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Fabulous Friday – China Deal at Last!

chartDow 30,000 or 10,000? 

30,000 could happen now that we have our trade deal with China though, as you can see from the 1920s wedge (100 years ago next month!), it ain't over until the Great Gatsby sings.  Sure it's a stupid, pointless deal that has no teeth and is no better than what we had two years ago – before all the suffering – but, hey, it's a deal and, as President Trump noted in "The Art of the Deal":

"The final key to the way I promote is bravado. I play to people's fantasies. People may not always think big themselves, but they can still get very excited by those who do. That's why a little hyperbole never hurts. 

So we can expect to hear that this is "The best Trade Deal Ever."  We don't actually know what it is yet and nothing has, so far, been confirmed by China so it's possible the whole thing is nothing more than a way for Trump to distract us from today's Impeachment Vote – which he thought was going to happen late last night but was rolled over to this morning – infuriating the GOP – who worked so hard to drag yesterday's session long past bed time, so most Americans would miss it.

As to the "Trade Deal", although not fully announced, it seems that China is agreeing to purchase $50Bn worth of US Agricultural Products (they used to buy $40Bn anyway) in exchange for $50Bn worth of tariff reductions so, essentially – we are GIVING China $50Bn worth of Agricultural Products and the differenct to the Treasury will, of course, be paid by the American people – as usual.  What a deal!

As you can see from this IMF chart, clearly the damage has already been done and hopefully we're in time to undo it before things get worse – like 2008 worse…

I said a very long time ago the economy was suffering from "Self-Inflicted Wounds" and could easily recover if we simply stop this Trade War nonsense and Brexit nonsense and both look like they might end soon so now we'll see of my S&P 3,300 prediction comes true though – unfortunately – that was my prediction for the best case and it's all downhill – or at least flat – from there.  

Jan 4th, 2019:

At the moment, I've refrained from getting more bearish as I think the 20% correction is enough and that, though people are freaked out about Trade issues and Government Shutdowns – these are self-inflicted wounds that can be quickly reversed – so it doesn't play into our long-term investing outlook, which anticipated this 20% correction all summer long.  The only surprise was how long it took us to be right.  

Our long-term bullish premise is predicated on more jobs and higher wages driving forward a virtuous economic cycle that will bring about some inflation, but the good kind that is the result of rising wages, which makes fixed consumer debts like home and auto loans easier to pay down over time.

Aug 22nd, 2019:

That's why it's sometimes best to just wipe the slate and start again – a call I'm very, very close to making.

We do have some potential positives, mostly it would be rate cuts by the Fed – although they would be a mistake and a long-term negative, in the short run it's a rally we don't want to miss.  Then there's China.  It's possible we do finally get a trade deal and that would boost the market considerably, maybe 10% but still – If all we can do is rise 300 points to S&P 3,300 but we're worried about falling to 2,700 or lower – then really we're betting our portfolio on a 50/50 outcome and that's just not worth risking our gains over, is it?

We finally decied to close out our portfolios in Mid September and boy were we happy with that decision as we missed a 5% correction but we're up 10% since then and, though we did re-start several portfolio in early October – when we thought there was a playable bottom – we still have most of our CASH!!! safely on the sidelines.  Is that going to turn out to be a 1999-style mistake as the S&P blasts over 3,300?  No, because we can still buy PLENTY of stocks at good prices, like Macy's (M), which is still down at $15.71 with Chinese shoppers poised to flood back to the store just in time for Christmas:

So, if you have $1M sitting around doing nothing, you can buy 2,000 M Jan $14 calls for $2.05 ($410,000) and sell 2,000 M Jan $15 calls for $1.35 ($270,000) for net $140,000 and that will pay $200,000 if M is over $15 on Jan 20th for a $70,000 (50% gain) though I would also sell 500 March $15 puts for $1.35 ($67,500) which drops the net cost of the spread down to $2,500 on the $200,000 spread and then you can make up to $197,500 (7,900%) if M is over $15 into March 20th expirations.  

The worst case is M is below $15 and you get assigned 50,000 shares for $750,000 I'd stop out the short puts at $2 ($100,000) and take the $32,500 loss rather than risk the assignment but, hopefully, it goes well and we make the $197,500 in 100 days with no fuss.  

