Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

CPI Friday – Fun with Futures, Trouble with Omicron

You're Welcome!  

We made a nice $2,000 gain on the Natural Gas (/NG) Futures we discussed in yesterday's PSW Morning Report but then /NG came back down and we re-entered it in our Live Member Chat Room at the end of the day for another $2,000 gain already this morning.  I'm more inclined to let these run but a stop at $1,000 ($500 per contract) is wise – as this is bonus money anyway – so let's call below $3.80 a stop now.

I know this seems easy but it's supposed to be easy if you are PATIENT – it's the patience that ruins it for most people.  It's been ages since we played the Futures because we only play them when they hit major support or resistance levels and, even then, we're lucky to get it right 2 out of 3 times but, with the right money-management techniques – 2 out of 3 is all you need to make silly amounts of money.  The trick is to know when NOT to play – which is 90% of the time….

We took the money and ran on S&P 500 (/ES) shorts and Oil (/CL) shorts – as they both had excellent runs as well and it always looks obvious in retrospect – which is why so many people are fooled into following TA.  But TA only tells you about the past – it does not predict the Future.  The Future is determined by Fundamentals and changes in sentiment (how people perceive those Fundamentals) and News Flow – which is not the same as "News" but the trending changes in the News that will affect the sentiment which, in turn, causes people to view the Fundamentals in a different light from day to day.

Take Bristow Group (VTOL), who have been mostly ferrying people on and off oil platforms, mostly with helicopters, for the past 75 years – very nice and very boring.  The company has a $928M valuation and makes about $80M in a good year, which is good but not thrilling.  Last year, however, they merged with Era Group (ERA) and changed their symbol to VTOL because the company aspires to use their expertise to enter the Air Taxi space. They just annonce a partnership with Embraer (ERJ), to develop 100 Electric Vertical Takeoff and Landing vehicles as well – causing us to add ERJ to our Future is Now Portfolio last week.

ERJ popped already but that brought my attention to VTOL and, as I said, news FLOW is what's important and investors are becoming more interested in the VTOL space and Bristow already grabbed the symbol (ETFs usually do that) and they've got the skills and partnerships to back up the play.  VTOL missed Earnings on Nov 3rd and the stock fell from $37 to $29 but they beat on Revenues and it's not like they lost money – they just made less of it while they are growing….

Q2 FY22 Results – Sequential Quarter Comparison

The fun part about being a Fundamental investor is you don't care what the squiggly lines on the chart are doing – you only care about your valuation of the company and $1Bn is a very fair price for VTOL so we consider $32.50 a good floor and we set up a long-term play.  Sadly, there are no long-term options but there is a lot of premium so let's do the following trade in our Long-Term Portfolio:

  • Sell 10 VTOL July $30 puts for $3.50 ($3,500) 
  • Buy 15 VTOL July $25 calls for $9 ($13,500)
  • Sell 15 VTOL July $35 calls for $3.50 ($5,250) 

That's net $4,750 on the $15,000 spread so there's $10,250 (215%) upside potential by July if VTOL is over $35 again.  If not, our worst-care scenariou is owning 1,000 shares at net $34.75 (more than it is now) and that would be a nice entry position in the LTP for a bigger play so we don't mind getting "stuck" with them if that happens.  

The trick is to know what the squiggly lines on a chart WILL do and VTOL based at $25 and rose 60% to $40 (not quite) very quickly.  A 50% gain would be $37.50 and we can see evidence of that being resistance in both directions so let's call the run $25 to $37.50 and that's $12.50 so our pullbacks would be $2.50 which means $35 is a weak retrace and $32.50 is a strong retrace and $27.50 would be a weak bounce and $30 would be a strong bounce (if it fell back to $25).  So now we know what lines to watch and anything over $32.50 is simply part of consolidating for a greater move up – assuming the Fundamentals don't change.  

The bottom line is people were too enthusiastic at the August earnings and then the November earnings could not live up to the hype so now we have a chance to catch them before the next positive surprise gets the company over $1Bn to stay.  Another way to play is to simply buy the stock for $32.50 and sell the July $30 calls for $5.60 and that nets you in for $26.90 and, in July, you either get called away with a $3.10 (11.5%) profit for 8 months' work or you roll the calls to the Jan whatevers pay you another $3 in premium and 10 rolls like that give you the stock for free – perhaps in just 5 years!  

Stock Options give you so many great ways to play the market – have fun with them!  

Now, on to less pleasant matters.  I'm still going to have to urge caution as the UK had 249 cases of Omicron on Wednesday and 817 on Thursday – that's quite a jump in one day.  England very closely resembles the US politically, economically and socially though they do have a much denser population than we do (281 people per square Km vs just 36 per square Km in the US – and we don't even know what a square Km is!), so a virus tends to spread more rapidly.  

