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Whipsaw Wednesday – Apple and Boeing Boost Us Ahead of the Fed

Image result for coronavirus infections"6,000 infections.  

It's still growing at 50% per day and 132 people are now dead, 30% more than yesterday yet the markets are up on good news from Apple (AAPL), who beat earnings by 10% and Boeing (BA), who "only" expect an $18Bn write-down on the 737 Max – so far.  Boeing only earns $10Bn a year so 2 years of earnings are shot to Hell and the plane still isn't certified to fly again yet BA stock is back to $325 pre-market – up over 2.5% on the news.  I'm starting to think all the lithium from those batteries we're using is leaching our brains and rendering traders incapable of worrying about anything…

No one seems to care so I'm not going to spend time discussing it this morning.  Just keep an eye on the rate if increase and, if it gets worse – then it is time to worry!  Not that 50% per day is better but steady is much better than worse.  We can deal with 9,000 (more than SARS), 13,500, 20,250, 30,000, 45,000, 67,500 – but next Wednesday, if we are at 100,000 cases or more – then we'll be on the edge of a Global Catastrophe.  Hopefully the spread will slow by then but don't be the last one to be worried if it doesn't.

Unfortunately, the only other big thing going on is Trump's Impeachment – and we're all sick of that too.  The GOP is so sick of it they are desperately trying to block John Bolton from testifying because he was right there and was an eye-witness to the whole thing and could settle the matter of what actually happened.  Where's the fun in that?

Trump and Netanyahu (who is also being indicted on corruption charges) have unveiled their "Deal of the Century" Peace Plan for the Middle East that has already been firmly rejected by the Palestinians – even though Trump offered to give them $50Bn (of your money) to accept it.  It's not surprising as no one bothered consulting the Palestinians during the drafting of the agreement – it was simply announced yesterday as Trump and Bibi unveiled their new map, which seems to have been drawn by someone who doesn't actually understand how borders work.

Image result for trump peace plan cartoon"President Mahmoud Abbas of the Palestinian Authority immediately denounced the plan as a “conspiracy deal” unworthy of serious consideration, making the decades-long pursuit of a so-called two-state solution appear more distant than ever. “We say a thousand times over: no, no, no,” Mr. Abbas said on Tuesday in Ramallah, in the West Bank.  Trump called Abbas a good friend and said he was on board with the plan…

Before returning to Israel on Tuesday, Mr. Netanyahu told reporters that he would ask his cabinet to vote Sunday on a unilateral annexation of the strategically important Jordan River Valley and all Jewish settlements in the West Bank, a move that is sure to further inflame the Palestinians.

On the whole, it's yet another reason to be happy with our oil longs (see Monday's Morning Report) - things can turn ugly over there very quickly.  

Not at all ugly is L Brands (LB) this morning, who are up more than 10% on rumors the CEO is stepping down and the company is considering a sale.  We have been playing LB for 2 years now and, just last Thursday, we added a nice position to our brand new LTP (Long-Term Portfolio) in our Live Member Chat Room:

Speaking of undervalued companies, my precious is taking off:

Related image

I'm not going to let that get away (and I certainly don't need to reiterate my value proposition) so, for the LTP, lets:

  • Sell 20 LB 2022 $20 puts for $5 ($10,000) 
  • Buy 50 LB 2022 $17.50 calls for $6.30 ($31,500)
  • Sell 50 LB 2022 $22.50 calls for $4 ($20,000) 

That's net $1,500 on the $25,000 spread so we have $23,500 (1,566%) of upside potential and, oh look – we're almost there already.  Don't you love options?  TOS says margin on 20 short puts is just $2,830 so this is an incredibly efficient use of margin.

If they do get bought over $22.50 – we collect our full balance 2 years early!  Congratulations to all who played along with us.  

The indexes are tee'd up for a strong open with Apple (AAPL) earnings giving us a big boost but, other than that – what are we so excited about?   We have some light shorts on the Futures and we'll see how those go at 28,800 on the Dow (/YM), 3,280 on the S&P (/ES) and 9,120 on the Nasdaq (/NQ) and, once again, we're long on Natural Gas (March contracts) at $1.86.  


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  1. Back to green!

  2. Morning, All!

    It's webinar day! Join Phil at 1pm, here:

  3. Israel / Phil – This is simply a plan to help Bibi get re-elected. It's a political stunt. Bibi even wants a vote on Sunday to annex 30% of the West Bank pre-emptively. This plan has absolutely no chance of ever being implemented.

