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Thrilling Thursday – 3,350 and Bust (again)!

Only 28,344 infected

That's 3,737 (15%) more than yesterday but "only" 565 dead, which is 14% more than yesterday so we're pretty stable in growth and that's a good thing though not a great thing.  Great is when it's going lower.   As I noted yesterday, you have to keep a close eye on infections OUTSIDE of China and that's now 259, up 43 (20%) since yesterday – that's the number that we will panic over if it keeps climbing but, otherwise, I guess we can try to ignore it like the rest of the market.  

There was a great article in Bloomber yesterday, headlined: "China Sacrifices a Province to Save the World from Coronavirus" and that's true.  The World is very lucky this virus started in China as it's doubtful any other country would have been able to lock down its citizenry the way China did, as fast as China did.  We're not out of the woods yet but, if we are – it's because China has a strong, authoritarian Government that controls almost every aspect of the lives of its citizens.  Think about that…

It's not just virus control China has been concerned about.  China has also thrown MASSIVE amounts of stimulus into the economy, into the banking system and into the markets and has ordered lenders not to put loans in default AND to keep making new loans – despite the chaos and uncertainty – another thing that is very unlikely to happen if one of the Western Nations is similarly affected.  

Yet our markets are marching along as if the virus is a one-time thing, even though it's the 4th big one of this century.  There was SARS in 2003, H1N1 in 2009 and MERS in 2012.  I think that merits at least considering the potential risks going forward, don't you?  A 2.5% pullback is all this outbreak warranted on the S&P, not to mention the Impeachment of Donald Trump and the ongoing Boeing Debacle, that's certainly going to put a dent in the US economy, which is only expected to grow 1.5% in Q1, except by the Atlanta Fed, who somehow sees 2.5% suddenly.

Maybe the Fed knows something we don't and maybe what they know is that the old rules simply don't apply anymore as the World's Central Banks and ratings agencies have all lined up to keep all the plates spinning in the Equity and Debt Markets at all costs – ignoring all costs, in fact.  We are now $23,260,350,000,000 in debt in the US alone and our GDP is $21.8Tn so 107% of our GDP in debt, adding $1.3Tn in the current budget (ends in June) during what Trump just called the Greatest Economy of all time.  What's going to happen when it isn't great? 

That seems to be a moot point as the economy isn't allowed not to be great.  Every stumble everywhere is lifted by the Central Banks and the whole World is borrowing more and more each day and the same banks that are borrowing are also lending to the other banks because the money is all just paper now – backed by nothing at all and worth even less if it all hits the fan – so hopefully it won't.

2018 Cost of Unfunded State Government Employee Pension Liabilities Per State Resident36.5M Americans are still living in poverty (less than $12,140 in income) and we ignore that and 29M Americans still don't have health insurance (up from 18M in Jan, 2017) and we ignore that and our Central Bank (Fed) is $4.2Tn in debt and that's not even considered part of our National Debt (because we ignore it), nor is the $20Tn shortfall in expected Social Security payouts (which will double if they cure cancer) or the $31Tn shortfall in Medicare (which would hopefully go a bit lower if they cure cancer – unless the cure is expensive!). 

And then, of course, there are Unfunded Pensions and that's another $7Tn from the Government alone and another $1.6Tn in Corporate Pensions – these are serious issues for a country with 5M more people retiring each year for the next decade.  

Anyway, I am just saying that there are broad issues out there and, as I said on BNN's Money Talk last night, I don't think it's wise to chase there high-flying stocks – reality could strike at any moment.  That does not, of course, mean there are not still great bargains out there – we just have to look more carefully for them. 

At the moment, I'm for shorting the S&P (/ES) Futures as they test 3,350, with tight stops above that line and 1,700 has been a point of failure on the Russell (/RTY) Futures and, if the Nasdaq (/NQ) breaks back below 9,400, we can short them too but with very tight stops above that line.

I would certainly feel better going into the weekend with some good short positions for hedges as we still don't know that this virus is under control yet the markets have completely shaken off a 2.5% drop based on what seem like very unrealistic promises that there is a "cure" (viruses don't really have cures, only treatments for conditions) AND a vaccine (usually takes 3-6 months to get ready and distribute), so we have to take it all with a huge grain of salt.

Be careful out there!  

 


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  1. Good Morning!



  2. Sold some GLUU (anyone remember this one ?) on this 14% move.


  3. Good morning!  

    It's funny because I was just about to write "we're having a bit of a sell-off" but it had been almost 5 minutes since I looked so I stopped to check again because that's how fast things turn around these days.   

    Poor TSLA still testing that $700 line, we'll see who gets tired first but I decided a while ago that $650 was too much so I'm still betting lower as nothing actually changed since then – just a burst of insanity.

