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Monday Market Movement – Fed Wednesday, More Tariffs on Sunday

500,000 Jobs!  

That's the NEGATIVE "adjustment" we're going to see in the prior year (March 2018-2019) Non-Farm Payroll report according to the BLS, when they announce their revision in February.  That means that the average job reports have been exaggerated by 40,000 jobs per month.  That's a staggering number – it's a number so large it's never happened before - yet not a peep about it in most of the MSM?  One of the most critical data reports we get in the US is overstated by an average of 20% per month!

None of this, of course, makes any difference to Traders, who are still paying whatever price the market gets marked up to – even while Investors (who are NOT traders) pulled $135.5Bn OUT of the US market so far this year – more than they pulled out in 2001, 2008, 2009 or any other year on record – EVER!

As you can see from the chart, this is no small event and now it's 3 of the last 4 years that money has flowed OUT of the market – even as the market has gotten more and more expensive for those that stayed in it.  We got out in September – cashing in our bloated Member Portfolios and we've only put a small amount of that cash back to work since and perhaps we're being overly cautious but a chart likes this makes me think we're not being cautious enough.

Analysts say the trend highlights investors’ apprehension toward a stock market buffeted by the long-running U.S.-China trade war and lingering worries about a potential recession. Stock funds have bled money over seven consecutive quarters, dating to the second quarter of 2018—when trade tensions between the U.S. and China ratcheted higher.  As much of this money floods into Treasuries, it's also a key factor in keeping rates down (so far, with higher note prices indicating lower rates).  

All this can reverse in a heartbeat and that would be very inflationary, potentially caused by a Trade Deal with China, which could have people running out of bonds and back into the market.  That means we can certainly expect to see some "Secret Santa's Inflation Hedges" for 2020.  We haven't done those since 2017 as there hasn't been any inflation pressure but I think 2020 might be our year and GOLD is already our Trade of the Year for 2020.  

Not only are outflows tremendous but the biggest buyer of US Stocks is still US Corporations, companies buying back their own stocks at ever-spiraling prices – accounting for +$480Bn of the -$135.5Bn of total flows.  Without them, the S&P would be lucky to be at 2,000 – let alone 3,000!  companies can’t sustain the pace of those buybacks, leaving the market potentially vulnerable if other investors don’t pick up the slack. Corporate demand for equities is already down 20% from last year, Goldman said, as tepid earnings growth, along with trade and political uncertainty, have led companies to trim their spending.

Actually, tepid isn't the right word as earnings for all 3 reported quarters this were lower than they were last year and that means we are looking at a potential recession in the next couple of years but, again, Traders DO NOT SEEM TO CARE!  72% of NABE Economists are expecting a Recession by the end of 2021, Goldman Sachs says EVERY SINGLE ONE of their Private Equity clients are preparing for a recession and Morgan Stanley Wealth Management sees the S&P 500 potentially ending 2020 at 2,750, so please forgive me if I keep hammering this point home to my readers but, for a change, I don't think Goldman Sachs is wrong…

Image result for opec + oil cutsThey are wrong about oil though.  This weekend, Goldman raised their 2020 Forecasts on oil to $63 on Brent ($55ish on WTIC) from $60 because OPEC+ agreed to bigger than expected output cuts.  I say that's silly because now OPEC has about 3Mb/day of spare capacity – so why should there be a risk premium in oil as there's almost no possible disruption that can lower the actual availability of oil? 

Imagine you have 6 Slurpee Machines with 3 flavors each and one of the flavors is Lime and it's not selling well so OPEC agrees to turn off the Lime in 2 of their 6 machines – hoping to increase the selling price.  Will that make the price of Lime go up?  Will it make Lime even seem scarce?  You hardly ever see Pina Colada Slurpees but, when you do, you don't whip out your credit card and start bidding do you?  No, because you don't want Pina Colada, you want Coke!  Everyone wants Coke – that's why they are always out of Coke!  

Oil is not Coke but there are tasty alternatives like Natural Gas and Electricity and Hydrogen and, as you can see from the above chart, Oil is starting to look like Lime, with demand down more (3.5Mb) than they are cutting – so there's still a glut and demand goes down by 18 more barrels every time someone trades in a 20 mpg car for an electric car (really, do the math!).  

Tesla is delivering 400,000 cars in 2019 – there's 7.2M barrels of oil that won't be needed anymore but, even worse for OPEC is that EVERY new car gets an average of 35 mpg and that uses 44% less gasline than their old car that gets 20 mpg and we're selling 17M cars a year in the US alone and 90M world-wide so if 90M old cars used 1.6B barrels to go 15,000 miles each (40 gallons/barrel) then, at 35 mpg, the new cars only need 964M barrles – 700M barrels less PER YEAR and OPEC has, so far, only finally stated cutting 3Mb/d (1.1Bn barrels) this year but the problem just keeps getting worse and worse and worse for them – every time a new car is sold…

US light-duty vehicle fuel consumption, 2016–2040

Related image

These are good charts.  It also means $84Bn per year back in the pockets of new car buyers (about $1,000 each) to spend in their own countries instead of sending them out to OPEC and other big oil companies – who are surely rich enough already.  Actually, the Saudi Royals depend on Aramco to provide for their lavish lifestyles and so do their people – who don't really have a lot of other industries – as they never thought this oil party was ever going to end.  We'll have to watch that situation closely.

Of course, civil unrest in Hong Kong, Chile, Argentina, Iraq, Iran… also doesn't seem to bother traders.  Much like 2007 – NOTHING seems to bother traders – until it does…

 


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  1. Good Morning!



  2. I remember the days when CNBC was talking non-stop about the Obama administration manipulating the job numbers before the election. Rick Santelli was floating all these conspiracy theories along with Jack Welsh! Not a word now though… 


  3. Strange:


  4. Well with Phil spooking the market again!!!! One is scared to set up an other trade, but buy a "long" shovel and barry the cash in the garden.

    But I am looking at CMI yes a bit high on the scale, but a good cash flow PE 11.2 a yield of nearly 3%. So take it easy Buy the Jan 22 160 call for 35.50, sell the Jan 20 24 strangle 175/182.5 for 8.10, PM margin 3140.00 and the Dec 19 13 160 call you still could sell for reference to Jan 22 for 20.00, so the sale of two strangles brings your cost down below zero.

    Just for the brave instead of buying a shovel


  5. Good morning!

    Indexes moving up, as usual.  

    Big chart shows move down was a weekly spike to ignore – very strong.  I guess we do need those lines…

    Bonds/StJ – Didn't have that big 60% correction that reset stocks so low midway.

    Spooking/Yodi – Just making sure people are aware of the risks.  CMI is a good one but you know I would wait for a better price.