So I will want to short the S&P 500 (/ES) Futures yet again at the 4,700 line – with tight stops above – even though we're going into the weekend.  CPI just came in hotter than expected at 0.8% (annualized 9.6% inflation) vs 0.6% (7.2% annualized) expected by Leading Economorons but, then again, off by 33% is as good as it gets from our economic "wise men".   

This is the biggest rise in inflation since 1982, Reagan's first term in office.  At the time it was considered a National Crisis – today it's considered Friday.  Bank of America (BAC) CEO, Brian Moynihan, says supply chain issues will be a slow fix but, so far, consumers are not rejecting higher prices.  Consumers have room to rack up more debt so we're not at the point of no return just yet – but we're making good progress towards it! 

Have a great weekend, 

- Phil

 


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!



Comments (reverse order)


    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!


  1. Phil / AVGO – I’m looking to Adjust The Below BCS I think a 600 to 650 share price at for FY 23 ( ’24 options) is reasonable.  

    I have the following positions,  Note I  have plenty of margin in this account to stay unbalanced if needed on the short calls.

    Short 5X Jan ’22 $530 Call ( 20) I plan to roll this to March XX on a pull back 

    The below positions have gotten out of Sorts because I sold some of the calls on the run up ( that hasn’t stopped made a bit $$ on these but now need to true up…but  )  

    Long 35X Jan ’24 $400 Call (162)

    Long 18X Jan ’24 $450 Call (147) 

    Short 30X Jan ’24 $550 Call (63)

    Short 35X Jan ’24 $560 Call (70)

    Short 16X Jan ’24 $580 Call (67)

    Short 9X Jan ’24 $600 Call (75)

    Short 6X Jan’24 $440 Put (55) Short 6X Jan’24 $450 Put (54)

    Looking to roll these puts up to 10X of the ’24 $500 ( 50)

    I need some help o adjusting the two BCS I have going forward…   I was looking at possible Selling short the ’24 $650 Callers and buying up more longs of the $450 ( 2X more)   and then sell some short term callers to ….  

    Anyway I’m hoping you see something to adjust with less pain.


  2. batman did you see my comment of yesterday???


  3. My proposed play of the day.
    AEP 
    Buy the Jan 24 Vertical 70/90 for 9.85 x4 and sell Jan 24 75p for 7.90 x2 net cost 2360.00
    Max return 5640.00
    Prices may change after opening!!!


  4. YODI / AVGO – this thanks saw your feedback from yesterday…  The Jan short calls are covered with stock…  the '24 short calls are partially naked..



  5. That is just my point, you need to use cash or reduce your stock to cover your short calls.


  6. Yodi – Short calls are not a problem from a margin or cash perspective


  7. Phil// Question about VTOL biz – As the world is moving towards EV and oil drilling/rigs count are down, won't their revenue go down over the years?  Even with the addition of air taxis, losing some of the revenues with offshore drilling be down?  Thanks.


  8. Batman possible you do not understand my point NAKED short calls are the problem here.

    I just rolled my Dec 540 short call to Feb. 640, but they covered by leap Verticals!


  9. Good Morning.




  10. Good morning!  

    Didn't quite get to 4,700 before /ES fell again.

    So silly…

    AVGO/Batman – Looks like 53 longs ($420ish) and 90 shorts ($570ish) is your problem.  Big trouble if it goes over $640 and I think we're there now.  This is really too messy to manage so I'd consolidate the longs at $500 ($170) and the current longs are about $1.3M so you can get 80 of those about even and then I'd roll the 16 short 2024 $580s ($200,000) and the 9 short 2024 $600s ($103,000) to 25 of the April $650s at $38 ($95,000) and 25 of the April $600 puts at $27 ($67,500) so spending $140,000 but then you just roll that spread out until both sides expire and that leaves you with 80 2024 $500 calls covered by 65 2024 $555(ish) calls which is a $440,000 spread + 15 uncovered that are all well in the money and, once you work off the short puts and calls, you can play with selling more calls and using that money to roll up the short 2024s to higher strikes.  

    And what Yodi said!  

    AEP/Yodi – Nice and solid but I'm concerned about costs to comply with global warming issues for energy companies though the infrastructure bill should pay for most of it and they might even end up benefitting in the long run.  Just saying stay on your toes.

    VTOL/Rookie – More gas rigs than oil rigs and more on the way.  20% of their revenue is already search and rescue operations.  Soon it will be short-haul trucking (if they can get the electric copters to be able to haul containers).  Only $1.2Bn in revenues vs $100Bn for UPS and another $100Bn for the Rails.  I was working with Blade a few years ago and they are growing fast and I think electric VTOLs will really open this market up around the country and the world (people already commute to work by helicopter in Rio).  

    It's like what I was saying about /NG yesterday – traders tend to get a certain mindset about an investment and they can't adjust their thinking to encompass a new way forward.  This is how we get ahead of the curve on long-term investments.  