    BYND had that back in July and calmed down around $100-120 now but that's still $7Bn based on last Qs $100M in sales and $4M in profit.  I did the math a long time ago and we decided $75 was a fair price considering the potential and boy do they have a huge section in Whole Foods now.  

    GLUU/Albo – Been a while for them.  Almost made money last year but they need a new hit game – do you know of something in the pipeline?

    China Deaths at 563; More Japan Cruise Cases Found: Virus Update.

    Australia Says Economy to Take ‘Significant’ Hit From Virus.

    GOP Senators Investigating Hunter Biden: Impeachment Update.

    Epic and about 60 hospitals oppose medical data-sharing rules.

    Casper prices IPO at $12 a share, which is at the low end of estimates.

    Peloton stock plummets after the company reports widening loss, slowing revenue.

    Macy’s says it will grow 4 of its private brands to $1 billion.

    OPEC+ committee struggles for consensus on emergency meeting, extends talks for third day.

    US Launches Criminal Probe Into JPMorgan For Gold Price Manipulation. 

    Coronavirus Will Whack 2% From Global GDP Growth In Q1: Goldman.

    There Is Something Very Strange In The Latest Chinese Official Coronavirus Numbers. 

    The Lies We Are Being Told About The Coronavirus. 


  4. Virus supply / FCA (Fiat Chrysler) warning of potential risk of parts supplied from China could force closure of a european factory. Now who would have thought that the global supply chain would be impacted by the biggest hub in the machine on lockdown?

    in earnings season I guess most companies skittish on revealing too many details, but managing PR/investor relations during a crisis is not normally big corporate's strongest suit (BA comes to mind).


  5. When I need new trade ideas, I read PSW!  

    December 26th, 2019 at 2:51 pm | (Unlocked) | Permalink

    BYND/Stock – One of our Stocks of the Future.   That's a list we have to get back to accumulating after New Year's.  They actually made $5M last Q and, while that's a mile from justifying a $4.7Bn valuation at $76, they are manufacturers and should scale up well and they have been supply-constrained in sales with growing demand so I think they do $600M next year and make $100M and that's still 47x but I think they cover it by 2022 easily and they can grow from there (fish, chicken, pork, better meat) so I like them for a long-term accumulate – starting with short 2022 $60 puts at $14 – that's a net $46 entry (26% off) as a worst case. 

    This CMG play is still around the same price (same link):

    Best Short/Coulter – TLSA too scary to short, could win in Batteries, Cars or Solar and burn the shorts.  NFLX has such an audience they would be hard to dismantle quickly and, though $333 is $147Bn and they only make $1.2Bn – they do spend about $12Bn on content so it's POSSIBLE, at any time, for them to dial that back 10% and double profits (only have to do that in any Q to make the trend their friend) and burn the shorts.  I would play NFLX to ultimately be doomed – but could be a lot of short-term pain while you play.

    CMG, on the other hand, is a F'ing RESTAURANT.  They already have 2.500 locations and 80,000 employees (MCD has 210,000) so there's a physical limit to growth and $833 is $23Bn and they are making $391M this year and even if you give them $500M next year, still 46x earnings for a RESTAURANT that doesn't have any serious chance of giving you an upside surprise so they could either miss a Q or risk appetite could change and down they go.  That makes them the best short to me.

    For a CMG short, I would:

    • Sell 2 CMG June $900 calls for $40 ($8,000)
    • Buy 4 CMG June $875 puts for $80 ($32,000) 
    • Sell 4 CMG June $825 puts for $55 ($22,000) 

    That's net $2,000 on the $20,000 spread that's $16,000 in the money to start with an $18,000 upside potential if CMG drops $12 (1.5%) while a 10% gain to $920, would cost you $4,000 more (assuming a total loss on the bear spread and no intelligent rolls).  

    It's risk/reward that makes a "best" short – not just whether or not you think a company is over-priced….

    This was worrying me on 12/30 but people seem to have forgotten:

    President Xi has also added a team of 12 Finance Ministers to combat "banking difficulties" in China's highly-leveraged loan market.  As China slows down, their $14.7Tn loan market is in big trouble and facing strings of defaults if rates go higher and Xi should be applauded for taking all these preventive measures as China's growth engine begins to slow down but the fact that it's necessary is very, very scary!

    One reason behind the ineffectiveness behind monetary policy in the country could be due to a balance sheet recession of companies that are paying down high debt loads, in an attempt to deleverage, causing investments to decline and contributing to slower economic growth.  Taipei Times noted that five regional banks have had "liquidity problems this year, raising the prospect of devastating debt bombs lurking in unexpected corners." 

    Devastating Debt Bombs,

    How's this for a conspiracy theory:  China released a virus to cover up the fact that their GDP was in for a shock this year as they attempt to fix the debt crisis with the Banks (which they own).  Now they can hide a lot of troubles under the umbrella of "virus issues."?