  6. CMI yes Phil I did mention it is a bit high on the scale but for just getting your feet wet not to bet the farm!!!!


  7. Bonds / Phil – True, but bonds have still been a lot stronger than I would expect. Look at 2019 alone – it's like exponential growth!


  8. AR

    Stock is trading 15% higher today after company announced a deal with Antero Midstream (AM) that reduces AR gathering, processing and transportation costs by $350 mln over 4 years. In addition, AR is planning asset sales to help take down its leverage.

    Up 25% in the last three weeks.

     

    SMLP

    Continuing to look for specs in the distressed  energy space.  This morning I added some SMLP,  The stock is sitting at 52 week lows and yielding 39%.   Distribution coverage was 1.75 last quarter.  Market clearly expecting a distribution cut.  Could cut dividend by 1/2 and still yield  almost 20%.

    Obviously a very speculative !   But at this price,  I'm risking 1/2 size position.

    Comes with 10K.,


  9. GME – New recovery high.


  10. SMLP / Albo – The trend is not your friend there! They have already cut the div in half and they might have to cut it again. Lots of debt, not enough profits. Very speculative indeed. Even with a 40% div, return for the year are way negative.


  11. Stj – Obviously SMLP has lots of debt and lots of warts.  Stock has been given up for dead.  I don't think they are quite dead yet, thus my reason for taking on the risk at 1/2 size.  .

    Think it could be a case of their cutting or eliminating their distribution and the stock going up.  

    We'll see.


  12. Any thought in going long /NG futures?  Quite a drop in the past week or so.  The may contracts are close to their pearly low.


  13. Albo – You have been right often with these bottom feeders! Hopefully this one too!


  14. Out of half of JO. It's been a long time waiting but quite a move from the lows so far.


  15. No farm betting Yodi….

    Bonds/StJ – Yeah, that is very strange for bonds – especially with stocks strong but, as I noted above, money is moving out of stocks and into bonds as if there's a crisis so what's really strange is what's holding stocks up?

    AR/Albo – Still time to get on that one if you like them long-terrm:

    Only a $750M company at $2.50/share and they only lost $878M last Q but they made $978M in Q1 so that's net $100M if you don't mind the ride.  Overall though, still expected to lose $130M on that $750M valuation:

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 1,313 2,681 3,955 1,647 3,656 4,140 4,502 4,342 4,237 +25.8%
    Operating Profit $m 298.6 1,279 1,790 -992.8 738.6 71.9 439.8     -24.8%
    Net Profit $m -18.9 673.6 941.4 -848.8 615.1 -397.5 20.5 -134.5 -123.9  
    EPS Reported $ -0.092 2.56 3.43 -2.88 3.30 -1.26 0.063      
    EPS Normalised $ 0.040 2.55 3.67 -2.70 3.68 -0.11 -0.42 -0.76 -0.33  
    EPS Growth % -76.5 +6,218 +44.0              
    PE Ratio x           n/a n/a n/a n/a  
    PEG x           n/a n/a n/a n/a
    Profitability

    SLMP is another small one but interesting as they just paid an 0.288 QUARTERLY dividend on a $2.90 share price – though they were $5.20 at the time so would have been better off showing a profit and keeping the shares from tanking maybe.  

    And what StJ said!  Sub $1Bn energy companies are being run to pay the executives – not you!  

    The US producers have vastly benefited from OPEC's cuts but there's a glut here too and if we weren't exporting 3Mb/d of refined products out of the country – we'd be swimming in oil over here too.  There's a reason these companies are distressed.

    If you want to make money on an oil company, try XOM at $69.  That's $295Bn for the World's 2nd largest oil company with $270Bn in sales and $12Bn in profits (but they could easily make $20Bn on higher oil prices).  In 2008 and 2010 they collapsed to $60 but recovered from there so $60 is a nice floor so you can do this:

    • Sell 5 XOM 2022 $60 puts for $5.65 ($2,825)
    • Buy 10 XOM 2022 $60 calls for $12 ($12,000)
    • Sell 10 XOM 2022 $70 calls for $6 ($6,000)

    That's net $3,175 on the $10,000 spread so $6,825 (214%) upside potential if XOM can just hang onto $70.  Margin requirement is just $3,000 so a nice, efficient way to make $6,825 if you must play the energy sector and, if XOM does rally early, you can sell a few calls too for extra income.  

    Not for me though, I had enough hassle with OIH going nowhere last year in the Butterfly Portfolio – I'm sick of energy!

    /NG/Jeff – SICK OF IT, I said!!!  angry  There's no catalyst for /NG at the moment.  The weather isn't cold and there won't be any new export terminals coming on line so there's likely a bit of a glut.  We're kind of right in the middle of the range so MAYBE we get that Dec spike we often had but that would be it until March/April so it's just gambling but, if that's what you want -

    I'd keep a stop at the $2.25 line on /NGN20 (July) as you could get 0.05 out of that on any good news and it's $2.255 now, so not much risk ($50) before stopping.

    Working Gas in Underground Storage Compared with Five-Year Range

    That's true – Albo does have a knack for finding those hidden gems….


  16. So much winning:

    https://www.engadget.com/2019/12/09/china-bans-all-government-departments-from-using-us-made-technol/

    The Financial Times is reporting that Beijing has ordered all government institutions and public bodies to get rid of their foreign (i.e. western) computer gear. According to the report, China will spend between now and 2022 transitioning off American hardware and software in favor of local alternatives.[...]

    Companies likely to face pain include Microsoft, who already has a testy relationship with the country, Dell, HP and Apple. Although it's worth saying that, as with any technology product sourced from around the world, what constitutes a domestic product. After all, the FT uses Lenovo as an example: a Chinese company that sources chips from Intel (US) and hard-drives from Samsung (Korea).


  17. SMLP we still have gamblers on this board. I feel my plays are only for grandfathers in comparison.
    I am looking at DK a smaller version of VZ, a 33$ stock positive cash flow low end of the scale yield 3.6% and a PE of 6.7.
    My gamble play is sell the April put vertical 30/25 try 1.15 PM margin 113.00 Max loss 358.00, break even 28.85. Any one complaining????


  18. It's because you are the grandfather of this board Yodi!


  19. Keep quite OLD Man
     


  20. Thanks Phil/NG

    The "five trades to make 25K" included a UNG spread that expires in Jan

    Any thoughts on bailing or adjusting that?

    15/20 BCS with 18 puts sold


  21. Grandfather/Yodi – not that there's anything wrong with that….   ;)


  22. Phil/Yodi,

    On DK, I am looking to do a sell 5 contracts of the Jan 2021 30P for $4.5 if I can get it? A recommendation would be appreciated. Thanks as always.   


