seems to be tremendously overvalued and continuously losing money. 

    Thanks 

    Pat


  9. can sleep in when I have you doing all the work for my brand new portfolio  ;-)


  10. Phil, just read your OPTT analysis, very good one!.






  11. FCX and CLF have had quite the move.  When should we cover FCX?  (I'm waiting for $10 on CLF before covering any)


  12. I know I am an 'infrequent' poster in this forum  — sometimes I don't feel like I have the knowledge to weigh in on many topics.  I am here to learn so that hopefully someday I can quit my dayjob (another reason why it's hard for me to post).

     

    Anyway — I vote for a portfolio cash-out (although I know this is not a democracy).  My current portfolio is a mix of all the current ones including some of my own plays and I haven't achieved anywhere near the results of the 'since inception.'  There are many reasons for this (under capitalization, not scaling-in properly, ugly futures losses, etc…).  I am squarely to blame – no one else – but I personally would like to hit the reset button at some point and try to get closer to having an OOP type portfolio.

     

    Thank you all for all of your posts.  Even when I can't logon during the day, I make sure I read them every night.


  13. SNAP/Pat – $22Bn at $16 seems like a lot for a company with about $1.5Bn in revenues and $1Bn in losses.  Are they Twitter?  Twitter had $3Bn in revenues last year and made $400M (there was a tax thing that made it look higher) and TWTR is $33Bn at $43.  Even if SNAP keeps growing and becomes TWTR (need to get the President to start snapping!) it would take several years to get to even $200M in profits and a 100x p/e.  There are plenty of companies making actual money we can invest in – why touch them?  From your phrasing – I guess you think they might be a short but I wouldn't short any of these well-known tech companies either – just too dangerous to guess when these runs might end.

    Sleeping/Savi – Sure, that's what I'm here for!  

    Thanks Advill.

    FCX/Palotay – Well they were $14 in April, without the China nonsense so I think they should be good for at least $12 on this run.

    $10 is a good target for CLF

    Portfolios/Jeffl – Well I'm not cashing out so people can mirror our trades but I do want to get back to teaching building, selection and diversification.  At this point, with over 100 positions – even if I really like something I sure don't want to add it to our portfolios.

    As to Futures, Futures should be for fun money ONLY – it's gambling and there's no place for gambling if you are now well ahead of all your other investing goals.  


  14. Teaching / Phil – What might actually be interesting and help some people structure their own trades is some basic rules that you might use. For example, we know that you like to pair a short put with a BCS. In my case, I  would pick a BCS that is already well in the money (my own preference). But how do you settle on the put strike and expiration, how to pick your BCS strikes (looking at support/resistance). What do you look for when it comes to covering (see above with FCX and CLF) – resistance line? I understand that there are different situations but a general setup.

    For example, using the CLF chart above – I see support around $7 so I might sell the Jan 21 8 puts at $1.80 and I see resistance around $11 so I could pair it with an Jan 21 8/10 or 8/12 BCS (no 11 strike). That would be my logic. It's conservative, but that works for me. That's 150% on margin and no cash. And a decent entry if I am wrong. Someone might sell the 10 puts and buy the 10/12 BCS. 


  15. Phil

    Everything you said is 100% correct.  My point isn't that I want to mirror the portfolios although I see how you could take that comment to  mean that (my bad).  After lurking around for quite a while – I have decided I want to adapt an OOP type strategy for my portfolio instead of doing what I have been doing – which is bouncing around from idea to idea – and really accomplishing not much in the long run.  I think I am ready to put into action what I have learned – I just would like to re-start with a clean slate – solely from my own perspective.  If that coincides with you re-setting the portfolios, then even better.  That's all.

    And yes – i do trade futures in a separate 'fun money' account – that I learned right away.


  16. Honey badger really feisty today – popping $2.61 (chart is delayed).

    That's funny as I just read some doom and gloom reports and was thinking "that makes no sense".

    U.S. nat gas price to fall to lowest levels since 1970s – IHS Markit

     

    An oversupply of natural gas in the U.S. will push the 2020 average Henry Hub price down below $2/MMBtu for the year, the lowest average in real terms since the 1970s, IHS Markit says in a new report.

    Despite robust domestic demand and rising levels of exports, it will not be enough to absorb production that has grown by more than 14B cf/day since January 2018, IHS Markit says, expecting U.S. production to average more than 90B cf/day in 2019 and 2020.