  4. This Too Shall Crash

  5. Trump attacks Bolton on Twitter.

  6. Good Morning!

  7. Wuhan Corona/Phil – I'd be curious to see how they're diagnosing the disease. I'll bet they're not using the WHO definition because the testing kits are not yet that available. I saw a headline on CNBC telling me this is bigger than the SARS epidemic – which to me indicates either it really is bigger, or they're doing a better job of counting and reporting cases, or they're counting a lot of illness that really isn't Wuhan Corona as cases. Very messy, IMHO.

  8. Good morning and wheeee! 

    Those Futures shorts are doing well already but who knows what will happen in 5 minutes?  I'm still for 1/2 off the table fast and tight stops on the rest.  

    28,700, 3,275, 9,100 and 1,655 are resistance lines – below there we could get another leg down but probably they will be bouncy.  

  9. Israel Peace plan

    Even when it´s a joke the way it is produced has to say that it is the first time that I see Israel exchanging land…even when it is the Negev and is the first time I see a way to connect by land territories with tunnels!.and a promise of serious money to support the deal ….at least in paper.

  10. Big Chart – Heading right down to those 50 dmas and watch out if those fail.

    Israel/StJ – Total joke.  I don't see how people can even believe this thing is legitimate.  

    Virus/Snow – I do think we're better at identifying the virus which may inflate the count at this early stage but still, it's the daily increase in infections that matter.  It's obviously bigger than SARS (9,000 infected, 800 dead) unless it stops infecting people sometime this afternoon.  Hopefully not as fatal but they are already saying it's less fatal but that's kind of an idiotic statement to make as there are 5,500 more people affected today than there were a week ago so 90% of the infected people haven't even had time to die yet.  

    What bothers me most is still the number we saw yesterday – just 60 out of 6,000 have recovered so far and, again, you could say it's only been a week for all but 1,000 of them – but 60 sucks.

    And, by the way, Wikipedia took down that chart – that does not give me the warm fuzzies…

    There's 11M people in Wuhan, where half the infections are – that's what we have to watch closely.

    Hope springs eternal, Advill.

  11. Image result for coronavirus cartoon"

  12. WHO just called an emergency meeting for tomorrow. 

  13. Phil / SBUX – looking at a 2 yr target of about 100 to 105 on this…  Had a great quarter and outlook was hit significantly by virus….  thinking of putting following position together would like your thoughts

    all '22 position

    BCS 80 (13.5) / 100 ( 5.2)  short put of $80n ( 8) ?

  14. Wikipedia moved the Wuhan infection chart to a related page – 6k confirmed cases today.

  15. GE -Phil  .. with the earnings beat, where do you feel the price will settle?  I'm looking to cover my position for income but hate to sell calls too early.  Thx!

  16. Trump is signing NAFTA and he says "I'd better mention all these Senators because I need their votes."  What a comedian!  

    SBUX/Batman – They will be hit a lot worse on the next report, maybe you want to wait?  It's not like they are cheap – $86.50 is still $102Bn and they made $3.5Bn this year so 30x earnings at the moment and growth isn't all that exciting.  

    Year End 29th Sep 2014 2015 2016 2017 2018 2019 2020E 2021E CAGR / Avg
    Total Revenue

    16,448 19,163 21,316 22,387 24,720 26,509 28,397 30,696 10.0%
    Operating Profit

    3,081 3,931 4,172 4,135 5,759 4,701     8.82%
    Net Profit

    2,068 2,757 2,818 2,885 4,518 3,599 3,604 3,957 11.7%
    EPS Reported

    1.36 1.82 1.90 1.97 3.35 2.92     16.6%
    EPS Normalised

    1.36 1.69 1.92 2.09 2.44 2.67 3.05 3.44 14.4%
    EPS Growth

    +12.9 +23.9 +13.7 +9.05 +16.7 +9.47 +14.2 +12.7  
    PE Ratio

              33.2 29.0 25.8  

              2.34 2.28 2.31  

    Noting wrong with selling the $80 puts for $8 as that's net $72 so, as long as you REALLY want to own them for net $72 ($84Bn), then no big deal if SBUX actually drops 10% on you.  The spread is a bit more aggressive than I'd start out.   It costs $8.30 but you could do the $80/90 spread for $4 and I'd rather have 2 of those than 1 of the $80/100s but I'd start with 1x and keep the rest in case you need to roll the $80s lower (you can always buy more before they hit $5) and I'd ask for $3 on 1/3 the June $90s to knock another $1 off the net. 

    Thanks Ati but not the same chart – I liked the presentation on the gray one.  