  23. Nothing wrong with being a grandfather indeed although not ready for that yet myself!


  24. Even like to set up a poor man's trade on DK

    Buy the Jan21 ( no 22) 25 call for 10.30 and sell the Jan 20 30/35 Strangle for try 1.50 PM margin 360 For comparison Dec 19 25 call sells for 8.45, still with a fraction of premium, so say 8$, means sell two strangles and you home and dry.


  25. Jesu1 I gave you my options did not say anything of Jan21 puts that is STJ department still a lazy youngster's play!!!! I like to put some work in for my bread!!!!


  26. LOL Yodi! Not so young anymore but still lazy!


  27. Yodi,

    Not too confident in my ability to work a strangle to profitability!…..Not lazy, just not comfortable with strangles. So, play it safe with selling puts. Still not completed the 10,000 hours of practice, practice,etc

    But watching your moves and learning!


  28. Jasu1 A strangle or a straddle you need to look at it like a balancing scale. If you lose on the put you will gain on the call and via servers a. The put sale only one has to do with great respect, if it goes against you, you in for the full price of the strike you sold the put for. So do always different checks before you sell puts. I feel happier to sell puts if the stock pays a healthy div. than at least you have a div. paying stock. Looking at my positions of M my stock entry is somewhat 20 thought it would never go lower but as you can see it did. However I still receive my div. and can sell well OTM calls against it for extra cash. Obviously in Phil’s plays you will find he sells normally half the amount of puts in respect to his BCS. But as always your decision your money!
     


  29. Yodi, 

    Thanks for the detail….will read up and become proficient in strangles and straddles to follow your trades.

    Thank you, the education continues with your and Phil's help!


  30. And one thing more remember at a rising stock the long leap caller goes up sometimes not so fast as the short month caller you sold, but still it keeps a balance. With the put sold you hope it does not run against you. The only way to control your loss there is the way I set up the put sale vertical as above on DK, the long put starts balancing some what in proportion to the sale of the higher put. As greater the spread as greater the risk as well as the reward if the stock does not fall apart.


  31. Phil – thanks for the XOM idea. I'm still playing around with my 'hedge cutter' combo trade:

    Buy Jan 2022 XOM long $70 synthetic ($6.28 debit calls / $10.20 credit puts) – so a net credit of  $3.92

    Buy Jan 2022 XOM long $67.5 puts ($9.05 debit)

    Sell Jan 2020 $70 straddle for $3.08 credit

    Net net that is a $2.05 debit for the combo trade.

    So the downside exposure is $2.50, and the upside gain is unlimited – the caveat is that the short term short strangle needs to be successful to pay off the debit. But the premiums look good across the strikes.

    I've bee doing this on a few choice picks (mostly some of the ideas on the board) – remarkably they have all held up well. I have paid for the cost of the hedge within 3-4 option cycles and I've seen good examples of the hedges doing their job, and the long synthetic taking advantage of large upside moves (best example Jan 21 STT $50 long synthetic with the stock now at $75). Most mediocre Jan 21 LB $17.5 long synthetic with a long Jan 2021 $15 put – but the losses on that are manageable and there's plenty of time for it to recover or evaporate (a bit like the LB senior management team). 

    Essentially any profit from the long synthetic is icing on top of the cake of selling monthly straddles or strangles. I went for straddles in the first couple of cycles to generate the maximum of premium. That tends to migrate to selling strangles as you roll the losing side – which has been relatively easy – and you sure do hone your rolling skills as well as get a 'feel' for the way the individual names are traded/manipulated. 

    It took a bit of time to convince myself that the strategy would work – but you certainly get to sleep a little bit easier. It's true that the selling of front month straddles/strangles dials up the risk a bit – a big move up or down can set you back a couple of cycles.

    I think it is an interesting alternative to selling covered calls on long stock – much less capital intensive and a gazillion times more downside protection.

    A classic bull call spread probably achieves defining the risk – (but we never do classics here!) – adding the short put ratchets up the risk – obviously looking back in happiness at the 2008 – 2019 bull market – but if there are stormy times ahead (how could there be?) reducing downside risk is going to be important.

    I need a strategy that I know exactly how it will perform in a down 20%, and then another 20% down after that.


  32. China/StJ – I must be crazy but that certainly doesn't sound like trade talks are going well to me…

    Even if we do get a trade deal but that ban goes into effect – it's a huge loss for the US.  Especially MSFT – where you are forcing a different Operating System to be used in 1/5 of the World.

    UNG/Jeff – That was not one of our "5 Trade Ideas to Make $25,000 in 5 Months" but, if it were – shame on you for not stopping out after that massive spike up in Nov.  

      

    The Jan $15s are still $2.35 and the Jan? $18 puts are $1.80.  I don't know what your entry is but I'd just close it out and play July if you want to stick with the same thing.   I've gone all the way back to Sept and I still don't see a UNG play we called.  In the oil OOP, we closed our a UNG spread on 9/18, but that was 2021 and way ahead.   

    Anyway, as I said before, I'm not seeing any close catalyst for /NG but it is pretty cheap down here but, if you are going to play commodities and not take them off the table when you get a 20% pop – DON'T PLAY COMMODITIES!

    DK/Jasu, Yodi - A reasonable refiner, cheaper than VLO, value-wise but subject to wild swings as they are 1/10th the size too.  Options only go out to 2021 and they are at $33.75 so I'd take $6.65 for the short $35 puts and that nets you in for $28.35 so let's say that's 1x and you get assigned and then you sell the 2022 $30 calls for $5 (the current price of the $35s so realistic) and maybe the $25 puts (now $2) for $3.50 and then your net would be $20/22.50 if assigned 2x.  If you don't mind owning 2x at $22.50 (1/3 off) then there's no reason not to sell the $35 puts for $6.65 now, is there?  

    Of course, that's probably what someone thought at $44!  

    This is why I wait, PATIENTLY, to buy stocks on my Watch List that have fallen to the LOWER part of the channel.  If they aren't on sale – why should I buy them?

    Hedges/Winston – They are great ways to play but more complicated than I like to get into, other than occasionally with the Butterfly Portfolio. It's been a nice flattish market, that helps a lot.  Not week to week flattish but, over the long run, things are pretty well-behaved.  The key is you are selling a ton of premium – that's the best way to start any trade idea.  I agree we'll have to do more of that stuff if the market starts falling apart but we made it through 2008/9 so I think we'll manage (and notice we have very few short puts at the moment in our Portfolios). 


  33. Things are slipping.  


  34. And my news feed is broken – that's annoying…  

    Takes all the fun out of reading the news if I can't share it but you can look here: https://flipboard.com/@philstockworld/market-moving-news-by-philstockworld-culoaf4pz

    71,000 news stories!  That seems like a lot….  Let's see, 5 years is 1,500 days so no, I guess not…


  35. Phil/UNG-

     

    You are correct – my bad.  It was a play from late July (my trade date is 7/26)-  I'll try to find it exactly somewhere.  It was way ahead for a while and I should have cashed at least some of it out.