    IHS forecasts Henry Hub average gas prices next year will drop to $1.92/MMBtu after coming in at $2.62/MMBtu so far in 2019.

    "It is simply too much too fast," says IHS Markit executive director Sam Andrus. "Nearly all the growth in U.S. natural gas demand over the next few years will come from LNG exported to other countries. The added supply from the Permian will match if not exceed those volumes."

    The number that struck me was 14Bcf/day increased production (IHS report) – that seems like a little much while the export number (+3Bcf/day) is pretty much in-line with expectations:

    Image result for lng exports

    Will we produce 90Bcf/day in 2020?  If this were true, we would be having some massive builds right now and that's not the case at all.  It seems like this is another case of extrapolation to make a BS point as LAST year we produced 8.5Bcf/day more gas but this year it's 3Bcf/day so, in total, call it 11.5Bcf/day more in production but, by the end of this year, we'll be exporting 8Bcf/day more than we did.  In reality, you can see the green line of total production plateaued around 90Bcf/day early this year and is not expected to go up much next year.  

    Storage actually remains in the lower end of the average and, though production may have leveled off, we're going to add another 2Bcf/day of exports over the next 6 months and, of course, the lower the price is, the less production will come on-line and some may actually go off-line – that's completely unaccounted for by the same guy predicting prices below $2 – as if a 30% drop in prices will have no affect on production.

    Sloppy nonsense analysis is used all the time to scare investors out of perfectly good positions – that's why you have to use your own logic and do your own research – reading what someone else says (even me) is not a good substitute for UNDERSTANDING what you are investing in.

    Freeport LNG becomes the fifth export terminal in Lower 48 states to begin operations

    On September 3, 2019, Freeport LNG Development L.P.—the developer of Freeport LNG export terminal—announced the first shipment of liquefied natural gas (LNG) produced from the newly commissioned Train 1 of the three-train Freeport LNG facility. Freeport LNG became the fifth U.S. LNG export terminal in the Lower 48 states to be placed in service since 2016.

    Freeport LNG liquefaction project is located on Quintana Island near Freeport, Texas?about 70 miles south of Houston? and consists of three liquefaction units (called trains) with a combined capacity of 1.98 billion cubic feet per day (Bcf/d) baseload (2.14 Bcf/d peak capacity). Construction of Trains 1 and 2 started in 2014, and construction of Train 3 in 2015. After a series of construction delays, Train 1 achieved its first LNG production on August 19. The second and third trains are expected to be placed in service in January 2020 and May 2020, respectively. The fourth liquefaction train (capacity 0.7 Bcf/d) has been fully approved, but has not yet reached a final investment decision.

    Status of U.S. LNG export facilities (September 2019)

    Weekly natural gas rig count and average Henry Hub

    U.S. energy consumption by source and sector

    Daily U.S. natural gas production estimates and forecasted monthly averages

    U.S. natural gas feedstock to LNG export facilities

    Florida power capacity changes and U.S. natural gas capacity additions

    That's big too – we are using more and more nat gas for power, displacing coal.

    Florida electric utility generation

    That is a BIG uptick in consumption! 

    A 15% jump in electric power consumption from 2017 to 2018 and these are TRILLION Bcf (10.6M Million) and look at the 15% jump to consumers as well.  So, overall, we have about 3Tcf demand growth from 2017 to 2018 which means 3,000 Bcf more /year means we need to produce 9Bcf more/day just to keep up with US demand growth.  That's why the chart is balanced and that's why this author is either an idiot or a stooge paid by fund managers like Cramer (who admitted to this sort of manipulation "all the time") to scare retail investors out of perfectly good positions.


  17. Jeffl, reading through yours and Phil's comments, I can look back at my own, starting with this group.
    The first thing to learn is patience, the most difficult part of the job. Contrary to Phil, who with his BCS takes a very much different road than I, with my stock and option plays. Obviously going BCS, the play is much cheaper. But you always have a limited life time of the option. In my different Ports I hold both of them, a mix which in a way stabilizes my ports. I must say my stock holding could keep me today alive, just on div. alone. But it has taken a long hard road to bring me there. I have given many comments on different plays. Some have worked better than others,
    I feel the present time is extreme unpredictable, and it is hard to follow a role in today’s political environment. In my view there are not to many plays to start a new portfolio now. Only after the world comes to terms with each other, we will find a more foreseeable future. So again be patient with what you have and take it easy on new ventures.
    Playing futures, I am possible to greedy to lose my money, I leave it to Phil, he has a real instinct for it, even if he makes it that easy.