    Supply chain/Winston – I just can't believe how oblivious the market is to this.  I guess it really doesn't matter if companies are earning money or not – let's let that facade fall and die – the market is now a popularity contest and money is like "likes", rather than invested capital.  


  6. GLUU – Phil, I don't have any info on GLUU's pipeline.  I've maintained a core position since back in the Optrader days, and just trade against the position.


  7. Markets / Phil – Why should it be different in the markets. We live in the post-truth/post-fact world! Facts and truths don't matter anymore it seems. Blame social networks, blame TV, blame Trump, blame lobbyists, blame corporations, lots of factors at play. People deny stuff that easily provable, believe in non-sense, can't be convinced or even debate. But it's the world we live in now. 


  8. January 6th, 2020 at 10:38 am | (Unlocked) | Permalink 

    AAPL hit $300?  WTF?  That's 25x – first time I've though AAPL was overbought in a very long time.

    Of course if AAPL goes down – the whole market will follow.  Earnings are 1/28 but hard to bet against them with these numbers:

    Flurry says Apple whipped Samsung this holiday season.

    January 6th, 2020 at 5:02 pm | (Unlocked) | Permalink 

    X/Vidt – X was up on China fever and now it's down on economic worries and they cut their dividend, which forced a lot of funds to dump them.  I would not have wasted money buying them back – especially as I don't want to sell the $12s so cheaply (now 0.58).  You could have collected 0.33 more by just waiting and for 0.25 more you want to risk missing out on a rally back up?  That doesn't make sense.  

    I'd rather wait and see how earnings go at the end of the month.  They've already cut guidance and warned so, unless it's worse than that – I don't see them going lower and, as I said, non-dividend-seeking funds may consider them a nice value play down here.

    From the Butterfly Portfolio (we just bought back the short calls):

    X Long Call 2022 21-JAN 10.00 CALL [X @ $9.46 $-0.03] 40 11/26/2019 (715) $23,800 $5.95 $-3.21 $3.78     $2.75 $-0.02 $-12,820 -53.9% $10,980
    X Short Put 2022 21-JAN 12.00 PUT [X @ $9.46 $-0.03] -20 11/26/2019 (715) $-6,600 $3.30 $0.95     $4.25 $0.10 $-1,900 -28.8% $-8,500

    Remember this?

    Whipsaw Wednesday – Iran Attacks US – Peace Declared?

    OK, now things are strange.

    Iran fired missiles into Iraq last night and attacked US bases and the Dow fell 500 points and the S&P fell 60 points but they didn't kill anyone and, even stranger, Iran then indicated that that was their retaliation and they were satisfied and Trump seemed to feel that was fair as well and now the war seems to be over and the markets are right back to where we started yesterday morning.

    Iran says it does not seek war after firing missiles at bases housing Americans.

    Just business, nothing personal…

    January 8th, 2020 at 10:33 am | (Unlocked) | Permalink 

    WBA/Winston – I think this might be a chance for us to add them in the new portfolios. The "disappointment" is $1.37/share vs $1.41 expected though 2020 guidance remains at $5.93 per $55 share with Retail Pharmacy Sales up 1.6%.  Though Gross Profit is down 5.2% from last year in a tougher environment, it's already been offset by cost savings so Net Profit is overall flat.

     

    I think $60 is the right target for WBA so we'll let them find a floor and then make a post-earnings play though I'm keeping an eye on the 2022 $50 puts as they are almost $6 for a net $44 entry, which would put the p/e below 8.

    January 8th, 2020 at 10:35 am | (Unlocked) | Permalink 

    Another slap in the face for oil:

    Crude inventory unexpectedly rise

    • EIA Petroleum Inventories: Crude +1.2M barrels vs. -3.6M consensus, -11.5M last week.
    • Gasoline +9.1M barrels vs. +2.7M consensus, +3.2M last week.
    • Distillates +5.3M barrels vs. +3.9M consensus, +8.8M last week.
    • Futures -1.44% to $61.8.

     

    HUGE builds on product!  How can people think demand isn't falling off a cliff?  No matter how much they cut back, we still have too much!  

    By the way, once upon a time, when you saw oil, gasoline and distillates all building like that, people would be very concerned that we were heading into an economic slowdown.  Once upon a time…

    Wow, did Fundamentals actually matter?

    January 8th, 2020 at 11:54 am | (Unlocked) | Permalink

    That's kind of a pattern to this market, slightly down on a crisis that's quickly resolved and then higher than we we were before the crisis.  What doesn't kill it makes it stronger!

    Forgot to add these to the new LTP with all the switching from the STP:

    January 9th, 2020 at 9:53 am | (Unlocked) | Permalink 

    BBBY 2022 $15 puts are $5 for net $10 – gotta love that!  Let's make that the first new play for our $500,000 Long-Term Portfolio, selling 10 to collect $5,000 and happy to sell 10 more if they go lower.  