  36. Phil,

    Thanks for the DK 35 Put, trade…..Easy/Peasy , providing also for a peaceful night's sleep!



  37. DK Thanks Phil for your work on it. Obviously a fellow selling a put at 44 must have been foolish.

    Always a great risk selling a put when the stock is on top of the scale. I do not feel too comfortable selling the 35 put well ITM even as you show the premium is high. I will stick to my poor man's play and take it easy.


  38. Volcano eruption on New Zealand’s White Island leaves at least five dead



  39. Oh, it looks like they fixed the news feed.

    UNG/Jeff – July makes more sense.  

    DK/Jasu – It's a low process but I love starting my trades out with short puts like that.

    Puts/Yodi – As noted, it depends on if you like them enough to own them.  If so – easy decision to take a bit of risk for another 20% annual gain.

    Jefferies to pay $4M under SEC's pre-released ADR probe

    • About a year ago JPMorgan Chase and Citi settled with the U.S. Securities and Exchange Commission over charges that they improperly handled pre-released American Depositary Receipts. Now it's Jefferies Financial Group's (JEF -0.7%) turn.
    • The firm will pay almost $4M to settle the charges.
    • The SEC’s order finds that Jefferies improperly borrowed pre-released ADRs from other brokers when Jefferies should have known that those brokers didn't own the foreign shares needed to support those ADRs. The order also finds that it failed to reasonably supervise its securities lending desk personnel concerning borrowing pre-released ADRs from these brokers.
    • This is 14th SEC enforcement action against a bank or broker resulting from its investigation into abusive ADR pre-release practices, which has thus far resulted in monetary settlements of more than $431M.

    Nestle makes an energizing move

    • Nestle (OTCPK:NSRGY) plans to introduce next-gen water products in 2020.
    • A Poland Spring energy water drink to be introduced will contain the same amount of caffeine as a cup of coffee using green tea extract.
    • The company is also launching Nestle Pure Life Plus, with versions featuring magnesium, zinc and potassium. Nestle Pure Life Plus will come without artificial sweeteners or sugar.
    • Nestle is making the water moves with the percentage of consumers who drink bottled water with their meals at an all-time high.

    Target wins award after stellar year

    • Target (TGT +1.6%) is named Yahoo Finance's 2019 Company of the Year.
    • "Despite a dizzying series of investments in stores, people, process and product over the past three years, profit margins have magically sprung to life," notes YF Editor Brian Sozzi.
    • Sizzling sales tallies have helped push shares of Target to a +88% YTD gain.
    • The average sell-side price target on Target is $135.92, about 7% above the current share price.

    Germany post a 1.2% surprise upside in exports

    • Germany recorded a surprise 1.2% rise in exports, beating estimates of 0.7% fall, boosting GDP chances to end in positive territory.
    • Industrial data has been disappointing in the last week and order books are still the concern.
    • The seasonally adjusted trade surplus is at €20.6B beating estimates of €19B.

    Juul slashes its own valuation

    • Altria (MO +0.5%) is on watch on reports Juul (JUUL) lowered the valuation on itself to $24B at the end of Q3 from the previous valuation of $38B.
    • Juul's CFO referenced changes in market conditions in an internal memo on the valuation cut.
    • Separately, Tiger Global Management cut the valuation on its Juul stake by 50% to $19B.

    Goldman to arrange some WeWork debt financing

    • Goldman Sachs (GS -1%) is arranging a $1.75B line of credit as part of SoftBank Group's (OTCPK:SFTBY +0.7%) plan to come up with $5B in debt financing for WeWork's (WE) bailout, Bloomberg reports, citing people with knowledge of the matter.
    • The new credit line will replace existing facilities that total ~$1.1B and is expected to free up cash that's being used as collateral in the existing letters of credit.

    Xerox makes pitch to H-P shareholders, eyes $1.5B sales growth taret

    • Xerox (XRX -0.8%) says it has started meeting today with HP (HPQ +0.2%) shareholders to make the case for its proposed $33B merger of the companies.
    • In a new investor presentation, XRX argues the combined company would be worth ~$31/share to H-P investors on a pro-forma basis and would generate $4B-plus in free cash flow in the first year before taking any synergies into account.
    • XRX already has said it sees the combination creating ~$2B in synergies, which could be achieved in 24 months; the new presentation goes further, saying a merger would allow cross-selling and a unified platform for clients which could yield $1B-$1.5B in revenue growth.
    • H-P last month rejected XRX's unsolicited, cash-and-stock offer worth $22/share, arguing it undervalued the company, which prompted XRX to say it would take its case straight to H-P shareholders.

    Home purchase sentiment index rebounds in November – Fannie Mae

    • The Fannie Mae Home Purchase Sentiment Index increased 2.7 points in November to 91.5, reversing October's decline and approaching the survey high set in August.
    • Three of the six HPSI components rose M/M, including large increases in the percentage of Americans who believe it's a good time to buy and that home prices will go up over the next 12 months.
    • The lean supply, especially in the starter home market, "means the recent mortgage rate decline – holding payment size constant – allows borrowers to increase bid prices for homes," said Doug Duncan, Fannie's senior vice president and chief economist. "As a result, home prices are propelled higher, mitigating the benefit of lower borrowing costs for many borrowers."
    • Duncan also notes that a rising savings rate may indicate that consumers are becoming more financially conservative.
    • "Looking ahead, we continue to expect a steady but modest pace of growth in home purchase activity," he added.
    • Homebuilder stocks are rising; the iShares U.S. Home Construction ETF (BATS:ITB) gains 0.4%; by name, KB Home (KBH +1.9%), NVR (NVR +1%), D.R. Horton (DHI +0.8%), Lennar (LEN +0.8%), and Toll Brothers (TOL +0.7%)

    China sets up state pipeline firm to boost competition – report

    • China has set up a national oil and gas pipeline company, as the government attempt to improve competition after being under the control of three state oil groups, state new agency Xinhua reports.
    • The new company reportedly would to manage most of the China's pipeline infrastructure, controlled by China National Petroleum Corp. (NYSE:PTR), Sinopec (NYSE:SNP) and Cnooc (NYSE:CEO), some underground natural gas storage and several liquefied natural gas terminals.
    • CNPC owned 63% of China's mainstream oil and gas pipelines, while Sinopec and Cnooc controlled 31% and 6%, respectively, at the end of 2018.