  18. Rules/StJ – We tried that 2 cycles ago and there's a bit too much "it depends" to have "rules" – the "rules" did more harm than good because people started blindly applying them.  Mostly I start with a target price and then decide how sure I am about that price and, even if I am sure, I have to consider how other traders are likely to react to the earnings cycle over the next two years.  

    Of course we want to sell more premium than we buy – THAT is a rule – but I don't always go in the money – mostly when I'm worried the stock may have bumps along the way in which case (using FCX as it's right above), I'd rather take the FCX $10 ($2.45)/15 (0.85) bull call spread for $1.60 than the $5 ($6)/10 ($2.45) bull call spread for $2.55 because FCX is either going to pop on good news so $15 shouldn't be a problem and we'll make 0.95 more, OR something bad happens and it will be cheaper than $2.55 to roll lower, and probably to June 2021 or Jan 2022 and then we'll have a $10 spread for $2.55 + $1.60 and I still believe in the $15 target – it's just that the China nonsense will have dragged on longer than we thought.  

    Copper mines aren't soybeans – you can't just create alternate suppliers by encouraging planting.  Also, FCX is 25% gold and moly and the more China drags out, the more they make on the gold. 

    Then, of course, given my uncertainty about WHEN FCX is likely to recover, I'm less likely to sell a lot of puts, expecting to roll and DD should things go against us.  Fortunately, since we're spending 37% less on the spread, we don't need to sell as many puts.   

    CLF, on the other hand, is a better bargain to me as $8.63 is just $2.3Bn and they dropped $1Bn to the bottom line last year though $500M was tax BS so call it $560M in earnings – still very nice and going forward should easily hit $400M , which is generally their sweet spot:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 3,891 3,373 2,013 1,555 1,866 2,332 2,338 2,287 2,330 -9.7%
    Operating Profit $m 1,380 146.3 544.2 297 224.8 666.4 589.8     -13.6%
    Net Profit $m 413.5 -7,224 -749.3 174.1 367 1,128 1,186 502 420.2 +22.2%
    EPS Reported $ 5.06 7.14 0.68 0.49 1.24 3.42 3.17     -7.5%
    EPS Normalised $ 5.12 9.77 -0.97 -0.038 1.61 3.44 3.25 1.73 1.41 -7.7%
    EPS Growth %   +90.6       +113.3 +55.2 -49.7 -18.5  
    PE Ratio x           2.43 2.57 4.83 5.93  
    PEG x           n/a n/a n/a n/a
    Profitability

    So I'm more inclined to commit to CLF as I'm happy to DD if they should hit another rough patch (like -$7Bn in 2014, though it was write-offs) and I'd rather pay less premium with something like the 2021 $5 ($4)/$10 ($1.50) bull call spread at $2.50 and sell those $8 puts 1:2 for $1.80 so net $1.60 on that $5 spread and I'd consider selling 1/2 the April $10 calls for $1 (now 0.60) to knock another 0.50 off the net and hopefully I can do that twice to net in for 0.60 per $5 spread down the road – then the break-even would be $6.80 – even if assigned (and if the short puts are an assignment threat then I certainly would not have gotten burned on my short calls).  

    So it's all very situational but the key is to SELL PREMIUM and REDUCE THE BASIS but it's all structured on having a very clear target for every single quarter we are planning to own the spreads for and that is VERY individualized so THAT is the Rule:  Know what your stock is worth now, know what your stock's range is likely to be while you own it and know what options will be appropriate to buy for the long-term and which ones you should be selling along the way and when to trigger them.  See, simple!  

    And what Yodi said.  The hardest thing I try to teach is PATIENCE!


  19. In fact, we ditched our previous set of portfolios in November of 2017 and I immediately made a watch list with potential trades.  Take a look at those positions and then look in the LTP to see how long it was before we added them (none at all until Jan of 2018 as we didn't trust the holidays).  


  20. That's another big factor we forget to talk about – TIMING – I try to sell options when they are expensive and buy them when they are cheap.  There are only 2 official rules at PSW and they assume you know the golden rule which is:  SELL PREMIUM!!!  That being obvious, the two actual rules we have are:

    1) ALWAYS sell into the initial excitement.  

    That means sell premium when it's high so you sell calls when a stock is popping and you sell puts when a stock is dropping and you sell your own calls when the stock is popping – we do this constantly in our portfolios but, in order to do this – you have to have cash and margin available for adjustments, which is why we almost never go below 1/2 cash.