By the way, it occurs to me that M "only" does about $8.2Bn in sales in Q4 but it's the quarter in which they make all their money for the year so 10% one way or another would make a massive difference.  So, if we could get just 2 Million of our readers to shop at Macy's for Christmas and spend $500 or more - that would add over $1Bn to their top-line revenues and at least 10% to their bottom line – almost assuring us M would be over $16 in March (earnings are announced 2/25)!

That means, if we take the following spread:

  • Sell 10 M March 15 puts for $1.35 ($1,350)
  • Buy 20 M March $14 calls for $2.55 ($5,100) 
  • Sell 20 M March $16 calls for $1.45 ($2,900) 

That's net $850 on the $4,000 spread so, if this all works out, we'll make $3,150 so the $500+ we spend at Macy's would be free money – coming from our gains of betting on Macy's!  Is it foolproof or foolish?  That would all depend on whether or not we can get 2M people to participate in this stock manipulation experiment and, of course, I am just joking – in case the SEC is interested….

I don't even think that's illegal but I will disclose, right here, that we are already long on M in our Member Portfolios as well as our Hedge Fund as we feel it's a real bargain at $15.71, which is just $4.9Bn for the whole company – one that drops about $800M a year to the bottom line – for a p/e ratio of just 6.2!  

Year End 02nd Feb 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
Revenue $m 27,931 28,105 27,079 25,778 25,641 25,739 25,449 24,418 24,332 -1.6%
Operating Profit $m 2,678 2,783 2,039 1,315 1,769 1,617 1,405     -9.6%
Net Profit $m 1,486 1,526 1,072 619 1,566 1,108 964 821.2 739.9 -5.7%
EPS Reported $ 3.86 4.22 3.22 1.99 3.20 3.50 3.04     -1.9%
EPS Normalised $ 4.01 4.40 3.77 3.18 2.65 3.18 2.60 2.64 2.32 -4.5%
EPS Growth % +16.0 +9.8 -14.4 -15.6 -16.7 +20.0 -20.5 -17.2 -12.0  
PE Ratio x           4.94 6.05 5.96 6.78  
PEG x           n/a n/a n/a n/a

Imagine what would happen if we all went out there (Macy's or Bloomingdales) and spent an extra $1Bn and dropped another $100M to the bottom line – that would be very cool!  

If this works, next we'll all get free GoPro (GPRO) cameras!  

Have a great weekend, 

- Phil


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  1. Everything is awesome again!

  2. Manipulation / Phil – I am sure if you were the President, you could for example tell us in advance that you will tweet about a new China deal and we could go long the market. But that would be unethical. Who would think of doing stuff like that!

  3. Good Morning

    Not our President ;-)

    What China deal   !!!

  4. Looking at the UK elections, could be some interesting times ahead. Scotland might have another look at their own Brexit.

  5. Good morning!

    Still not clear there is really a deal with China.  No confirmation from China (and they are asleep now).  

    Image result for boris johnson bridge animated gif

  6. Good Morning!

  7. Wow, 200 points off the high already?  So crazy!  

  8. I don't know why but I love Carpool Karaoke:

    I guess it's because I love natural singing, nothing better than the pure voice of someone who can really sing.

  9. China not asleep – holding news briefing at 10 am (15 mins).

  10. There might be some open office space around soon:

    In its latest attempt to bail out its sinking ship of a company, WeWork is examining roughly 100 of its leases worldwide, which could unravel 10-15 percent of its global presence, CNBC reported Thursday. 

  11. phil/china,

    what is your take? if china confirms then this market will zoom…zoom..


  12. WeWork/StJ – What a mess that is.  

    China/Pat – Looks like they are confirming.  Indexes blasting back but I think this is all baked in to get to 3,300 but that's about it.  Really all we've done is go back to normal – not that big of a deal.  Tariffs were $7Bn a month in our $20Tn Economy ($1,700Bn a month) – so that's all the "boost" we'll get out of it too.

    It won't be obvious immediately but Global Trade and Manufacturing have been slowing simply because the Global Economy has been slowing and it's not all about trade.  The numbers will not back up the enthusiasm – but we're talking all of Q1 before that's obvious to people so, in between, it's a bit of a wild card.

  13. I can only say this market is like the weather only worse


    CNBC's Jim Cramer also reporting that President Trump is "furious" and feels China is "playing him"


    Is Jim talking to his buddy Kudlow ?

  15. Playing him / Albo – Right, China and the rest of the world! That's what happens when you behave like a clown.

    We'll be back to trade war before we get a signed deal it seems. Markets now going lower.