    GE/Jeddah – $13 is still only $112Bn and they generated $3.9Bn in cash-flow this Q alone with earnings at 0.21, which is about $1.75Bn.  However, the 1-year interruption in 737 Max will hurt GE next year as it's not the engines they make money on but the parts and, no use means no parts are needed.  So they haven't even begun to feel the pain in their aviation unit and, when they do have to deliver the engine backlog – they are pretty much loss leaders (like razors and blades).   So $5-6Bn is about right for profits which means $13 is still towards the high end for them and $8 would be too low so that's the range I'd play them for.

  17. Phil / SBUX – thanks I'll take a look at the lower spread – I would absolutely want them in the low 70's and build a position on this , so I'll see if I can get that put 

  18. Always best to start conservative, Batman.  Look at AAPL in the Butterfly Portfolio – used to be a nice, small, conservative spread…

    AAPL Long Call 2022 21-JAN 240.00 CALL [AAPL @ $326.71 $9.02] 60 11/27/2019 (723) $324,600 $54.10 $49.20 $97.17     $103.30 $8.37 $295,200 90.9% $619,800
    AAPL Short Put 2022 21-JAN 260.00 PUT [AAPL @ $326.71 $9.02] -45 1/15/2020 (723) $-100,800 $22.40 $-3.28     $19.13 $-1.79 $14,738 14.6% $-86,063
    AAPL Short Call 2022 21-JAN 310.00 CALL [AAPL @ $326.71 $9.02] -60 1/16/2020 (723) $-306,000 $51.00 $8.00     $59.00 $5.90 $-48,000 -15.7% $-354,000
    AAPL Short Call 2021 15-JAN 300.00 CALL [AAPL @ $326.71 $9.02] -40 1/15/2020 (352) $-168,000 $42.00 $6.88     $48.88 $5.88 $-27,500 -16.4% $-195,500

    Certainly we're not complaining – circumstances forced us into a larger and larger position.  In fact, now it's time to roll up the $240 calls as they are too deep in the money.  

    Fire/Pstas – That sucks.  

    Webinar time!

  19. Phil any thoughts on JO down here 

  20. Phil/ ? 

    good afternoon.

    nice results by appl and great for my Kong's.

    however, like your portfolios, I have been whittling down some short calls from rolls.

    would like to buy back some of the March $280 calls ($50 now, sold for 22 originally)

    I would like to buy some 2022 BCS…question for you, is what spread is reasonable.

    I want to be conservative and make sure I don't have to roll those spreads as I am rolling from the short calls already…!!


  21. We're finishing the Webinar and I saw this:

    • Textron (TXT +3.7%will increase the number of 737 MAX simulators in production, CEO Scott Donnelley says, adding that he continues to see order interest and "a little bit of an upside on the number of MAX sims."
    • The Boeing plane has been grounded since last March, and the company has recommended that pilots undergo training in a simulator replicating the model before flying it.
    • Donnelly declines to comment on reports of Textron as a possible buyer for Bombardier's Cessna business jets.
    • Shares enjoy solid gains after the company posted better than expected Q4 earnings and revenues while issuing in-line guidance for FY 2020, seeing EPS of $3.50-$3.70 vs. $3.67 analyst consensus estimate on revenues of $14B vs. $13.9B consensus.

    For the LTP, let's add:

    • Sell 5 TXT Jan $50 puts for $6.20 ($3,100) 
    • Buy 15 TXT Jan $45 calls for $6.50 ($9,750)
    • Sell 15 TXT Jan $55 calls for $2.50 ($3,750)

    That's net $2,900 on the $15,000 spread with $12,100 (417%) upside potential if TXT is over $55 in just a year.  I think this contract should do it for them and they are underpriced anyway. 

  22. From Stansberry Research

    "Looking at the data, it's important to have some perspective on the outbreak's impact on the global economy, as well as on companies and their stocks.

    For instance, based on the numbers above, 161 people die from the flu per day in the U.S. – a country with one-fourth the population of China. Extrapolating that to China, this means that close to 600 people die from the flu every day. That's approaching the number of people who died from SARS, and it's nearly five times the current number of people that have died from this most recent outbreak."

    Maybe so, maybe not of any use.

  23. Phil/X

    In the Butterfly Portfolio:

    The changes below should have been executed for, at least, the prices stated.  If the adjustments were made at the prices selected, would you adjust today the remaining 2022 long $10 calls and 2021 $12 short puts?  Thanks.

    X – Dropped a lot since we got in.  The March $14 calls are dead so let's buy them back to close and also buy back the short 2022 $17 calls at $1.25 ($3,750) if we can (don't overpay) as that's just 0.05/month we'd be missing out on vs leaving it and I'd rather be more flexible into earnings.