    2) When in doubt – sell half.

    In other words, if you don't listen to rule #1 and sell into the excitement – then at least sell 1/2.

    3) If you didn't follow Rule #1 or Rule #2 – WTF are you even bothering to read Rule #3 for since you don't listen anyway!  



  21. And why do I want to cash out the portfolios?  We're selling into the China/Fed excitement.  Chances are that we won't continue this trend and, if we do – then there will be PLENTY of new stocks to trade (see the 5 ideas above as an example).


  22. Really cool Phil! You ended up spelling out rules after all and with some real life examples. I assume that you also have to take into account one's risk aversion in structuring trades. And that AAPL chart also clearly outlines the importance of support and resistance lines as far as timing is concerned.


  23. Well, they are ruleish….

    This is the funniest thing I've seen this week:


  24. Speaking of London, I was looking at long term charts and over the last 5 years, the FTSE is up less than 10% while the S&P is up 50%. Brexit has been very good to British investors! Discounting the fact that the pound is also down 20% against the dollar and about 10% against the euro. Good work all along!


  25. I have 50 OSTK Jan 21 $12.50/25 BCS at net $2.57. Other than waiting what is the strategy for these when they move up so fast? 


  26. When in doubt, there is rule # 2 Jeff!


  27. Rules – I always thought it was

    1. Take the money

    2. Run


  28. Brexit/StJ – Talk about self-inflicted wounds!

    OSTK/Nap -  Well the spread is now $13/8 so just $5 on the $12.50 spread so only "on track" and you are simply regretting not being psychic and going for a shorter time-frame.  There's no need to do anything at all, you have a double and you will double up again if you are PATIENT and, meanwhile, it's hard to imagine how you could be harmed by selling 10 of the Jan $25s for $5.50 ($5,500) and you can sell 10 more at $4.50 ($4,500) and stop 1/2 out at $5 and still be fine as you'll be collecting $10,000 on a spread you only paid $12,850 for.  Do that (just the $5,500) for the next 4 Qs and you'll be well ahead of the game no matter where the stock is.  

    Since that will pay you $22,000 vs cashing out now for $25,000 it's not a big risk to stay in and, of course, we're saying that's what we can do even if the spread ends up being $0 instead of the $62,500 it will be if OSTK holds $25 into Jan 2021.

    Take the money and run/Snow – It's a very similar concept. 

    S&P and Nas closing red – interesting.

    Image result for very interesting animated gif

    Have a great weekend folks!

    - Phil


  29. Jeffl – One thing not mentioned is the use of stop loss orders, and not necessarily hard stops.  I use stops quite frequently.  Despite the fact that you get whipsawed on occasion, in general they have worked well and saved me from some big losses.

    Phil generally uses a different approach.  He'll start with less than a full position, and if he still believes in the stock, he'll add more lower. His approach works well for him because of his expertise in the use of options.  I'm learning more about his approach, but don't have his knowledge or expertise in the use of options, so more often as not I'll limit my loss to about 20%.  If you lose 20%, it only takes 25% to recoup.  Losing much more than that makes it difficult and requires a lot of time to recoup.That creates opportunity cost, tying up those fund trying to get back.


  30. on the OSTK call spread explanation—can someone explain what the sell ,10 25s at 5.50

    and sell 10 more at 4.50smean—maybe I have been away too long but cant figure that out—-thanks


  31. AIMT 

    FDA Panel votes 7-2 in favor of Aimmune's (AIMT) peanut allergy OIT Palforzia for efficacy and 8-1 in favor of Palforzia for safety.

    On Monday, it'll be interesting to see if the stock opens strong, or has a sell the news reaction.


  32. Wow !  I just noticed that the stock re-opened in the after market at $28.80.


  33. Congrats Albo!

    OSTK/Savi – I mean IF it begins to fall and those options go down from $5.50 to $4.50, THEN you can sell 10 more for $4.50 to average 20 @ $5 ($10,000) and then put a stop on half of those at $5.  That way, if it keeps going lower you've collected $10,000 from short calls but if it pops back up, you still have $5,000 from 10 short $25 and you are back to plan.

    Why do we do that?  Because we ALWAYS sell into the initial excitement and, even if you are in doubt – SELL HALF! 

    It's our job to sell premium – if we're not selling premium, we're not doing our jobs taking care of our portfolios.