    January 9th, 2020 at 10:20 am | (Unlocked) | Permalink

    $5.42 on the BBBY puts!

    9,050 Friday – Is the Nasdaq Ever Going to Stop? (1/10)

    So much for shorting the Nasdaq.

    After a very mild rejection, the Nasdaq 100 went a ahead and plowed over the 9,000 line yesterday, joining the broader Composite Index, which is now at the 9,200 line – up about 50% since Dec of 2018 – just 13 months ago at 6,190.  To be fair, we had fallen from 8,133 so an optimist could say that that was a fair price and the sell-off was silly – I'm sure that what they'll say about the next sell-off, despite the last one being 22.5%, which would take us back to 7,130 if something "silly" happens again

    If we call 7,500 a good base to climb from, then the 9,000 line is the 20% mark and 9,300 is a 20% overshoot of that mark (20% of the run up, not 20% of 9,000) so that's the next mountain the Nasdaq will have to climb – not even 1% away these days – we should be able to do that standing on our heads if this rally is meant to continue.  

    Our index shorts were a fail as Apple (AAPL) climbed up to $310 and the end-stage of bubble rallies can often be market by parabolic moves up and one has to wonder where all this money is coming from with FAANG Stocks gaining almost $2Tn in value in the past year, which is 10% of the US GDP and our GDP only grew 2% ($400Bn) so, even if every last cent of the entire US GDP expansion went into those 5 stocks, where did the other $1.6Tn come from?

    True, StJ – People can't be convinced that TSLA (now $750 again) is not worth $750.  No matter how many facts you have….  The thing is, you wonder how these people ever made the money they need to buy the stock if they are that gullible?


  9. Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity – MLK


  10. Conspiracy – Everyone knows that potus points to the economy as his ONLY measure of success.

    So do the Chinese….


  11. Also, 1020, it's a virus that mainly kills old people.  A lot of Governments would like to solve that problem…


  12. I like this one:

    Better be unborn than untaught, for ignorance is the root of misfortune. – Plato


  13. You can take that one in several directions…. :)


  14. Just for the record this morning Euro time, yesterdays site, I recommended TXN just got filled at 2.72. Obviouly no TSLA play!!! Just pays my camp side for the next 6 month.


  15. Phil, TDA sent me this.  Not an issue with expiration so far out?

    INTERNATIONAL BUS MACH CORP COM IBM
    If you are assigned early on your short call position, this could create a short stock position in your account before the ex-dividend date. If you have a short stock position in a security paying a dividend, you would be required to pay the dividend amount for each share.


  16. Just thinking of selling the Jan21 TSN 80 put for 8.10. Down 5% today but they will be running out of chicken in China sooooon.

    Why do they cancel my comment if I place some things once in a while and have to write the same stuff twice????? "your writing toooo fast!"


  17. IBM/Tangled – I imagine they have a note that you are not that experienced or something.  Anyway, it is a fact that if you are assigned and end up short, you would have to pay the dividend but it's very unlikely to happen if there's more premium in the option than the dividend would be and, if that's true and you are assigned – it's a wash anyway.  Since the dividend is $1.62 – it's not nothing, so it's a good warning.


  18. $777 – TSLA reminding me of Monday already.

    Still, $950 to $700 is $250 so $50 weak bounce ($750) and $1,000 strong bounce ($800) is what we'd expect anyway.  


  19. Trump’s Biggest Vulnerability



  20. Sold TSN 2021 80 put for 8.00


  21. Really can not understand this.

    yodi [Your comment is awaiting moderation.]
    February 6th, 2020 at 11:26 am | Permalink | Tweet thisIgnore this user    

    Just thinking of selling the Jan21 TSN 80 put for 8.10. Down 5% today but they will be running out of chicken in China sooooon.

    Why do they cancel my comment if I place some things once in a while and have to write the same stuff twice????? "your writing toooo fast!"


  22. APT – On Tuesday I bought some APT for $4.92.  Covered 2/3.  Sold remaining 1/3 for $5.59.


  23. Phil Why does this appear on my comment?

     [Your comment is awaiting moderation.]


  24. Yodi – the spam filter primarily is there to keep bots from bombarding chat and causing service denials, etc. so a few parameters that it checks for is duplicate content and time between posts.

    If you post multiple comments too quickly, especially if they contain the same/nearly the same content, the filter marks it as "suspicious" and requires manual approval. Waiting a little bit between posts, and not  copying/pasting the same content multiple times should prevent it from being flagged. (Edit: And by a little time… I mean 30 seconds or so… not minutes.)


  25. Thanks admin, I can assure you it is not my intention to place spam on our site.
    Sometime things go fast on the market. When I tried to advise TSN it was down 5% when I sold the put for 8.00. By now it is only 3% down and the same put you can only sell for possible 7.80!
    Sorry just try to place some of my trade ideas.