  24. Flu / albo – As they say, you can use statistics to say what you want. The biggest issue is that this virus is more lethal and treatment is longer and more expensive (as far as I can tell). In fact, as Phil mentioned a couple of time, they have so far few people that have been declared cured. That's the reason why people are so worried about more infections. It has killed fewer people so far, but it were to spread, the flu season would look like a walk in the park for health services. 

  25. Apparently the president cannot be impeached no matter what he does! That's the gist of his lawyers presentation! The same people who of course impeached Bill Clinton… 

    And then – but there is an election in 9 months! The voters can decide then. You mean the election he was trying to fix! The Russian people are very familiar with this type of election! That explains some things too.

  26. JO/Coulter – That's playable too. 

    In the STP, we can:

    • Sell 5 JO Sept $32 puts for $2.15 ($1,075) 
    • Buy 10 JO Sept $30 calls for $4.60 ($4,600) 
    • Sell 10 JO Sept $35 calls for $2.40 ($2,400) 

    That's net $1,125 on the $5,000 spread and hopefully we'll get a chance to work it but, if not, it's a potential $3,875 (344%) gain in 8 months – not terrible. 

    AAPL/Maya – I think AAPL is very fairly priced here ($327) and I wouldn't shoot much higher than $350 at year's end though 5G fever could take them into the $400s by then.  Overall, I'd go for 25 of the 2022 $290 at $70 ($175,000) and sell 20 of the $350s for $40 ($80,000) and 10 of the 2022 $300 puts for $33 ($33,000) and you already sold the March $280s for $22 ($22,000) and let's say it's 10 of those ($50,000), I'd roll them can be rolled to 15 short July $320 calls at $26 ($39,000).  So the net of those changes is $51,000, including the $22,000 you collected already and you would have $150,000 worth of long spreads covering 15 (10 naked short) short July $320s and the short 2022 $300 puts.  Seems very reasonable to me.

    I indented it because it works as a new trade too!  

    Flu/Albo – I think that's a false comparison because 20M people GET the flu in the US and 15,000 die, say 20,000 – that's 1 in 1,000 so if you say 161 people die per day then 161,000 people have the flu each day (about right for a 3-month season) and 0.1% of them die but this is a 3% death rate flu so IF it became as common as the regular flu and 3% died – that would be 4,830 people dying "every day" – Now does it matter?  We have found no way at all to stop 20M people a year from getting the flu in the US – why do people think we can make this one go away so easily if it's proving just as easy to catch?  

    Our current protocols are only acceptable because the usual virus that goes around isn't very dangerous but these are very dangerous viruses that are adapting to be just as contagious as their weaker cousins – that's a bad combo.  

    Image result for virulent"

    X/DC – Not sure what you mean, the portfolio print you see is from BEFORE we called the changes, not after.  Those changes were made in updated portfolio but it doesn't change live – I have to print it.  

    X Long Call 2022 21-JAN 10.00 CALL [X @ $9.39 $0.21] 40 11/26/2019 (723) $23,800 $5.95 $-3.39 $3.78     $2.56 $0.18 $-13,560 -57.0% $10,240
    X Short Put 2022 21-JAN 12.00 PUT [X @ $9.39 $0.21] -20 11/26/2019 (723) $-6,600 $3.30 $1.10     $4.40 - $-2,200 -33.3% $-8,800

    Meanwhile, nice sell-off for our Webinar Index shorts! 

    Same people/StJ – The same people who TRIED to impeach Bill Clinton.  Perhaps we can forgive them for thinking a President is unimpeachable because Clinton did LIE about having an affair – they even had a dress!  Trump would never… Oh….  Well, it's not like they know he lied… Oh….  Well, it's only our National Security and our Democratic Process at stake – it's not like he got a blow job, right?  

  27. StJean/The Bug – albo's point is solid. We know nothing about fatality rate because not all of the cases are being counted, and those that are being counted are mostly those ill enough to be given the diagnostic blood test. That's not the biggest problem, though. Fatality rate ideally is number of deaths divided by number of people with the disease. BUT – that denominator is the number of people diagnosed with the disease, i.e. the number of people symptomatic enough to be given the test – in other words, the sickest portion of those with The Bug. So the fatality rate will be biased towards those with the worst case of The Bug.

    Cure, there is none except time, as it's a virus, for which there is no cure.

    But, your concern about health services getting inundated is valid – let's hope China has some good logistics people handling this.

  28. Phil/The Bug – the more dangerous viruses for death rates are those that affect the lower respiratory system. So, bronchitis, pneumonia. BUT, since these bugs are deeper in the lungs, they don't get out into the air and spread as easily as the less dangerous upper respiratory infections.