  34. I'm going over the LTP.

    This was a bit of an understatement:

    BNS – A bit below target and I think too low in the channel so let's sell 5 of the March $55 puts for $5.80 and hopefully we can buy back the 5 short Sept $55 puts for $2 or less into next month's expiration.  

    See, that's just our normal, reflexive moves we make when something is too low in the channel (for no reason that we see).   Those Sept puts are now below 0.20.

    BBBY – We have to assume this is the bottom and roll our 20 2021 $15 puts at $8.75 ($17,500) to 40 of the 2021 $10 puts at $4.50 ($18,000) as it's a more realistic target and we should be able to roll to 2022 $7.50s when they come out.   As it's an even(ish) roll, keep in mind that's net $8 per long (1/2 the original sale as we're doubling down), which is about where the stock is now and we could sell 2021 $7.50 calls for $2.15 to cover those and drop the basis to $5.85, which is why this roll doesn't worry us.

    C – Though I doubt we get there, we may as well buy back the Jan $77.50 calls for 0.37 and we'll wait for a move up to sell more short calls (this position could be in the Butterfly Portfolio as it's pretty reliable). 

    The strength of the portfolios isn't so much the positions as it is the adjustments we make along the way.  We start off with very basic positions but then, over time, as we observe the stock more closely, we begin to figure out their range and we get to know when options are too expensive or too cheap and then we make adjustments accordingly.  That's a big boost to our returns but it's also built right into the model when you plan to SCALE IN from the beginning.

    "You see, it's all clear

    You were meant to be here

    From the beginning" – Lake


  35. Comment content omitted because it is too long.


  36. Remind me to lock in our CMG gains on Monday, please.  

    CMG – I mentioned last month, if CAKE had CMG's valuation, they'd be a $400 stock and if CMG had CAKE's valuation, they'd be an $80 stock – MADNESS!  We added the $700/800 spread to give us more protection to the upside on the short Jan $740 calls and they are now $112 but only $72 in the money so $40 of premium and the June 2020 $800s are $110 so there's one roll and the 2021 $860s are $110 but there should be premium decay and the 2021 $1,000s are $65 – so that's pretty much where we see an eventual roll. 

    If, at any time between now and then, CMG goes down instead of up – we'll cash in a $170,000 gain.  If that never happens and CMG goes up and up, we have $100,000 worth of gains to apply from our longs to rolling them higher but, of course, we'd add more bull spreads along the way too.  

    CMG Long Call 2021 15-JAN 480.00 CALL [CMG @ $787.86 $-17.59] 20 11/20/2018 (489) $180,000 $90.00 $247.50 $57.65     $337.50 - $495,000 275.0% $675,000
    CMG Short Call 2021 15-JAN 540.00 CALL [CMG @ $787.86 $-17.59] -20 11/20/2018 (489) $-133,000 $66.50 $222.00     $288.50 - $-444,000 -333.8% $-577,000
    CMG Short Put 2021 15-JAN 450.00 PUT [CMG @ $787.86 $-17.59] -10 2/19/2019 (489) $-30,400 $30.40 $-16.55     $13.85 - $16,550 54.4% $-13,850
    CMG Long Call 2021 15-JAN 700.00 CALL [CMG @ $787.86 $-17.59] 15 7/8/2019 (489) $232,950 $155.30 $16.70     $172.00 - $25,050 10.8% $258,000
    CMG Short Call 2021 15-JAN 800.00 CALL [CMG @ $787.86 $-17.59] -15 7/8/2019 (489) $-165,000 $110.00 $5.30     $115.30 $-11.70 $-7,950 -4.8% $-172,950
    CMG Short Call 2020 17-JAN 740.00 CALL [CMG @ $787.86 $-17.59] -15 7/8/2019 (125) $-114,000 $76.00 $9.30     $85.30 $-13.88 $-13,950 -12.2% $-127,950

    CMG/Palotay – Wow, what a breakout.  