    Comcast putting $2B into Peacock streaming

    • Comcast (CMCSA -1%) will pour $2B in investment into its Peacock direct-to-consumer video offering in the first two years, its chief financial officer says.
    • Speaking at a UBS conference, CFO Michael Cavanagh also said the company forecasts the service to break even by year five.
    • In line with other streaming launches, Cavanagh notes early spending will be focused on content and marketing, but he distinguishes Peacock from rivals in saying their approach means lower near-term losses.
    • The service will be free for Comcast subscribers and priced tiers for non-customers, and advertising will be involved – but so far, no news about how ads will relate to the tiers of the service.
    • Comcast has set an investor meeting for Jan. 16 to discuss strategy in more detail.

    Consumer expectations for inflation tick up, for spending slides

    • The New York Fed's November Survey of Consumer Expectations shows medium-term inflation expectations rising from a series low in October — to 2.5% from 2.4%.
    • Median one-year ahead expected price change in gas, medical care, college education and rent all fell in November; expected price change in medical care reaches a series low at 5.9%.
    • Consumers surveyed remain optimistic about the labor market, as the mean probability that the U.S. unemployment rate will be higher one year from now falls by 2.2 percentage points to 34.6%, its lowest level since September 2018.
    • Spending growth expectations, though, fall to a two-year low with median household spending growth expectations declining to 2.8% vs. 3.3% in October.

    Netflix dazzles with 34 Golden Globe nominations

    • Netflix (NFLX +0.2%landed the most Golden Globe film nominations and TV nominations in what is setting up to be a strong awards season for the streamer.
    • Martin Scorsese's The Irishman landed five nominations on the film side, while The Crown and Unbelievable both landed four on the TV side.
    • Three of the five films nominated for best motion picture drama were from Netflix, with Marriage Story and The Two Popes joining The Irishman.
    • Netflix landed a total of 34 film/TV nominations to easily top HBO (15), Sony (8) and Disney (6).

    Intel shows off cryogenic control chip

    Image result for intel cryogenic horse ridge

    • Intel (INTC +0.1%) has unveiled a first-of-its-kind cryogenic control chip – code-named Horse Ridge (after one of the coldest spots in Oregon) – that will speed up the development of quantum computing systems.
    • That central part of a quantum machine uses what are known as "qubits," which must be kept very cold – near the temperatures where atoms stop moving – though that makes it very difficult to connect the wires needed to to send and receive information.
    • Intel's control chip enables control at very low temperatures, eliminating hundreds of wires going into a refrigerated case that houses a quantum computer.

  40. What gives? Investors scurry from stocks

    • via Michael Wursthorn at the WSJ
    • Investors have yanked $135.5B from U.S. stock-focused mutual funds and ETFs this year – the largest exit ever, according to Refinitiv Lipper.
    • This comes alongside what's shaping up to be the market's best year since 2013 (S&P 500 is up 25% YTD in 2019).
    • The money has gone into bond and money-market funds, both of which have seen substantial positive flows this year.
    • Contrarian equity bulls aren't complaining. "There’s not a lot of faith in this market," says Wells Fargo's Scott Wren. "There’s no chasing going on."

    Mexican peso gains after news of USMCA breakthrough

    • The Mexican peso reaches a session high after a report that the White House and House Democrats are close to a revised North American trade agreement.
    • AFL-CIO President Richard Trumka told the Washington Post that there's a deal and he plans to meet with his executive committee this afternoon to discuss it.
    • The peso rises 0.3% against the U.S. dollar, while the Canadian dollar is up 0.1% vs. the greenback.
    • The Democrats have been pushing for stronger enforcement mechanisms and protections for labor than were included in President Trump's U.S.-Mexico-Canada Agreement reached a year ago.
    • The agreement must be ratified in all three countries before it can take effect.

    Virgin Galactic +13% after Morgan Stanley call

    • Virgin Galactic (NYSE:SPCE) rallies after Morgan Stanley's bullish thesis on the space stock circulates investor sentiment.
    • Morgan Stanley analyst Adam Jonas has an interesting sum-of-the-parts analysis on Virgin Galactic.
    • "We believe the addressable market for space tourism, while niche, is supported by a range of industries (e.g., yacht charters and luxury cars). While some investors have described high-speed hypersonic P2P air travel opportunity as 'the icing on the cake', we see Hypersonic as both the cake and the icing, with Space Tourism as the oven. We value the space tourism business at no more than $10/share," writes Jonas.
    • "The third phase of the VG business model involves hypersonic P2P travel, where we forecast ~$800bn in annual sales by 2040. For VG, the billions in investment and decades of work associated with building vehicles and launching spaceships should position it favorably," he adds.
    • The Morgan Stanley price target of $22 price target consists of the $10 per share for the space tourism business and $12 per share for the Hypersonic opportunity.
    • The bull case valuation on Virgin Galactic is $60 reflecting "full valuation" of Phase 3 and the bear case scenario leads to a price target of $1 off safety or market acceptance issues.
    • Shares of Virgin Galactic are up 12.95% to $8.40 on volume of over 2.65M vs. the daily average of 2.47M shares.
    • Previously: Rocket ride for Virgin Galactic after Morgan Stanley initiation (Dec. 9)

    PG&E jumps to two-month high on $13.5B settlement

    • PG&E (PCG +16.7%surges in early trading following Friday's announcement that it reached a $13.5B settlement with victims of 2017 and 2018 wildfires ignited by its power lines, a major step toward resolving its bankruptcy case.
    • The utility said it also received more than $12B in equity backstop commitments to support the settlement and its plan of reorganization.
    • PG&E discloses it will take a related $4.9B pre-tax charge in the current quarter; it previously took a $2.5B charge in Q3 for estimated third-party claims related to 2017 wildfires and 2018 Camp fire.
    • The deal reportedly could force the group of bondholders, led by Elliott Management and Pacific Investment Management, who want to take over the company to re-evaluate their legal strategy.

    Former Fed head Paul Volcker dies

    • Paul Volcker, who served as Fed chairman from 1979 to 1987, has died at the age of 92.
    • He helped to tame inflation in the 1980s and in 2008, in response to the housing-market collapse, formulated the Volcker Rule, which sought to mitigate risks at commercial banks by distinguishing risky proprietary trading from market making and hedging.

    Morgan Stanley sees pricey growth stocks as greatest risk

    • As 2019 winds down, bank strategists look to what the past year's developments portend for 2020.
    • Morgan Stanley's chief equity strategist Michael Wilson writes "the greatest risk in the equity market remains in growth stocks where expectations are too high and priced."
    • By sector — that means consumer discretionary and "expensive software and secular growth stocks."
    • Still favors defensive, reliable stock picks — in other words, consumer staples, utilities, and financials.
    • His hedge against better-than-expected growth are banks, as they would benefit if rates rise. However, if growth disappoints, the Fed could cut its benchmark rate and the yield curve could steepen, helping to boost lending margins.