  16. Phil / Trade.  Wow – Trade Negotiations – This is not good….  market was probably assuming a tariff roll back on some existing tariffs ( now only cancel the 12/15 adds).  Not sure if China is rolling back any tariffs.  China never said 40 Billion in their presser. regarding farm good purchases… but did say they would buy significant quantities.   Also maybe currency manipulation clause ( but this was given)  also something vague on technology …..  Why isn't this market coming down?  What is your view on this?

  17. And back in the red again – wheee!  

    This is such a clown car of an Administration.  

    Here's some back of the napkin math on China deal: China agrees to buy $50B of ag products next year, increase of $29B from pre-tariff trade. Tariffs cost U.S. farmers $11B. Then taxpayers put up $28B in emergency ag payouts. So…we lost/spent $39B. Gained $29B. Nice work!

    The China trade deal appears to be a total capitulation, as predicted. The trade war cost America 300,000 jobs, and in exchange, in this "deal" China made exactly ZERO hard commitments to structural reform. What a disaster.

    All this was timed to wash over the Impeachment, which was announced at the same time

    WASHINGTON — A fiercely divided House Judiciary Committee pushed President Trump to the brink of impeachment on Friday, voting along party lines to approve charges that he abused the power of his office and obstructed Congress.

    After a fractious two-day debate steeped in the Constitution and shaped by the realities of a hyperpartisan era in American politics, the Democratic-controlled committee recommended that the House ratify two articles of impeachment against the 45th president. In back-to-back morning votes, they adopted each charge against Mr. Trump by a margin of 23 to 17 over howls of Republican protest

    Trump so desperate he just totally bent over for China to get something signed.  They must be laughing their asses off.

    Chinese briefing on the US/China trade negotiations is getting delayed until 10 EST. P.s. I’m still hanging in here despite being attacked on Twitter by the leader of the free world. I stand by my reporting, every word of it.

    This is what it's come to!  

    Per WSJ:

    The U.S. and China have reached a preliminary agreement in their long-running trade war, President Trump and China Vice Minister of Commerce Wang Shouwen said in separate statements.

    Well, that was Trump's last big move and the Impeachment hasn't even started yet.  What will he do next?

    Image result for trump crazy animated gif

  18. My today’s trade
    IBM buy  2x the Jan22 115 call @ 24.75 sell 2x Jan 20 130/140 strangle for 1.85 and sell 1x Jan 22 110 put for 9.30. I have only set up this play to show you the math.
    Long call 4,950.00. Value of the long call 115 today (19.50) 3,900.00. Difference in cost 1,050.00
    Now how do I make up the difference I sell one only Jan 22 put = 930.00. So we still out 110.00
    We start now selling short term strangles first one 13/140 Jan20 has close for 1.85×200 = 370.00.
    So as you can see from here our cost factor to zero.
    All future sales we do have to work for. Some we have to roll some will be worthless at expiration.  Let us look at the play realistically, we have at least 20 month to play and there is the result of your work, say 350.00 a month on a zero cost lay out is 7,000.00. Plus if IBM stays the same you will still get back 3,900.00 from your long call.
    Obviously if IBM goes up from today the long call will also go up proportionally.
    The above play is set up on a minimum entrance and can be worked in multiples there of. Just don’t bet the farm. I take 350 a month for nothing any day.
    TOS tells me my PM margin is 2,420.00

  19. Sorry for one member he wants to know the stock price I forgot IBM 134.24

  20. Haha, that would be me, thanks Yodi!

  21. View/Batman – It's all BS until we see the agreement (if there is an agreement) and, as I said above, I don't think it really helps in the end anyway so I'm a lot happier to sit out the holidays (as we often do) and just see where things end up in a few weeks.  

    IBM/Yodi – Obviously I agree with that one!

    AAPL shaking off all the negative press regarding Chinese demand:

    M getting whacked on poor Nov Retail Report:

    Retail sales come in soft

    • November Retail Sales: +0.2% M/M vs. +0.5% consensus; +0.4% prior (revised).
    • Retail Sales (less auto): +0.1% M/M vs. +0.4% consensus; +0.3% prior (revised).
    • Core Retail Sales: +0.0% M/M vs. +0.4% consensus; +0.1% prior (revised).
    • Retail sales control group: +0.1% M/M vs. +0.4% consensus; +0.2% prior (revised).