  26. No worries! I certainly don't think you're trying to spam chat.

    I'll see if there are any settings for the filter I can adjust that might make it a little more lenient (without compromising the filtering).


  27. The Virology lab of Wuhan is a military facility in the city where the infection started, the reaction of Chinese government and the behavior of the people in the city ( workers and investigators lives there) makes sense with the theory of a biological accident or sabotage.

    https://foreignpolicy.com/2020/01/29/coronavirus-china-lab-mortality-virology-wuhan-virus-not-bioweapon/


  28. The Bug/advill – you want some more fun, look up Plum Island. Especially Plum Island AND Lyme


  29. Looking at STX to sell the Jan 21 55 put for 7.40


  30. IRBT bustin a move today!


  31. TXN/Yodi – Great stock.

    Comments/Yodi – Happens sometimes when you have connection issues.  I like the TSN idea too.  As to moderation, that's triggered by spam filters so, if you happen to say something that sounds like a solicitation, it might trigger a hold.  I think certain key words trigger it too.  My own comments get held sometimes, but then I approve them.

    And what Greg said.

    IRBT/Willsons – They are cheap enough to be interesting again down here.  $58 is $1.6Bn and sales are pretty good:

    Financial Summary
    Year End 29th Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Total Revenue
    $m

    487 557 617 661 884 1,093 1,172 1,203 1,320 17.5%
    Operating Profit
    $m

    32.6 53.1 60.6 57.6 72.7 106 99.9     26.5%
    Net Profit
    $m

    27.6 37.8 44.1 41.9 51.0 88.0 90.5 76.9 28.1 26.1%
    EPS Reported
    $

    0.942 1.25 1.47 1.48 2.19 3.15 3.23     27.3%
    EPS Normalised
    $

    0.942 1.25 1.47 1.48 2.19 3.15 3.23 2.67 0.849 27.3%
    EPS Growth
    %

    +54.1 +32.9 +17.1 +1.13 +47.5 +43.9 +2.54 -15.2 -68.2  
    PE Ratio
    x

              15.6 15.2 18.4 57.8  
    PEG
     

                    0.442  
     

    Not sure why 2020 has such a low estimated earnings – that needs to be investigated.  

    IRobot (IRBT) Tops Q4 Earnings and Revenue Estimates


  32. ACB halted on pending news


  33. Have traded both TSLA OTM short puts and calls.  Big advantage today with premium getting sucked out with only 1 day to go.


  34. ACB/Dave – Sounds like they are cutting 10% of workforce.  Could be a prelude to getting bought though.


  35. Even though trading short puts and calls on TSLA has been very profitable this week, I should point out that it's very risky, even with close stops.  Primarily on the call side.  For example, if the stock were halted due to an Elan tweet or other reasons, a big loss is possible.  Probably not worth the risk, because stranger things have happened.


  36. Phil yes that is correct, just a bit frustrating, but that is the system no problems.


  37. Epiphany:

    Trade AAPL, SPY, QQQ – forget the rest, those three are simply the best :)

    Go long.

    Hedge with SQQQ, SDS, long LEAP puts.

    Find a strategy to pay for the hedges.

    Trade whichever way you want, with whatever setup that takes your fancy and gain an education in finding out what works and what doesn't work under different market conditions.

    Invest your emotional energy into making money trading and investing in that focused portfolio.

    Everything else is an unnecessary diversion.

    In 10 years time the new AAPL will be apparent. 


  38. ACB  is halted 


  39. Upps, already in the chat, sorry.


  40. Winston,

    I am not a believer to have only a few eggs in the same basquet. AAPL should not be the only game in town. Look at Kodak 3.50 today!!!!


  41. Now, where was I in my reviewing last month?

    It was just Jan 21st that we capitulated and adjusted the Big Chart's 5% Lines:

    Big Chart – Even if we move up to all the 20% lines, we're 20% over those on the Nasdaq.  I guess we'll have to take the long-long view. 2,850 on /ES was our last major consolidation and 20% over that is 3,420 and I guess we're clearly in that range so I guess we can re-base our charts around there.  That would be 2,850 as the -10% line and 3,420 as the +10% line.

    Dow 26,400 would become the bottom (-10%) of the new range but 31,600 is ridiculous so I'm going to look at the range from 25,000 to 30,000 for now and see how that plays.  

    Nasdaq 8,000 should be -10%, 9,000 the Must Hold and 10,000 the +10% line – it's not real math but that's how the Nas moves these days (logarithmic?)

    Russell 1,600 can't be ignored so that's the Must Hold (and the realest Must Hold that we have) and 1,760 is the + 10% line.

    NYSE 13,200 is the Must Hold line and let's call 14,500 the + 10% line.  As with the RUT – we're pretty close

    /NG/Dawg – Yep, lowest in 3 years on a lot of supply speculation and no one is looking at the ramp-up cycle in exports ahead.  

