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Terminal Tuesday – Ending the Decade With a Bang

Protesters and militia fighters gather outside the U.S. Embassy in Baghdad.Happy New Year!

Unfortunately, we may be at war again as President Trump blamed Iran after supporters of an Iran-backed militia tried to storm the U.S. Embassy in the Iraqi capital Tuesday, in an intensifying backlash against the U.S. after it conducted deadly strikes on the group.  Video and photos from the scene showed the blast walls surrounding the compound were on fire and one man took a hammer to the window of a booth used by embassy guards. Another booth was torched. The protesters chanted “America out, out! Baghdad remains free!

The U.S. conducted strikes on Kataib Hezbollah near the Iraq-Syria border on Sunday, killing 27 people, according to the group and security officials.  Supporters of the group gathered to mourn and denounce the deaths on Tuesday and later marched toward one of the bridges leading to the so-called Green Zone, the heavily fortified area where the U.S. Embassy is located.

The attack, the most forceful move yet by the U.S. to target Iran-backed militias, represents a fresh escalation of tensions between the U.S. and Iran and undermines relations between Washington and Baghdad.  It drew condemnation from across the political spectrum including Iraq’s most influential Shiite cleric Ayatollah Ali al-Sistani, and revived calls for the departure of American forces, which returned to Iraq in 2014 to help fight Islamic State.

Meanwhile, the Iraqi government said Monday the U.S. strikes would force Baghdad to review its relationship with the U.S.-led coalition, including cooperation on security.  Kataib Hezbollah, a Shiite paramilitary group, on Monday threatened retaliation for the “aggression of evil American ravens.” Iran denied involvement.

It has long been speculated that Trump would start a war ahead of the election and this one has the dual purpose of also rescuing oil prices, which had been struggling to hold $60 and damaging the profits of Trump's Saudi backers as well as, of course, Vladimir Putin.  WTIC (/CL) is at $61 at the moment and makes a fun, speculative long play or we could play the Oil ETF (USO) at $12.75 to pop up on trade tensions as follows:

  • Buy 50 USO Jan $12 calls for 0.55 ($2,750) 
  • Sell 50 USO Jan $12.50 calls for 0.35 ($1,750) 

That's net $1,000 on the $2,500 spread that's entirely in the money to start so all oil has to do is hold $61 into Jan 24th and you make up to $1,750 (175%) – free gas for a year.  So the question is, do we think President Trump will de-escalate the incident between now and next week or will it get worse?  I'm betting on worse…

Meanwhile consumers are still very confident, comming in at 114 – the highest measure in the past two years with future expectations at 114.2.  According to the board:  "Looking ahead, there is no clear obstacle to further increases in consumer confidence during the first quarter of 2019. All signs from the Federal Reserve indicate that it's committed to raising wages and labor force participation rates for low-wage, underemployed and discouraged workers, which should further increase consumer confidence. However, increased confidence amongst these demographics is less likely to translate into increased spending."

So 2019 will end very much as it began – with Global Political Turmoil being largely ignored by the General Public – even as their President tweets to them up to 20 times a day.

Party on folks and Happy New Year, 

- Phil

 


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  1. Wishing all a Happy and Healthy New Year - Good Morning!


  2. Good morning!

    I've been up since 7 am and it's 8:30 pm now and we're going out for New Year's and I have a 6:45 meeting in the morning – gotta love business trips!  

    If I'm still alive, I'll try to catch up at some point but last night I passed out at about 4am so not sure how much gas I'll have later. 

    So, just in case:

    Have a very Happy New Year,

    - Phil

    ps – I like /NG too at $2.18 for a 0.04 bounce.


  3. Safe Travels Phil.


  4. Happy New Year to all on this site and Phil.  Be safe.



  5. NYSE / Phil – And looking at that 3 year chart, you can see that the NYSE is only up about 5% in the last 2 years! We have had a big year but because we dropped so much late last year!


  6. Happy New Year to the entire PSW family! 


  7. USO

    Morning all! 

    Im not seeing anything similar in spreads on TOO.  Thoughts? 


  8. Got a tip for you if you want another rocket ride like bynd. Crawl on board FCEL and for now the options are cheap but it is @ only 2.45 now. Bought the stock but haven't sold any calls. Moving too fast.