    Late Cyber Monday nips at retail sales in November

    • The disappointing retail sales print was highlighted by weakness across the furniture stores, health/personal care stores, sporting goods stores and department store categories.
    • The nonstore retailer category (e-commerce) showed a 0.8% M/M and 11.5% Y/Y increase to prop up the overall retail sales tally. That number could have been even larger if Cyber Monday didn't fall on December 1 as opposed its usual monthly slot of November.
    • The read-through lately has been that retail giants Amazon (NASDAQ:AMZN), Target (NYSE:TGT) and Walmart (NYSE:WMT) are continuing to increase market share as they keep up the pressure on mall chains on pricing and traffic.
    • Previously: Retail sales growth softens (Dec. 13)

  22. The monthly economic dashboard – no awesome numbers there:

  23. CAKE 39.33 is on the down trent div. 3.6% PE 18 prefer at 37. Any comment for a play?

  24. CAKE/Yodi – I like CAKE when they are cheap and this is why (from GOOG):

    15 min wait now – imagine what it's like from 6-10 pm!  That's 3 turns in a place like that and most of their restaurants are that busy. Good steady growth that drops to the bottom line now that they are done with their recent expansion phase.

    Year End 01st Jan 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 1,878 1,977 2,101 2,276 2,261 2,332 2,356 2,494 2,949 +4.4%
    Operating Profit $m 161 144.7 165.2 201 152.8 118.9 116.6     -5.9%
    Net Profit $m 114.4 101.3 116.5 139.5 157.4 99.0 94.8 117.2 121.3 -2.8%
    EPS Reported $ 2.10 1.96 2.30 2.83 2.47 2.14 2.11     +0.4%
    EPS Normalised $ 2.10 1.97 2.39 2.83 2.64 2.50 2.32 2.63 2.78 +3.6%
    EPS Growth % +9.7 -5.8 +21.1 +18.3 -6.5 -5.5 -3.7 +5.31 +5.62  
    PE Ratio x           16.1 17.3 15.3 14.5  
    PEG x           3.03 3.25 2.72 1.28

    $39 is is $1.8Bn so very reasonable p/e down here though I wouldn't catch the knife – just keep an eye out.  

  25. PHil Thanks for CAKE yesterday I asked you about AMTD if it is still worth trading this stock in respect of the take over. As such stock is resonable still priced even that I bought it a round 40, however the div has dropped to 2.3 %.

  26. NLY is really moving up again!!!!

  27. Phil,

    I think you mentioned CSCO as a stock of the future candidate on the Webinar. 3% dividend is all right too. 

  28. AMTD/Yodi – I think I said I think it's too messy as it's a stock swap, not cash.   Didn't notice NLY flying – very nice:

    Williams says U.S. economy on 'strong footing' due to rate cuts

    • The U.S. economy is in pretty good shape after the Fed's three rate cuts earlier this year and is poised for more growth next year, New York Fed President John Williams said during a talk in New York today.
    • “With the adjustments we’ve already made, lowering interest rates, we’ve got the economy on a very strong footing, sustainable footing, for good growth next year,” he said.
    • On Wednesday, the central bank left interest rates unchanged at 1.50%-1.75% and removed language about downside risks increasing.
    • Still, inflation continues to lag the Fed's 2% target.
    • Williams said he expects the economy to grow about 2% next year and inflation to get back up to near 2% over the next year or so.

    U.S. oil rig count rises for first time since Oct. 18

    • The number of rigs actively drilling in the U.S. was unchanged at 799 this week, snapping a seven-week streak of declining rig counts, according to the latest Baker Hughes survey.
    • Oil rig count increased by 4 to 667, the first increase since Oct. 18, while the gas rig count decreased by 4 to 129.
    • WTI January crude oil +1.5% after the U.S. and China agrees to a limited trade deal, which includes some energy purchases.

    Transocean up 4% on new $91M contract

    • Transocean Ltd. (RIG +3.7%) is up on below-average volume in response to its announcement that the semisubmersible Development Driller III has bagged a one-year contract off the coast of Trinidad and Tobago, expected to start in Q2 2020, that should add ~$91M of backlog (excluding mobilization reimbursement).