    Image result for lng exports

    We just went from 5-8 during 2019 and this year we'll be exporting almost 10Bcf/day.  Production did not double in the past two years and it will start draining down as those ports become fully operational.  Total US storage is about 3.6Tcf and we're now exporting 3.6Tcf at the end of the year – ANY interruption in supply will cause massive draws.

    Image result for natural gas production 2019

    Let's say we are producing 100Bcf/day – that's 36.5Tcf/yr and our storage is 3.6Tcf so we're using 33Tcf or 90Bcf/day – which makes sense given production.  The question is, can we ramp up production fast enough to cover the 3.6Tcf of exports?  It's about 10% more and we did add almost 10% in 2019 but the gap trailed off towards the end of the year.  That's what happens in expanding commodity rallies, you go from over-supply to over-demand and back again over and over while the market looks for equilibrium.

    I just want to have at least a couple of contracts next time there's a mismatch on the demand side:

    The question is – how low can we go?  We spiked down to $1.70 back in 2016 and that was also off a high spike and in 2018 we had an epic move up.  A $1 move on an /NG contract is $10,000 and I think $3 is a lot more likely than $1 so I think it's a good risk/reward ratio – but very painful in the short run.  

    There's always UNG, at $15.12.  The 2021 $15s are $2.12 and that premium sucks but you can sell 2022 $21 calls for $1.50 for net 0.62 and the 2021s have an 0.59 Delta vs 0.37 on the 2022 short calls so I'm comfortable with that spread. 

    Or you can just buy CHK for 0.62 and sell the 2022 0.50s for 0.40 so 0.22 and more than a double if they simply don't go BK (which is iffy if /NG stays this low).  

    /NG plays worth looking at too as even lower now.

    January 21st, 2020 at 10:18 am | (Unlocked) | Permalink 

    So now I'm back to 2 short /YM at 29,309 and 2 short /ES at 3,323 I don't have /RTY or /NQ shorts anymore – I thought I did.  I have 4 /NG long at $1.962 at the moment – back to 2 if we get even, of course.

    See, we just trade the same channel over and over again.

    FTR did not go BK – yet!  We thought it might on 1/21.

    January 21st, 2020 at 1:37 pm | (Unlocked) | Permalink

    Stock sell-off is because Chinese virus has now been reported in US.

    Ah, so innocent back then…

    https://www.philstockworld.com/2020/01/22/which-way-wednesday-rallying-back-to-the-highs-again/

    Speaking of travel stocks doing poorly, Boeing (BA) got crushed again as re-certification of the 737 Max is now pushed off "at least" until Q3 and BA made $0 this year and will likely make $0 next year yet $300/share values the company at $170Bn.  In a good year they make $10Bn – but when will it be a good year again for BA?  That's the question.  

    Of course, after falling 25% from $400, BA will bounce off the $300 line and our 5% Rule™ tells us to expect a 20% (of the drop) weak bounce back to $320 or maybe even a strong bounce to $340 but, if the weak bounce fails – then even $300 may not hold so we're not jumping back into BA just yet – tempting though it may be. 

    FXP back to where we entered it on 1/23 with CHL giving us a bonus.  Still makes good weekend protection – in case there's a set-back.

    FXP Short Put 2020 18-SEP 50.00 PUT [FXP @ $57.52 $-1.22] -5 1/24/2020 (225) $-2,065 $4.13 $-0.68 $-4.13     $3.45 - $340 16.5% $-1,725
    FXP Long Call 2020 19-JUN 52.00 CALL [FXP @ $57.52 $-1.22] 20 1/23/2020 (134) $15,000 $7.50 $0.48     $7.98 - $950 6.3% $15,950
    FXP Short Call 2020 19-JUN 65.00 CALL [FXP @ $57.52 $-1.22] -20 1/23/2020 (134) $-5,000 $2.50 $0.63     $3.13 - $-1,250 -25.0% $-6,250
    CHL Short Put 2020 18-SEP 45.00 PUT [CHL @ $43.02 $1.25] -5 1/27/2020 (225) $-2,000 $4.00 $-0.20 $-4.00     $3.80 $-1.00 $100 5.0% $-1,900

    January 23rd, 2020 at 1:36 pm | (Unlocked) | Permalink

    How about VIAC?  $37.22 is $23Bn and they should make around $3.3Bn this year and more next year. In fact, that's a good one for the LTP:

    • Sell 10 VIAC 2022 $32.50 puts for $4 ($4,000) 
    • Buy 30 VIAC 2022 $35 calls for $7 ($21,000)
    • Sell 30 VIAC 2022 $42.50 calls for $4 ($12,000) 

    That's net $5,000 on the $22,500 spread so the upside potential is $17,500 at $42.50 and the risk is owning 1,000 shares of VIAC for net $37.50 (about where it is now).  This is a first round, of course, we hope it gets cheaper and we can sell more puts and add more longs or widen the spread but, if it doesn't – we'll take the $22,500 as we should end up with at least 20 positions in the LTP (plus 20 naked short puts) – even in a "normal market" (we had more like 40 long positions in the last LTP.  