    China Renaissance bullish on Apple

    • China Renaissance initiates coverage on Apple (NASDAQ:AAPL) with a Buy rating.
    • The view from the Beijing-based firm on Apple is that the hardware business is still a cash cow given the company's leading position in the high-end market with the iPhone and revenue is still stable in the iPad and Mac segments.
    • Analyst Jason Sun sees other revenue potential from wearable and services products outside of airpods and the Apple Watch.
    • "Apple is expected to launch its AR Glass early next year, further diluting the revenue contribution from the traditional hardware business. Meanwhile, unlike major Chinese peers whose services revenue is largely reliant on advertising and games, we believe Apple's services revenue generation base is more stable and diversified. With a steadily growing user base and large upside potential on ARPU given the diversified sources, we expect services to be a strengthening pillar of growth for Apple," notes Sun.
    • China Renaissance's price target of $342 is 25.7X the FY20 EPS estimate and well-above the average sell-side PT of $260.63.

    Apple on watch as tariff deadline approaches

    • Wedbush updates on the "make or break" week for Apple (NASDAQ:AAPL) and tech as the December 15th tariff deadline approaches rapidly with a U.S.-China trade deal tantalizingly close.
    • "Apple has the most to lose/gain from the December 15 line in the sand. With ~40% of iPhones sold globally coming out of the US, the additional 15% tariff set for December 15th would ultimately result in a ~4% hit to EPS or roughly $0.50 in FY20 if the tariff ultimately went into effect without any exemption. To this point, the first and major question on the minds of investors is around if Apple will fully absorb this tariff from iPhones and other hardware (Macs, iPads, AirPods) produced from its flagship Foxconn factory in China if this tariff situation heads into 2020 or instead directly pass the incremental costs to consumers which will modestly dent demand in the US," writes analyst Dan Ives.
    • "We believe the overall China tariff/demand situation represents an overhang on Apple shares and will remain a lingering dark cloud over the story and semi names until a deal is done, although our Cupertino bull thesis and SOTP services growth story remains unchanged. Our near-term take continues to be closer cooperation and negotiations around the growing IP theft issue is a potential long-term positive for US tech vendors and remains the key issue that needs to be smoothed out this week between US/China before Trump signs on the dotted line," he adds.
    • Wedbush maintains its Outperform rating on Apple and a price target of $325. The firm thinks Apple and other tech stocks will have another +5% "relief rally" at the end of the year if a trade agreement is struck before the key December 15th deadline.
    • AAPL -0.21% premarket to $270.15.

    Canadian Solar authorizes $150M share repurchase program

    • Canadian Solar (NASDAQ:CSIQ) authorized a $150M share repurchase program for a six month period beginning December 9th, 2019 and ending June 8th, 2020.
    • CSIQ +0.8% premarket to $18.51
    • Source: Press Release

    Chevron downgraded at Citi as safe haven status 'overplayed'

    • Chevron (NYSE:CVX-0.8% pre-market after Citigroup downgrades shares to Neutral from Buy with a $120 price target, trimmed from $135, saying the company's status as a safe haven within the energy sector may have been "overplayed."
    • Citi's Alastair Syme says CVX has benefited from balance sheet strength and clear capital allocation but believes there is now little difference with Exxon Mobil after CVX shares have outperformed.
    • "Anemic returns and signs of problematic project execution reflect growing complacency across the peers," Syme writes.
    • CVX's average Sell Side Rating is Bullish, while both its Seeking Alpha Authors' Rating and Quant Rating are Neutral.

    Largest truckload bankruptcy in history

    • The trucking bloodbath continues as Celadon (OTCPK:CGIP) prepares to file for bankruptcy protection under Chapter 11 no later than Wednesday, internal sources told FreightWaves.
    • It's poised to be the largest truckload bankruptcy in history, with the company employing more than 3,200 drivers and taking in more than $1B in gross revenue as recently as 2015.
    • More recent numbers are difficult to come by because Celadon had to restate its financial reporting after mismanagement and a complex accounting scandal led former executives to be indicted on Dec. 5.

    Weighing The Week Ahead: The Never-Ending Rally 

    Toronto-Dominion Bank Attractive Post Price Decline

    Macy's -3% after Goldman Sachs cut

    • Shares of Macy's (NYSE:M) break lower after Goldmans Sachs drops the department store stock to a Sell rating after having it slotted at Neutral.
    • The firm doesn't see significant upside value creation from more real estate plays.
    • Goldman's price target of $12 on Macy's reps more than 20% downside potential and is below the average sell-side PT of $16.19.
    • Macy's is down 2.71% in premarket action to $14.74.

    Constellation's David Klein named Canopy Growth CEO

    • Constellation Brands (NYSE:STZ) CFO David Klein will take over leadership of Canopy Growth (NYSE:CGC) as of January 14.
    • Interim Canopy chief Mark Zekulin will step down from that role and give up his board seat, effective Dec. 20.
    • Source: Press Release
    • CGC +2.7% premarket

    China makes move against foreign tech – FT

    • China's Communist Party has ordered all state offices to remove foreign hardware and software within three years, FT reports, in a move which could hit Microsoft (NASDAQ:MSFT), Dell (NYSE:DELL) and HP (NYSE:HPQ).
    • Substitutions will take place at a pace of 30% in 2020, 50% in 2021, and 20% the year after, earning the policy the nickname "3-5-2."
    • Earlier this year, Washington banned U.S. companies from doing business with China's Huawei, and expanded its blacklist in October to include a number of Chinese surveillance firms like Hikvision.

    Big Tech may pose risk to financial stability – FSB

    • In a new report released Sunday, the Financial Stability Board called for "vigilant monitoring" of the tech industry's shift into financial services.
    • "The risks are similar to those from financial firms more broadly, stemming from leverage, maturity transformation and liquidity mismatches, as well as operational risks."
    • They would also crimp the ability of banks to generate capital through retained profits, while widespread access to customer data may mean that Big Tech could dominate the market for certain services.
    • See the full report here

    Disney reaches $10B at global box office

    • Frozen II pushed the studio past the milestone this weekend by bringing in another $125M worldwide.
    • Disney (NYSE:DIS) already broke the annual global box office record back in July, as the Lion King remake pushed the company past its own $7.6B record set in 2016.
    • It's also pretty remarkable as Disney reached the mark without the help of recently acquired 20th Century Fox (which grossed $2B at the box office this year), or Star Wars, which will likely provide another $500M+ before the end of 2019.

    Hong Kong protests mark six-month anniversary

    • Hundreds of thousands of black-clad protesters thronged the streets of Hong Kong on Sunday, ahead of the six-month anniversary marking anti-government unrest.
    • Authorities gave the green light to Civil Human Rights Front to hold the rally for the first time since August 18, while the city appealed for calm, saying, it had "learned its lesson and will humbly listen to and accept criticism."
    • The Hang Seng Index is down 4% since the protests ramped up in June, with around 6,000 people arrested and hundreds injured, including police.