    Trump sees China agricultural purchases reaching $50B 'soon' – Bloomberg

    • President Trump told reporters that he thinks China will buy $50B of U.S. agricultural products "pretty soon," Bloomberg reports.
    • He added that China has already started buying.
    • China's purchases would reach more than $50B if manufacturing is also included, Trump said.
    • At a press conference earlier, Chinese officials said they planned to import U.S. wheat, rice, and corn within quotas, but didn't disclose the expected size of purchases.

    Image result for china agricultural purchases us

    Image result for china agricultural purchases us

    Image result for china agricultural purchases us

    And if China buys $20Bn more stuff from us than they used to – what happens to the stuff they were buying from someone else?  That in turn is sold to other buyers – some of whom are our current customers so we don't net gain $20Bn by any stretch of the imagination.

    Pot names mull Ontario retail opening news

    • Canada's CBC reports Ontario plans to issue about 20 new store approvals beginning next April. The story comes amid concerns that a shortage of retail outlets is getting in the way of the development of a legal market for pot.
    • The illegal market for cannabis still has about an 80% share in Canada, according to MKM's Bill Kirk, who was hoping for a number of openings far higher than 20.

    CSCO/Randers – I'm still debating whether CSCO really qualifies as they are really just an enabling stock and not really an industry innovator themselves.  Still, by virtue of being fairly priced at $45, I might include them.

  29. Ag buys / Phil – Trump is talking like the ag market will only expand. It's in fact a zero (+1 demographic growth) sum game. There is no way that we could sell 40% more ag products to China without having an impact on other markets. And once again, I am sure China will leverage their position to negotiate prices that might be lower than what they used to pay before because they have established other supply chains outside the US. We might need to subsidize farmers more in years to come. It's been such a waste of time and money. So much winning!

  30. M / Phil --  Your Monday Top Trade for M Jan 22 $15 short put was $4.50, with M opening lowest at $14.92.  

    Right now, M is at $15.26 but the Jan 22 $15 short put bid/ask is  $3.10 / $3.20.

    It's less than $0.50 stock price increase, but is there a reason why the option is much less, only 4 days later?

  31. From Briefing :

    r: It turns out that the "$40-$50B in agriculture purchases" is over a two-year period

    It was clearly implied earlier that it would be $50B/year. Now we are being told that it will be less than half that much, and likely lower than the amount purchased by China in 2017, before any of this mess ever started.

    For those keeping score at home, here is your Phase One Deal: We still have basically all of the tariffs in place, we don't have any progress at all on structural issues, and as salt in the wound, China will now actually be purchasing less of our ag output than before we started down this road. That's it.

  32. No surprise Albo! And like I said, it's not just the size, but how much they pay for the products. It happens everywhere. If you get into a fight with a vendor, you look for another one. If you find someone who charges 20% less, if you find a resolution with the old vendor, it's your starting point for new pricing negotiations.

    US farmers will most likely get less for their products than they used to! We'll have to make up the difference. And that's if these numbers are real!

  33. Why are NLY options so cheap?  Its peers are generally much higher priced.

  34. Good point, StJ.  We'll see if any weekend analysts pick up on that concept.  

    M/Vidt – Yeah, they came down a lot this week but someone got $4.50 on the 10th.  The bid ask on TOS is $3.90/4.35, not $3.10/3.20 – if that's what you are seeing – get another broker fast as this one is robbing you blind!  

    I was using Merrill for ages back in the 90s and then, one day, I looked on another platform and realized they were hitting me for about 5-10% on every fill.  Probably cost me Millions over the years!  

    2 years/Albo – So the same or less than they were buying before?  Winning!  

    And I doubt there will be any enforcement teeth in the new bill – just a stunt so Trump can declare a victory – and he knows his base will believe him because, clearly, they believe anything.

    In fact, I read many Right-side articles that were saying not all the Dems were on board with impeachment but it was 100% on the judiciary – no dissent in the ranks at all.  In the broad Congress, Jeff Van Drew of NJ has said he doesn't support impeachment.  

    The vote took place in the Ways and Means Committee Room the morning after a contentious 14-hour session in the Judiciary Committee that stretched past 11 p.m. on Thursday as Democrats turned back a number of Republican efforts to gut or weaken the charges and members of both parties feuded over impeaching the president. Republicans argued not only that Mr. Trump’s conduct was not impeachable, but also that his actions were entirely justified and explained by more innocent intentions.

    On the other hand, 47 House Republicans did not respond to questions whether they support the impeachment – that should make Trump very nervous.