    January 23rd, 2020 at 2:09 pm | (Unlocked) | Permalink |

    For the LTP lets:

    • Buy 2,000 shares of PAA at $18.10 ($36,200) 
    • Sell 20 PAA 2022 $18 calls at $1.85 ($3,700) 
    • Sell 20 PAA 2022 $20 puts at $5 ($10,000) 

    That's net $22,500 and, over $20 (so the puts are worthless) we're called away for $36,000 plus we expect (starting 1/29) to collect $5,760 in dividends over 2 years so a potential gain of $19,260 (85.6%) makes this a fantastic dividend play though a lot of people would be happy with just the dividend (25.6% against the discounted stock).

    January 23rd, 2020 at 2:21 pm | (Unlocked) | Permalink 

    For the LTP, let's:

    • Sell 10 GM 2022 $35 puts for $6 ($6,000) 
    • Buy 30 GM 2022 $30 calls for $6.80 ($20,400) 
    • Sell 30 GM 2022 $37 calls for $3.60 ($10,800)

    That's net $3,600 on the $21,000 spread that's $15,000 in the money at the moment (aren't options the best?!?).  Upside potential is $17,400 (483%).   Worst case is owning 1,000 shares at net $38.60 due to the aggressive put sale but then we'd sell more calls for $6.80 and our net would be $32 anyway.  I can sure live with that – especially if they keep paying that $1.52 dividend.  

    January 23rd, 2020 at 2:30 pm | (Unlocked) | Permalink 

    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.

    January 23rd, 2020 at 3:59 pm | (Unlocked) | Permalink 

    Other value stocks we'll look at more closely for the LTP:  SFTBY, JCI, MET, UAL, ALLY, DAL, KHC (again), COP, LEN, COF, FITB, SCGLY, VMW, CM, STX, DELL, C – that's my short list at the moment.

    January 24th, 2020 at 9:38 am | (Unlocked) | Permalink 

    AVGO at $331 ($131Bn) drops $10Bn to the bottom line so reasonable and I'm torn as they only do $25Bn in sales so even if AAPL deal is over 3 years, it's significant but no way AAPL is letting AVGO make 40% profits on the stuff they sell.

    In this case I'd say I'd love to own them for $250 and leave it at that so we can sell 5 of the AVGO 2022 $250 puts for $27 and pocket $13,500 in the LTP.  TOS says only $5,848 in margin so very efficient but that margin can crank up if they drop more than 10%  – keep that in mind.

    Right, and that brings us to last week but plenty of ideas we can play with there. 


  42. Epiphany / Winston – Another lesson for investors from many books I read! Stick to instruments that you understand well. Yodi is right that you should not put all your eggs in the same basket, but options give you well… options! No need to own the stock and you can go short or long or neutral depending on what your current reading is. AAPL is liquid enough and has enough history to be a decent instrument. And SPY and QQQ are not like putting your eggs in one basket anyway – more like in 500 baskets at once. Anyway, my $0.02!


  43. Phil / NG  – are you still long? 


  44. MU – finally getting around to putting my portfolio in Power Options and realized I've got 100 of the MU 43/60 June BCS hiding in there with 10 of the Jan 2021 28/50 spreads. I've got to do a better job keeping up with my trades. What a mess. At least that one isn't upside down.


  45. If you want to find out more about what a little scamp Elon Musk is…    read "Ludicrous"  by Edward Niedermeyer


  46. Any news on SKT?  Back near the lows and it just raised dividend.


  47. /NG/Potter – I had to look to find out but it turns out I'm flat.  Had that move up to $1.90 and then never got back in but hopefully $1.825 comes around again.  If it were not the weekend, I'd be more inclined to go long but, as it stands, I think I'll wait for next week – espeically as my /ES and /NQ shorts are hurting me at the moment. 

    Working Gas in Underground Storage Compared with Five-Year Range

    Doesn't seem like there's much of a mismatch as we're over the 5-year avg still.

    Natural gas futures turn green on higher than expected inventory draw

    Prices remain low at most locations amid unseasonably warm temperatures. This report week (Wednesday, January 22 to Wednesday, January 29), the Henry Hub spot price traded within a narrow range, rising 3¢ from a low of $1.89/MMBtu last Wednesday to $1.92/MMBtu yesterday. Temperatures were warmer-than-normal across the Lower 48 states, especially across the Northeast and Great Plains. At the Chicago Citygate, the price was unchanged from last Wednesday at $1.80/MMBtu.