  37. In the LTP, we have:

    CMG Long Call 2021 15-JAN 480.00 CALL [CMG @ $826.80 $0.00] 20 11/20/2018 (507) $180,000 $90.00 $285.55 $57.65     $375.55 $0.00 $571,100 317.3% $751,100
    CMG Short Call 2021 15-JAN 540.00 CALL [CMG @ $826.80 $0.00] -20 11/20/2018 (507) $-133,000 $66.50 $259.25     $325.75 $0.00 $-518,500 -389.8% $-651,500
    CMG Short Put 2021 15-JAN 450.00 PUT [CMG @ $826.80 $0.00] -10 2/19/2019 (507) $-30,400 $30.40 $-16.75     $13.65 $0.00 $16,750 55.1% $-13,650
    CMG Long Call 2021 15-JAN 700.00 CALL [CMG @ $826.80 $0.00] 15 7/8/2019 (507) $232,950 $155.30 $51.90     $207.20 $0.00 $77,850 33.4% $310,800
    CMG Short Call 2021 15-JAN 800.00 CALL [CMG @ $826.80 $0.00] -15 7/8/2019 (507) $-165,000 $110.00 $37.60     $147.60 $0.00 $-56,400 -34.2% $-221,400
    CMG Short Call 2020 17-JAN 740.00 CALL [CMG @ $826.80 $0.00] -15 7/8/2019 (143) $-114,000 $76.00 $45.50     $121.50 $0.00 $-68,250 -59.9% $-182,250
    CMG Short Put 2021 15-JAN 560.00 PUT [CMG @ $826.80 $0.00] -10 7/11/2019 (507) $-40,000 $40.00 $-11.25 $-40.00     $28.75 $0.00 $11,250 28.1% $-28,750

    The whole thing is net -$35,650 at the moment but, of course, there's $42,400 worth of puts that will expire worthless if CMG doesn't go lower and we have $20,000 left to collect on our $480/540 spread and $60,000 left to collect on our $700/800 spread and the short Jan $740 calls have $20 in premium ($30,000) so, if CMG expires at $843, we pocket another $152,400 and that's being PROTECTED by the short calls, which can be rolled to the 2021 $880 calls at $120 and, by then, we would add 20 of the June 2021 (or probably 2022) $800 ($175)/1,040 ($75) bull call spreads for $200,000 that would pay $480,000 if CMG keeps going up and up and up.  And, of course, we've already cashed in massive gains on earlier calls.  

    These kinds of trades may feel ugly while they are in progress but the "problem" is you have a huge amount of insurance in the short calls and you aren't taking advantage of it by taking long positions they are already able to cover.  

    And you don't have to have too much faith in CMG since the June 2021 $100 spread pays $240 – you can go in a little at a time and the net delta on the $800/1,040 spread is only .26 – so you won't get too damaged if we do sell off while the Jan $700 calls have a 0.78 delta so they lose 3x to the downside and you will gain $60,000 on them at $880 and then you can just roll them again to $960 etc.  All CMG has to do is go down once and you win.

    At $182,250, the short $740 calls are also a nice overall hedge on the market to cover the whole LTP. 

    Inequality/Mike – It's really getting out of hand.  Getting more money out of the bottom 90% is like squeezing a stone so the Top 1% have to start going after the Top 10-1% to increase their wealth now and, eventually, they can only turn on each other.  

    Was -$36,650 on 8/27, now +$70,700 – that's a nice swing! 


  38. In the STP, it was:

    CMG – We could consolidate in the June 2021 $1,020 short calls and, because that's so ridiculous, I find it hard to be worried about the rest.  Over $850 we can just add a June 2021 $900 ($125)/1,100 ($60) bull call spread for $65 to gain $135 upside protection above the short $1,020s.  How crazy would it be if we need that? 

    CMG Short Call 2019 20-SEP 800.00 CALL [CMG @ $787.86 $-17.59] -6 7/29/2019 (6) $-21,300 $35.50 $-29.70 $-133.10     $5.80 $-9.40 $17,820 83.7% $-3,480
    CMG Short Put 2020 17-JAN 700.00 PUT [CMG @ $787.86 $-17.59] -3 7/29/2019 (125) $-7,275 $24.25 $-3.20     $21.05 $1.85 $960 13.2% $-6,315
    CMG Short Call 2020 17-JAN 800.00 CALL [CMG @ $787.86 $-17.59] -3 8/9/2019 (125) $-24,000 $80.00 $-28.15 $-80.00     $51.85 $-10.15 $8,445 35.2% $-15,555
    CMG Short Call 2021 18-JUN 900.00 CALL [CMG @ $787.86 $-17.59] -3 8/12/2019 (643) $-31,740 $105.80 $-16.15     $89.65 - $4,845 15.3% $-26,895
    CMG Short Call 2021 18-JUN 1,020.00 CALL [CMG @ $787.86 $-17.59] -3 8/9/2019 (643) $-21,600 $72.00 $-19.45     $52.55 - $5,835 27.0% $-15,765

  39. We’ll see how it plays out but this might be your most out of nowhere profitable call yet!!!

    “Oil right at $55, /RB coming off $1.55. /BZ $60.33 should hold $60 so /CL is not a bad long at this line over the weekend – maybe something will blow up?”