    NLY/Tangled – A lot of REITs have very poor option pricing – especially when they are paying out 10%+ like NLY.  I'm more surprised when they are better than when they are not.  We'd play NLY much more often if they didn't have the worst premiums.

  35. Phil/portfolio

    bad day for my portfolio…all read. had the LB and SKT and M along with SQQQ calls…all down today….lol…need to diversify a bit I guess.


  36. Diversify/Pat – Wow, if that's your whole portfolio, you're damned right you should diversify!  

    As noted in the Retail Report, Cyber Monday was in Dec, not Nov this year so it's ridiculous to use those comps and sell off Retail.  This is why we scale in – traders are idiots and, if we're scaling in, we can happily take advantage of that fact but, if we buy too much to start – then we're victimized by that fact. 

  37. Well, it's a very disappointing close for a Trade Deal Day, isn't it?

    Have a great weekend, 

    - Phil

  38. Closed the rest of my coffee at the morning bell and left for the day – wasn't someone talking about shorting it? Decent move down today! 

  39. Phil / M  --   Thanks Phil.  My bad—I was looking at $15 Call bid/ask, not the Put!   ????    (I'm sure you figured that out, but thanks for sparing me the embarrassment LOL).  What is more, I was looking at that for over an hour today and trying to figure out why it was so low!!!!

    I'm not good at this quick-acting thing when I'm upset…I'm going to get burned by SKT!

    I'm also using ToS.  My brokers are the M$#)@* f@)$*#s at TD – your Moneytalk sponsorers.  They have screwed me in other ways…  


  40. NLY / Phil – At least, they have LEAPS. Others I like suck with options like STWD. These guys have been doing well, but options are just too limited.

  41. I trust our Phil is an expert in restaurants.
    I looked at CBRL (154.21, for my member friend today), a bit pricy stock with a div. of 3.37%, or 1.30 per quarter. Please note the stock is on the low side of the scale, my favorite positions, positive cash flow. PE 16.95.
    Due to the high price I will set up two plays for you to choose.
    A)    Armchair but on short monthly strangles.
    Simple buy the stock 154.20 2x and sell the jan20 2x 157/150 strangles @ 4.32 giving a combined average monthly income of 2.75%, buying 200 stock and running two option strangles, provides an income of 849.00/ p.m. Your capital investment is 34,850.00, yes a hefty sum. Obviously you can start with one, half the cost and half the income.
    You wish to make the armchair more lazy you sell the Mar 20 160/150 strangle @ 8.85 but your monthly income is reduced to 2.06% p.m. as you see as lazier you are as less you will receive.
    B)    My poor man’s trade. Here NO div.!
    Buy the Jan 22 2x 135 call @ 23.80. Just for comparison the Dec 19 135 call is sold for 18.95! So you are paying a premium of 4.85. or 970.00
    Your initial cost 23.80 x 200 = 4,760.00. should the stock be at Jan 22 the as today the long option would pay 18.95 x 200 = 3,790.00 minus 4,760.00 initially paid = (-970.00)
    Sell Jan 22 1x only 120 put @ 9.80 = 980.00.
    As you can now already see the extra premium you paying for the call is taken care of just by selling one Jan 22 120 put option!!!!
    Now the above is you leap position, which if the stock stays the same will be at zero cost.
    By just selling one monthly strangle only  the Jan 20 157/150 @ 4.32, brings 432.00 per month on zero cost investment. You can naturally sell two strangles per month at 864.00.
    TOS PM margin shows 2,615.00. By selling one monthly strangles, it will give you more options if you have to roll any options.
    The above can be done obviously in any multiples as suits you pocket.

  42. Just remember numbers can change, depending how the clown will wake up on monday!!!!

  43. Barr Is Trying to Erase the Truth

  44. Thanks Yodi, I was looking at a simple play, Buying the WBA June 2020 $70 Call and selling the December 20 or 27 $58 call. You would end up with a credit (depending on the action on Monday). From there just sell weekly or bi-weekly Calls. The stock seems to be trending lower (unless some sort of buyout comes up) and your loss would be limited. 10 contracts would give you a decent amount every week and June is 26 weeks away. I am a bit leery of selling Puts in this market. Thoughts would be appreciated.