  29. China/Snow – Yep, all under control:

    China virus

    China virus

    A medic at the Wuhan Union Hospital in Wuhan. China has deployed nearly 6,000 extra health workers to Wuhan to cope with the demand caused by the coronavirus [Xiao Yijiu/Xinhua via AP Photo]

    The images from inside Red Cross Hospital in Wuhan, the city at the epicenter of the deadly viral outbreak, show covered bodies lining corridors as staffers and patients walk about with masks on their faces.

    Seems inundated to me!  

    I think they already opened the first new hospital – that's good. 

  30. Phil/Swamped……yup, no surprise, that's exactly what happened in Korea in 2015 with the MERS outbreak. As I said the other day, they need to do serious triage, turn people away (but use an app for appointments), and (I don't know for sure in China, but it was a problem in Korea) have nurses doing patient care instead of family, and cut down on visitors. That will slow down the spread. However, planning for major outbreaks is never a strong suit in any medical organization. At one point, I was functionally one of two public health officials for a midwestern state, and I legally could shut down all travel in and out of the state. Would anyone have listened? I doubt it. So one has to have other logistics well-planned and be willing to be obnoxious about pushing those.

  31. Phil/Swamped – and I'm skeptical of that video from the NY Post. If I recall correctly, that's a Rev. Sun Myung Moon publication, and the Reverend, may he rest in peace, was virulently anti-commie and anti-China.




    Sell Short










    16:27:10 01/29/20

  33. Here's the BBC, debunking some of the bunkum:

  34. For instance, "

    Wuhan nurse video'

    Different versions of a "whistleblower" video, alleged to have been taken by a "doctor" or a "nurse" in Hubei province, have racked up million views on various social media platforms and mentioned in numerous online reports.

    The most popular version was uploaded to YouTube by a Korean user, and included English and Korean subtitles – the video has since been taken down.

    According to the English subtitles, the woman is a nurse in a Wuhan hospital. However, she does not claim to be either a nurse or a doctor in the video at all. This seems to be merely an assumption on the part of those who have uploaded various versions of the video to social media.

    The woman, who does not identify herself, is wearing protective suit in an unknown location. However, her suit and mask do not match the ones worn by medical staff in Hubei.

    Due to a lockdown being enforced by the authorities, it is difficult to verify videos from the province. But she makes a number of unsubstantiated claims about the virus, making it unlikely for her to be a nurse or a paramedic.

    She claims that the actual number of people infected in China is 90,000. But according to official figures, there have been more than 4,500 confirmed infections so far.


  35. My point being not the nothing's going on; there clearly is a major outbreak. However, there is a lot of misinformation some simply because reporters cannot get information directly and so are doing the best they can with limited information, but some because there are people promulgating false information deliberately. If you want to choose a person to follow on this, I recommend Laurie Garrett – she knows her business, and does it well.

  36. notice the low ominous music they lay under the New York Post video? 

  37. Gosh I hope they postpone the Olympics in Tokyo this year until a vaccine is developed or I'm going to rent an apartment out in the country and live the in the boondocks for a few weeks.

    One of the biggest issues in the Wuhan virus is that the hygiene standards in China are…. well kind of "backward", so in addition to setting up facilities to deal with the illness there is also the task of changing the general societal ideas of "hygienic standards" like diligent hand-washing WITH SOAP (this is seriously lacking), refraining from hawking loogies and blowing snot-rockets in public, etc… etc…  For all the talk of China being an economic powerhouse, its still essentially a developing nation.

  38. TSLA — Tesla predicts it will deliver 500,000 cars in 2020, produce more

    at 50K each thats only 25 million???

    still, glad I hedged my 2 short 2021 480 calls with the 2 2022 520/660 spread

    I actually rolled one of the 480s to June 2021 580 today and ate $3700 in premium but looks like that wasn't such a bad move seeing that its at $650 right now — crazy

    guess will have to see where it settles to tomorrow — I have  a Friday 700 call I bought for $2, might come into play

  39. Disinformation / snow, Phil – This is where our great social networks get into play. Just read that thousands of posts and/or videos have to be removed from Facebook, Twitter, YouTube for spreading fake news and dangerous information about the virus! (I guess that's where viral videos come from) Imagine someone posting some fake news about 50 people infected in NY for example and suddenly you have panic in the streets! It would be easy for people with bad intentions to create havoc! And then do the same for our elections…oh wait!

  40. Another day, another reminder not to short companies like TSLA, AMZN, NFLX and so on! 

  41. loogies…. :)

  42. 170 dead, Futures way off now.  Asia down about 2%.  

  43. Trump’s lawyers rolled out a breathtaking new defense

  44. American Life Expectancy Rises for First Time in Four Years