  9. Happy New Year all!  -  Question for the PSW'ers who also have 401(k)s… Do you use any hedging techniques similar to the ones we use here for the LTP/STP, on your 401(k)?  Fidelity is my plan sponsor and I use 4 of their low expense ratio index funds, large cap, mid cap, small cap,and international. My time horizon is about 20+ years still so debating if its worth messing with hedges or if with that much time it creates noise.


  10. Musicman – in my 401k I want to choose my own stocks, so typically I contribute and get a partial company match, and then sell puts to enter. If the stock is never put to me, fine, I made a bit on the cash I tied up, and the cycle starts again. If the stock is put to me, I typically will sell a put and call for round two (provided that its still reasonably in the range I expect), hopefully ending up with 200 shares.. After that, I'll typically look for opportunities to sell a put along with half calls depending on the pricing. The eventual goal is to accumulate a relatively balance portfolio of mostly dividend paying stocks. Accumulation is very slow at the beginning, and due to the constraints of the 401k, which include the lack of margin (which means no spreads and cash secured puts), and comparatively high commission costs, it's a pretty boring portfolio. That said, I take comfort in the fact that the stocks are my own picks, and I'm not paying the management fees for mutual funds. I typically average 10-15% returns, and very stable.


  11. Happy New Year guys!


  12. Good principal Deano.

    All you guys have a healthy and prosperous NEW YEAR


  13. Any idea what just boosted all the pot stocks. CRON up 15% 



  14. My retirement account is similar to Deano's. Currently about 60% dividend paying stocks which are almost completely covered with calls right now. The calls are a great cash generator. 20% or so of the portfolio is allocated to naked puts on stocks I'd like to have, cash secured like Deano. 20% of the account is in cash. 

    I end up using PSW as a barometer for help on when to load up on hedges rather than replicating them exactly, since that's challenging without using spreads and with no margin in this account. I added hedges when Phil was converting to cash, etc., or when the market looked stretched, and scaled out of the hedges the market seemed bouncy. I used QQQ puts and VXX calls as hedges last year, and lost 0.05% on them. Probably a little bit underhedged now that I'm looking at the numbers again.


  15. Deano/Atitlan – Thanks for sharing, good insights.  I currently do similar to you Atitlan in a Roth IRA account that I have, dividend producers that I write can write calls against. Since I can't contribute to it anymore given income eligibility requirements and the tax benefit of a ROTH its a great place to spit out cash from dividend income to reinvest until I need the distributions.

    I hear you Deano, nothing more annoying than having returns eroded for marginal alpha. Fortunately I have some decent index fund options available that the fees are only 1-3bps,  Given my longer time horizon I'm still leaning heavy into capital appreciation and growth, but it might be time to start building up a small percentage of dividend payers.


  16. Happy New Year


  17. Wishing PSW and your families a healthy and prosperous NEW YEAR!!!


  18. Happy New Year!


  19. Everyone have a Happy. Healthy, and Prosperous New Year ! ! !


  20. Huh! Selloff into the close of the last day of the decade. I figure it's quiet, no one is paying attention including business reporters, so institutions are taking an opportunity to sell off what needs to be sold off. And for taxes.


  21. Happy New Year to everyone!  Here's to a profitable 2020!


  22. Okay, I take it back about the closing selloff – and happy new year to all of you…..


  23. Best to everyone in the new decade!! Keep safe and warm!!


  24. As I expected, came home at 2am and passed right out, now up for another big day to start off the new year. Stay happy folks!













  25. 79 of Our Favorite Facts of 2019



  26. Happy New Year All!!










  27. Double the Federal Minimum Wage





  28. China Moves to Steady Its Slowing Economic Growth



  29. Good morning! 

    I did put a quick post up and now I'm off for my trip so same new post for today and tomorrow.

    I had no proper connection on the plane (Qatar) last time but I'll try harder this time since the markets are open but, if not – have a fantastic weekend and I'll be back tomorrow night and, hopefully, next week will be more or less normal.

    We (PSW Investments and two of our companies) have a mind-blowing, life-changing opportunity here in Thailand and we just finished the contracts after a long week of negotiations and I'll fill in more details over the weekend but, for now – up, up and away!