  45. Forgot to mention that I own 10 of the WBA Jan 2021 $45/55 BCS that I paid $4.70 for, thanks.

  46. Yodi – On that CBRL poor man's trade, you could do away with selling the Jan 22 puts I assume. I adds to the margin greatly (Reg-T margin I mean) and if you sell $4 of premium 24 times ($96), that long call will be paid for many times over in 2 years! There is cash outlay in both scenarios – what you count as zero cost is in fact zero premium cost just to be clear. You buy 2 calls at $23.80 and sell 2 puts at $9.80, you cash outlay is $14 x 200 = $2800. But your Reg-T margin is $7100 or so. Not selling the call, your cash and margin are the same at $4900 or so. Selling one Jan 20 strangle brings up the margin requirements to $9600 when you sell the Jan 22 puts and to $7100 if you don't. So returns are:
    If you sell the Jan 22 puts – on cash 17%, on margin 5%
    If you don't sell the Jan 22 puts – on cash 9.8%, on margin 6.8%
    And that's for one month. Clearly, return on cash is much higher when you sell the puts but return on margin is lower. 

    Thanks for the idea – I am looking at all the different setups and the requirements for each.

  47. STJ, I agree margins are always a problem and depend as well on your account size. I have a PM margin situation and at this stage lots of spare margins.
    Just to clarify, I sell only one leap put to the two option play, NOT Two puts!!!! In deed you do not have to sell the put, I only use the put to show a zero out lay on premium directly.
    In general due to the high cost of the stock 154.00 I like to show members an alternative.
    I myself will set it up only with a two option play to see the outcome. I am generally not in favor of playing in high numbers, as I explained before one play goes sower in in a stable of 20 is not bad, but the other day Phil comment on a member having only a portfolio of 5 or 6 options, one goes sower, especially with bigger number, it is not a go thing.

  48. Motorx
    OK you have WBA 10 BCS Jan21. This is your base. Why would you buy Jun 20 calls ?? Selling weeklies, is a lot of work and you spend a lot on commission sure the dealer would be happy.
    WBA is in the middle of a scale and not at the bottom, as the play I did set up above, just to carify.
    Your base is the long leap BCS against you sell always half only strangles or straddles, not wishing to sell puts you can sell only calls. If I am hesitant of selling puts I sell a far OTM put, still bringing a bit of income but hopefully out of danger of being assigned.
    In that case you could sell a Jan 20 24 58.8/53 strangle for 2.47 or Apr 60/52.5 for 4.10. Again you can change the positions slightly as you feel comfortable.
    Just do not count on one play for your monthly income!!! To me 10 is a high number but any man to his decision.

    Just remember all my plays are no recommendations, just an Idea how I would play.

  49. Seems to be a shift to bullish enthusiasm here and in general among the pundit chattering classes. Is it the new Nafta; China trade; earnings/buybacks; Brexit; UK election; Impeachment bloviating or perhaps just end of year Christmas cheer. So how much of this has already been priced in? Nobody really knows. My take is that the tape painters have been run up and they have run short of new suckers, er.. buyers and now time to pump of the JV team (small and mid caps). Could very well mean the tide continues to rise so surf's up, dude. Or perhaps a bit less uncertainty makes for warm and fuzzies. 

    My nature is contrarian but I must say all this happy talk is contagious . 

  50. Thanks for the input Yodi, much appreciated!

  51. Thanks Yodi! Makes sense.

  52. pstas, I feel the same way but I think I just got that contrarian signal I've been looking for…..just kidding :)  

  53. Phil, when you get a chance, can you give me your thoughts on how best to adjust my CMG short play.  I have the following:

    -4 January 2020 $760 Calls (basis of $54, currently $62,55)

    -2 January 2021 $540 Puts (basis of $23, currently $15)

    +4 2021 $700/800 BCS (Basis of $40, currently $60)

    I had a couple other short puts that I ended up closing out, and these short $760 calls had been rolled up from lower strikes.  Currently showing a $4k loss YTD.  I was up $5-6k a month ago, but I didn't think they would rocket back like this.

    Right now I can roll the January calls to March $790's or June $830's for about even.  I'd like to get into a better theta burn position, since there is very little premium left in my Jan $760's.  I'm also wondering if you would recommend adjusting the bull call spread.  


  54. Interesting article about bargain hunting in the energy sector. 

  55. Phil, 

    Your trade idea for BA now that the board is meeting on the 737 MAX production go – no go….wait for the down grade police, sell a 230-250 Put? Thanks as always - 2 or 3 contracts to start with.