  40. Missed that one Sunday at 6pm oil should jump at least 2.00 from what I’m reading


  41. CPRI – Hopefully they found a bottom and we can roll the 2021 $30 calls at $5.45 to the 2021 $25 calls at $7.75 for net $2.30.

    FCX – A huge drop since last month as the trade wars continue.  The roll to the $5 calls is $2.80 so I'd rather double down for $1.55 and drop the average cost of the calls to $2.80 and then we can lower those by eventually selling $15 calls for $1.50ish (now 0.50).  The 20 short puts I'm not worried about as that's still our target.

    GNC – They are closing half their stores but it's a good restructuring – just frustrating to hold.  There's no point doing anything with the $2.50 calls but let's buy 100 of the 2021 $1 calls for 0.95 ($9,500) and we'll eventually pay for it by selling, for example 50 of the Jan $2.50 calls, now 0.20 for 0.50.  4 sales like that and we drop the entire cost of the longs.  

    GOLD – We had a stop on 20 of the 40 remaining Jan $10s but way over it now and I think we should just cash all 40 out at $8.50.  

    Works the same way with taking profits.  If the stock gets too high in the channel – find a way to cash out!

    IBM – On track despite the big pullback as we came in cheaply last year.  Let's buy back 10 of the 25 short 2021 $140 calls at $9.80 to give ourselves more upside as well as a better position to sell short-term calls next time they hit $145+.   Also, let's buy 15 of the 2021 $130 calls for $14.40 ($21,600) and that way, next time we get a good pop, we can cash in the $110 calls as they hit $100,000+.  

    Those calls closed Friday at $90,000 so be prepared to cash out next week! 

    IP – Got knocked down as sales missed estimates but earnings were a beat so let's take advantage and buy back the short 2021 $47.50 calls for $1.95 and let's roll our 15 2021 $40 calls at $4.30 ($6,450) to 20 of the 2021 $35 calls at $6.80 ($13,600) so, cash-wise, we're doubling down.

    KHC – It's getting very silly at $25 but was silly at $30 too.  Let's roll our 2021 $30 calls at $1.95 to the 2021 $20 calls at $6.60 for net $4.65 as those are $5.50 in the money – so it would be silly not to take advantage of that.  That way, if there ever is a pop, we can safely sell some calls to help defer the cost of this roll.  We can also roll the 20 short 2021 $40 puts at $15 ($30,000) to 40 short 2021 $27.50 puts at $5.30 ($21,200).  That costs us $8,800 of the $18,000 we collected so still a $9,200 credit is $2.30 per contract and that's a much easier to hit break-even at $25.20.

    So there's not anything brilliant or lucky about this stuff.  Success is about being in the right place at the right time and we're never sure of the right time but, if we're persistent and keep ourselves in a position where we COULD win if the right time comes along – often enough it does. 

    That's why scaling in and adjusting works well over time (usually), we keep adjusting our positions to take advantage of a turnaround and, if we're not horribly wrong, we often end up with a much larger position at the very bottom of the cycle.  

    From the Fundamental perspective, what I look for is a company that is cheap enough where I think an acquisition is justified at that price or 20% lower than it is now – that puts in a pretty reliable floor.  Sometimes things change or sometimes the management has been lying (like HMNY) and the numbers we relied on don't pan out but, USUALLY, if we stick to value stocks, as long as we keep ourselves in a position where we CAN win – we often do.

    Oil/Emike, Bert – Yeah but it's the same thing.  FUNDAMENTALLY we knew the Saudis would do something to support $60 on /BZ due to the Aramco deal.  Last summer they pulled the deal but now they are too far along so their only option is to do SOMETHING to boost the price.  

    Honey badger don't care at all….

    Yemen's Tehran-backed Houthi rebels claimed responsibility for drone attacks and reports of gunfire at the world's largest oil processing facility in Saudi Arabia, military and government spokespersons said Saturday.

    Videos emerged online Saturday morning showing massive fires at Saudi Arabia's Aramco oil processing plant, a hub for global energy supplies. Several international news wires report that it's still unclear if the Buqyaq and Khurais oil field attacks left anyone injured. The Iran government-backed Houthis claimed responsibility and may apply more international pressure on the increasingly strained relationship between the United States and Tehran.