    Trade data out of China

    • China's exports dropped 1.1% in dollar terms in November from a year earlier, while imports rose 0.3% (the first Y/Y growth since April), resulting in a trade surplus of $38.73B for the month.
    • "If a phase one trade deal is struck and there is no further escalation of U.S.-China trade tensions, the drag on China's exports from higher U.S. tariffs will likely ease through 2020," said Sylvia Sheng, global multi-asset strategist at JPMorgan.
    • Imports from the U.S. rose for the first time since August last year, with the China's trade surplus with the U.S. for November standing at $24.6B, easing from the previous month's surplus of $26.45B.

    Fed balance sheet reaches $4.07T

    • The Federal Reserve's balance sheet expansion continues as $72.8B in temporary liquidity was added to financial markets on Friday.
    • While repo interventions have become mainstream since mid-September, when short-term rates unexpectedly shot up, Fed Chair Jerome Powell has maintained the ongoing program is not quantitative easing, though some believe the central bank is in effect implementing round four of QE.
    • On Thursday, the Fed reported that its balance sheet had risen from $3.8T in September to $4.07T.

    Bluebird bio's LentiGlobin gene therapy shows significant effect in SCD study

    • New data from an ongoing open-label Phase 1/2 clinical trial, HGB-206, evaluating bluebird bio's (NASDAQ:BLUE) LentiGlobin gene therapy in sickle cell disease (SCD) patients showed a significant treatment benefit. The results were presented at ASH in Orlando.
    • Participants in Group C (17 treated thus far) continue to produce high levels of gene therapy-derived anti-sickling hemoglobin, HbAT87Q, accounting for at least 40% of total hemoglobin in those with six or more months of follow-up. Cherry-picking the data, nine patients with at least six months of follow-up who had at least four vaso-occlusive crisis (VOC) or acute chest syndrome (ACS) events in the prior two years experienced a 99% reduction in annualized rate of VOC and ACS with no reports of such events up to 21 months post-infusion. 
    • At data cutoff, 78% (n=7/9) of patients in Groups A & B had not required red blood cell transfusions post treatment.
    • No new safety signals were observed.
    • LentiGlobin is designed to add functional copies of a modified form of the β-globin gene (βA-T87Q-globin gene) into a patient’s own hematopoietic (blood) stem cells. Once patients have the βA-T87Q-globin gene, their red blood cells can produce anti-sickling hemoglobin which decreases the proportion of sickled hemoglobin and lessens SCD complications. 
    • A long-term follow-up study, LTF-303, in SCD is ongoing with an estimated completion date of March 2031.
    • A Phase 3 trial, HGB-210, should commence next quarter.

    Disney plots next-gen Star Wars

    • Disney (NYSE:DIS) plans to reassess its overarching Star Wars strategy after the final film of the current trilogy finishes its theater run.
    • The trick of late for studio execs has been how to make Star Wars movies that simultaneously move the story forward while also catering to loyal fans' nostalgic needs.
    • Looking ahead, Disney CEO Bob Iger has stated that he wants the next set of movies to be more accessible to common moviegoers unburdened by decades of Star Wars memories.
    • "You can't make everyone happy," noted Iger in what could be an indication of a strategy shift. There's some speculation that the new Stars Wars movies tentatively scheduled for 2022, 2024 and 2026 could go in new directions untethered to the existing mythology. The positive reception to streaming series The Mandalorian has been encouraging in that sense.
    • Star Wars: The Rise of Skywalker opens on December 19, two years after The Last Jedi brought in $620M at the U.S. box office and four years after The Force Awakens churned up $937M. Together, the last two films generated over $3.3B globally, which isn't that far off from the $4.0B that Disney paid for Lucasfilm.

    U.S. oil firms vented or flared record amount of gas in 2018

    • Oil companies are burning a record amount of natural gas instead moving it to market and selling it, according to a new report from the U.S. Energy Information Administration.
    • The volume of U.S. natural gas (NYSEARCA:UNG) reported as vented and flared reached its highest-ever average annual level of 1.28B cf/day in 2018, the EIA says, adding that the percentage of gas vented and flared rose to 1.25% from 0.84% in 2017.
    • At the current market price of $2.41/MMBtu, ~$1.1B worth of natural gas was wasted during the year.
    • Texas and North Dakota accounted for 51% and 31%, respectively, of the total U.S. vented and flared natural gas.
    • Pipeline operator Williams (NYSE:WMBrecently filed an anti-flaring lawsuit against the Texas Railroad Commission, arguing the state agency grants flaring permits too easily instead of requiring oil producers to move it to market.

  41. China / Phil – And it's not like they can switch to Mac for O/S! It would be Linux and all kinds of open source software. Of course, they would have a lot more control over the O/S and maybe one day we'll have an official Chinese Gvt Linux distro with web filters built-in! But in the meantime, this is a market potentially lost forever! These big tech guys should be shoveling money to opponents of Trump. Even a wealth tax would do less damage than losing 20% of the world market!


  42. Let's see:  Crypotcurrency, Solar Energy, Hydrogen Fuel Cells, Quantum Computers, Virgin Galactic, Gene Therapy… 

    I'd say the Future is Now!

    Image result for the future is now animated gif


  43. M came right back off that downgrade – $15 looking very solid as a floor!

    Talk about a no-brainer investment.  Would have been my stock of the year except for the stunningly negative sentiment possibly causing eventual credit issues.  

    We have them in the Dividend Portfolio (pays $1.51/share!  Next payment is 12/12 – my Dad's Bday…):

    M Macys Inc. 2000 10/30/2019 40 $30,000 $15.00 $0.47 $15.00     $15.47 $0.32 $930 3.1% $30,930
    M Short Call 2022 21-JAN 15.00 CALL [M @ $15.47 $0.32] -20 10/30/2019 (774) $-6,500 $3.25 $0.03     $3.28 - $-50 -0.8% $-6,550
    M Short Put 2022 21-JAN 13.00 PUT [M @ $15.47 $0.32] -20 11/1/2019 (774) $-7,600 $3.80 $-0.58     $3.22 $-0.23 $1,160 15.3% $-6,440

    We also have them in the Hemp Boca Portfolio (still playable if you like getting up to $10,500 back on a net $1,037 entry that's currently $3,750 in the money):

    M Long Call 2022 21-JAN 13.00 CALL [M @ $15.47 $0.32] 15 11/20/2019 (774) $6,225 $4.15 $-0.05 $3.72     $4.10 $0.09 $-75 -1.2% $6,150
    M Short Call 2022 21-JAN 20.00 CALL [M @ $15.47 $0.32] -15 11/21/2019 (774) $-3,075 $2.05 $-0.13     $1.93 $0.13 $188 6.1% $-2,888
    M Short Put 2022 21-JAN 15.00 PUT [M @ $15.47 $0.32] -5 11/20/2019 (774) $-2,425 $4.85 $-0.40     $4.45 - $200 8.2% $-2,225

    I would add it to Money Talk if I could but we can add it to the STP (now up 61.6%) so let's:

    • Sell 20 M 2022 $15 puts for $4.50 ($9,000)

    Why?  Because who doesn't like $9,000 for doing nothing but promising to buy M for $10.50?  Ordinary margin is $5,253, which is high but still – not bad for $9,000.