    Supply is down as imports from Canada decline. According to data from IHS Markit, the average total supply of natural gas fell by 1% compared with the previous report week. Dry natural gas production remained constant week over week. Average net imports from Canada decreased 9% from last week because of lower demand for space heating in population centers in the Northeast and Midwest.

     

    Demand falls, driven by residential and commercial sectors. Total U.S. consumption of natural gas fell by 10% compared with the previous report week, according to data from IHS Markit. In the residential and commercial sectors, consumption declined by 15% with the return of unseasonably warm weather. Natural gas consumed for power generation declined by 6% week over week. Industrial sector consumption decreased by 3% week over week. Natural gas exports to Mexico increased 13% as maintenance concluded on the Valley Crossing Pipeline, which delivers natural gas from the Agua Dulce hub in south Texas to the Sur de Texas-Tuxpan pipeline at the United States-Mexico border at Brownsville, Texas.

    U.S. LNG exports increase week over week. Twenty-one liquefied natural gas (LNG) vessels (eight from Sabine Pass; four from Freeport; three from Corpus Christi; and two each from Cove Point, Elba Island, and Cameron) with a combined LNG-carrying capacity of 75 Bcf departed the United States between January 23 and January 30, according to shipping data compiled by Bloomberg.

    That's a lot of exports for a week.  We should keep an eye on that number.

    Exports keep climbing but, so far, production has climbed right along with them:

    dry shale production

    Like Oil, we are currently exporting a one-day supply of natural gas.  

    Power Options/Dawg – I would never be able to keep track of all the trades without it.  

    SKT/Jeff – Very out of favor this month!  We talked about them the other day, earnings disappointed (but they upped the dividend) and some of their tenants going BK is causing their vacancies to tick up so they guided down to $2 for 2020 but I don't mind paying $13 for $2 in earnings.  Still a good long-term hold.


  48. Phil/SQQQ – found an ugly trade here, any thoughts? I've got 100 Jan 2021 SQQQ 21/47 BCS. The 47's are gonna most likely be worthless, but this is in an IRA so can't just keep the short calls. They're at $1.05 right now and the longs are worth about $2.83. I'd like to keep some hedging on, but I think I've been overhedging – the account is worth about $1.5M if that helps with thoughts on hedge sizing.


  49. SQQQ/Dawg – There's no point in selling short calls that don't actually cover you.  Even if the Nasdaq dropped 20% and SQQQ jumped 60%, that's still only $33 from $21 so selling $47 calls is really pointless – As I'm sure you can see in hindsight.  Jan $21 calls are $2.90 fortunately and the short $47s are $1.10 so I'd roll the $21s to the $17s at $3.70 for net 0.80 – that's silly not to do for $4 in strike and I'd buy back the 100 short $47s ($11,000) and sell 50 of the $30s for $1.75 ($8,750) and hope to get a pop but, if not, then just sell 50 more $30s and roll to the $15s ($4.40) and then you'd be in the very reasonable $15/30 spread with net nothing out of pocket.  If, on the other hand, you time it right and SQQQ goes higher, then you can sell 25 March whatevers for $1 and then, if higher, 25 June somethings for $1 and then just roll things along as needed.  

    As to sizing, it's not about the account size but what do you expect to make or lose in up or down 20% scenarios.  You need to have a handle on that to properly size your hedges (should cover 50% of your expected loss).  Also, if you are not going to make 3x more money than you spent on your hedge in a flat to 10% up market - also probably too much hedging (or not the right kind of upside plays).

    As crazy bullish as this market seems, in Jan 2017, we were at 2,300 on SPX and 10% is 230 so 2,530 in Jan 2018 and 2,783 in Jan 2019 and 3,061 in Jan 2020 would be 10% and we're about 7.5% over that, so a year ahead of normal annual gains at about 8.5% is the historical average.  What's unusual is having gain after gain with no down years, more so than being a bit ahead of the curve at the moment.

    Now Obama came in in Jan, 2009 at about 800 and we went down to 666 in March but, even if we blame Obama for that, we still hit 2,200 when handed it over to Trump and that was up 175%.  That would be 6,050 for Trump at the end of his second term before he gets to brag about his rally.  


  50. SQQQ/Phil – thanks! I got those adjustments in, that hedge makes a whole lot more sense now. I'll look at the expectations on where I would end up in a 10 or 20% swing and see if the position size makes sense based on the criteria you provided.


  51. Phil / FXP --   Is the June FXP play still in the STP….or did we cash out on that?

    If you still hold the spread, what are your current thoughts and intentions…right now, do you expect FXP to be over $65 on 19th June 2020 to collect the full amount?  


  52. The hidden worst part of Donald Trump’s unhinged impeachment victory speech



  53. Trump’s disturbing ‘celebration’


  54. No time for optimism






  55. FXP/Vidt – It's a hedge and I don't think the need to hedge is gone yet.  I think if the virus gets worse, then of course FXP will be over $65 but, at the moment, the government CLAIMS it's under control.