    The Abqaiq, Buqyaq oil facility, the world's largest oil processing plant, is located less than 40 miles from Aramco's Dhahran headquarters. Crude oil sent from the giant Ghawar field is exported to some of the world's largest offshore oil loading facilities. Aramco estimates the Khurais oil field produces more than 1 million barrels of crude oil each day. The plant has more than 20 billion barrels of oil in reserve. Buqyag is about 205 miles northeast of the Saudi Arabia capital city of Riyadh.

     

    The Houthi's Al-Masirah satellite news channel broadcast a message from military spokesman Yahia Sarie saying the rebel group launched 10 drones against the Saudi oil facility. He said similar attacks will continue should the Saudis continue to wage war against them in Yemen.

    "The only option for the Saudi government is to stop attacking us," he said in the Saturday video released after the first reports of the fires.

    Drone attacks!  It's a new World.  I saw that movie about the President being attacked by drones – scary concept – swarms of explosive drones attacking people.  


  42. MT – I'm excited to buy more of this one as we started small, expecting continuing rough times.  It is worth it for us to roll the 20 2021 $15 calls at $1.90 ($3,800) to 40 of the 2021 $10 calls at $4.30 ($17,200) so now we're getting a little bit serious but still a small allocation we wouldn't mind building into if they go lower (but the profits sure wouldn't suck if they don't).  

    Notice what we did is take a very small position around May 20th and we weren't sure it was the bottom but we didn't want to miss out if it was.  Essentially, it put MT on our Watch Closely List and now we're feeling good enough to work up to a 1/4 position but, if they dropped to $7, for example, we'd just spend $2.50 to roll down to the $5s (there are no $5s yet because no one believes it's possible) and that's another $12,000 which would finally take us to $29,200 and an actual quarter position.  

    The thing is, when MT was at $16 and we came in, would we have liked to buy 40 $5 calls for net $7.30 each?  Of course we would have! If MT comes back to just $18, they'd be $13 each for $52,000 and a very nice profit.  $13/share is $13Bn for MT (so easy to keep track of value with 1Bn shares outstanding) and, even in this downturn, they are projecting about $2Bn a year for the next two years.  

     MU - We got a quick win on the short Sept $45 calls so let's take them off the table.  

    And that is why we do that!  If you make 60% more quickly than you should have – you have to realize things do tend to revert to the mean and you are now risking that 60% (and more!) if it flips back the other way and, when there's so much time ahead – it's much more likely things normalize against you.

    NYCB – Moving up in the channel but still too early to sell calls.

    Maybe now!  

    • THC – No changes but what an opportunity as a new trade.  
    • UCTT – Big set-back but earnings were good (small loss) so I'm happy with our position – even the aggressive short puts.  

    WBA – Also finding a floor at $50.  We already went heavy on this one but let's buy back the 2021 $65 calls at $1.70 as that's up 64% already and hopefully we get back over $60 and we can sell calls again.

    Not much of a move but those calls are $3.40 already.  Same logic as the rest – we're up 64% and it will take 18 months to make the last 36% at a rate of 2% a month so there's really almost no risk to taking it off the table and giving it a quarter to see what happens (assuming you are inclined to think things will improve this particular quarter).  

    As it turns out, we knew the risk was about 0.30 of ordinary decay and maybe another 0.30 if WBA went lower but, if it did, we'd have to sell lower calls and roll down anyway.  Meanwhile, the reward is already $1.70 per short call we won't have to pay AND we have the flexibility to sell more calls (or at least some) at $60+

    WHR - Let's buy back those Sept short $140 calls as they are up 85% in a month (because we weren't greedy and sold covers to lock in our gains).   Keep in mind this was only a net $150 cash outlay on the spread and we just made $4,280 in 30 days selling short calls – not to mention the spread is $45,000 in the money but "only" net $16,800 at the moment, so yet another one where we just sit and wait to make 100% on a spread that's already in the money.  

    Again, you never know what is going to happen so just DON'T BE GREEDY and take profits off the table when you can.  


  43. phil

    your crystal ball is hitting on all cylinders

    maybe something will blow up this weekend less than 24 krs later saudi drone attack to affect oil supply

    amazing



  44. Revisiting Andrew Yang




  45. Taliban visits Moscow days after Trump says talks ‘dead’





  46. Bottled Water Is Sucking Florida Dry