  44. STJ/VXX – Can you comment on when you decide to close your short calls?  I'm not sure if I have asked you this before or not.  It is a tough balance between taking early profits (I was showing a 20-25% gain late last week after only a few days), so you can reload during the next spike, versus waiting to let the theta decay do its work.  I closed mine a little too early after the spike in the summer, and went a few months without having the play on, which required patience.  Do you have a rule of thumb that you have been using?


  45. My rule of thumb, Palotay, is that I don't make 1,000% a year so any time I make 20% in a week – I have to have a damned good reason not to take it off the table!  


  46. A long-awaited report by the Justice Department’s inspector general released on Monday sharply criticized the F.B.I.’s handling of a wiretap application used in the early stages of its Russia investigation but exonerated former bureau leaders of President Trump’s accusations that they engaged in a politicized conspiracy to sabotage him.

    Will be interesting to hear the GOP spin on this.


  47. X / Phil -  With X at $14.13, any thoughts on the March 20 $14 calls we sold, half of which are uncovered?  

    Shouldn't we be panicing….how do we remain calm?


  48. X/Vidt – Panicking?  ROFL!  I guess you mean the Butterfly Portfolio play:

    X Long Call 2022 21-JAN 10.00 CALL [X @ $14.13 $0.19] 40 11/26/2019 (774) $23,800 $5.95 $0.10 $5.95     $6.05 $0.25 $400 1.7% $24,200
    X Short Call 2022 21-JAN 17.00 CALL [X @ $14.13 $0.19] -30 11/26/2019 (774) $-9,450 $3.15 $0.18     $3.33 $0.19 $-525 -5.6% $-9,975
    X Short Put 2022 21-JAN 12.00 PUT [X @ $14.13 $0.19] -20 11/26/2019 (774) $-6,600 $3.30 $-0.15     $3.16 $0.01 $290 4.4% $-6,310
    X Short Call 2020 20-MAR 14.00 CALL [X @ $14.13 $0.19] -20 11/27/2019 (102) $-3,200 $1.60 $0.12     $1.72 $0.09 $-240 -7.5% $-3,440

    So we sold the $14 puts for $1.60 AND we sold the 2022 $12 puts for $3.30 so that's $4.90 before we have a real problem or $18.90, which would then give us $21,000 on the 30 $10/17 spreads and another $8,900 on the uncovered $10 calls so $29,900 on the net $4,550 spread is up $25,450 so the 20 short $14 calls could be $10 in the money ($24) before we get into real trouble and, even then – we could just buy 4 more long 2022 $10 calls (now $6, so $6,000) and we'd be fully covered but limited to $21,000 + $8,000 = $29,000 after running the entry cost up to $10,550 or so – still a $19,000 profit and a bit disappointing but hard to panic so early in the game.

    So, at what point are we uncomfortable?  We know the easy fix is buying 10 more 2022 $10s and that will then drive up our net cost so where would that hurt?  Certainly not making $19,000 on $10,500 – that's almost 100% but making $15,000 on $14,500 – that would be a bit annoying so let's say that we certainly don't want to pay more than $10 for 10 more 2022 $10 calls and under $8 would be preferable.

    So that means we should definitely do something before the 2022 $10s get to $8 and, if that's our plan – it doesn't matter what the $14s are – we'll always have a $4 spread.  The 2022 $10s are currently $6 and the Delta is 0.77 so, to get to $8, X would have to go up $3 to $18 so – before X is over $18 we should do something – that's 20% up from here. 

    Of course, the March $14 calls at $1.72 are up 0.12 from where we sold them so panic if it makes you feel good, the 10 uncovered ones are costing us $120 (if we ignore the $690 we're up on the longs) so that's some serious money we are getting worked up over.  Fortunately, the July $16 calls are $1.60, so we can roll to there and the 2021 $18 calls are $1.80 – so there's the next roll and the 2022 $25s are $1.60 – so there's the next roll.  

    So we can roll our 10 uncovered short calls (and the covered ones too) all the way up to $25 is X keeps going up and up – all before we have to really panic about the short March $14s but feel free to keep a close eye on them – in case they attack!

    Image result for he's coming right for us animated gif


  49. The piecemeal welfare state




  50. Phil / X  -   Oh I'm keeping a close eye on them, not to worry!  :)   I'm playing along on X, without the 2022 $12 puts.

    And here I was, thinking we'd be lounging back on armchairs puffing on cigars, selling quarterly calls and safely collecting ~$3200 each time from suckers!  From now til 2022! 


  51. VXX / Palotay – I actually don't close these shorts until they are below $0.20 at least. But I am also very conservative as far as margin is concerned so there is no urgency to close the positions. On the other hand, with a position of your size, I might have been tempted to take the $5k of the table or at least 1/2 or 3/4 of it. There will be more spikes to reload between now and Jan 21 I am sure. I guess it all depends on how much money you want to make and how much free margin you have in case the VIX spikes to 30 and VXX goes up 50% (roughly) to 27 or so. Which of course would be a good time to sell even more though! That's why I also update that chart between VXX and VIX to guide me as far as margin needed.


  52. But these plays do require patience – this year, we have been lucky as we have had 8 spikes over 20 for the VIX! Actually, a bunch last year as well. Gosh, I love these trades! Of course, even with a lower VIX, you can still sell smaller positions to keep you busy. You can roll them on a spike or simply collect the premium if not.

    It's still what I am trying to figure out now – do I go all in with one big spike and collect my 10% in one trade or do I sell some on smaller spikes. I still don't know… But I got over goal this year with small trades so that works anyway.






  53. Thanks for the additional color STJ. I'm trying to use the strategy to add an additional 5-8% to a large conservative portfolio of ETFs that I hold that has plenty of buying power. I have modeled what will happen if the VIX quadruples or more from here (borrowing your idea of plotting the relationship between VXX/VIX over time) and feel comfortable.   






  54. Customer Service Déjà Vu [Infographic]


  55. With Trump, All Roads Lead to Moscow