  11. Phil/ The Bug – it's not population density per se that increases risk; it's low ventilation. So when winter comes to the UK, and people spend much more time indoors in poorly ventilated rooms with an assortment of people, the bug (almost any viral airborne bug, really, not just covid) spreads easily. This means covid in the UK doesn't have the summer surge that we see in the States as Southerners move indoors to the AC.


  12. I'm pretty sure having 10x more people per square whatever is a factor.  Crowding isn't just outdoors – they put up with much more indoor crowding than we do as well.  They are very big users of mass transportation as well – that's why NYC had such problems – lots of people, little space, low ventilation…

    Coronavirus: Weekend shopping returns but numbers down on 2019 - BBC News

    Lockdown Eased in England, for Now, at Least - The New York Times

    Here's how we do it in NYC:

    New Yorkers brought NYC back despite hysteria over the Delta variant

    I see one mask – it's like playing "Where's Waldo"

    And down we go!  Wheee on /ES!


  13. The other day I razed the question of ITM long options, which Phil kindly answered.

    Here the answer from TDA

    Hi Dieter,

    I hope that you are having a nice week!  My name is Rachael and I'm happy to assist you today. 

    At expiration, all long in the money options are automatically exercised.  If you do not wish for this to occur and you also do not wish to close the position, you can call us at 800-669-3900 to request a Do Not Exercise.  Please note that we can only take Do Not Exercise (DNE) requests by phone. 

    The request also must be made by 4pm CT on the last trading day before expiration. 

    We greatly appreciate your business and know you have a choice where you invest. If there is anything else we can do for you, or could have done better, please let us know. 

    We look forward to serving your needs for years to come. 

    Respectfully,

    Rachael Peacock
    Client Services


  14. That,of course, is TD's policy – no nec. the policy of all brokers.


  15. I don't see a good reason for this spike down so closing 1/2 /ES shorts and setting stops on the other 1/2 at 4,680 but happy to go back in again if we pop higher.




  16. We invited an AI to debate its own ethics – in the Oxford Union




  17. Most of the Option settlement practices are worked through the Options Clearing Corporation.

    OCC – What Is OCC (theocc.com)




  18. Possible each broker is different but I just wish to know what if, with the options I have with my brokers. It is my policy to close options before closing, with the exception of both options in a matching vertical are in the money, you just land up with the difference. 


  19. Phil – I have the following AAPL position – 20 2023 $120-150 BCS, with shorter term  selling of calls and puts (varying in strike and qty).

    I entered the position in April for net ~25K, and reduced the basis to 18K through some decent selling of shorter term options. Since then, I have 5 $145 strike puts and $155 strike calls expiring next week, which I sold for $2.2K, which is now costing ~$10.5K (so will increase the basis of my BCS to ~$26K).

    What would you suggest I roll the $155 AAPL (December expiring) strike calls to? I prefer rolling than closing the position because the roll gives me a short term loss to write off against short term gains this year, and closing the position after April 2022 will make the BCS profits a long term gain. I have a 30 day holding period minimum requirement, and need pre-approval for each trade (so cannot adjust positions quickly if needed). The March $160 roll, but gives me only an additional $5 in premium. April $165 is another option, protects me till ~$184, and keeps my BCS long term (the roll will cost me a dollar or two). I could also sell something on the put side, but that seems risky if AAPL falls back down after the incessant surge. 



  20. How Big Oil Rigs the System to Keep Winning



  21. Cracks Start to Appear in Nasdaq as Fed Meeting Looms


  22. COVID Has Broken the Economy




  23. AAPL/RN – That's getting out of control too.  So you sold Dec $155 calls and the puts will go worthless and the calls are now $22 – apparently a loss of $8,300 if that includes the short put money.  The April $165s are $19.40 so I'd pay $3 to roll up $10 or go to the April $170 calls at $16.30 and sell some April $155 puts for $4.50 to pay for part of that roll.  That's all you have to do until you get lucky and end up between the two.   Just think of it as a quarterly plan and the July $180 calls are $15 and the July $140 puts are $4.30 so there's the next roll, etc. 


  24. Interesting play on AAPL Dec 21 I had to make the same decision and rolled on 12/8 to Mar 22 175 strike. I did not see the roll as a loss, as I improved my stock position by 20$ My roll cost me 16.90 less the original sale of the 155 call  3.35 so net 13.55. I received for the Mar 22 175 call 9.55, so I am down 4$ with a capital gain of 20$. Where I am going wrong?


  25. Phil / AVGO on the below do you mean the '24 Jan 500 Call and the

    short Apri 650 Call expire worthless??? or something else was also expiring in ?

     

     then I'd roll the 16 short 2024 $580s ($200,000) and the 9 short 2024 $600s ($103,000) to 25 of the April $650s at $38 ($95,000) both sides expire and that leaves you with 80 2024 $500 calls

     

     

    – Looks like 53 longs ($420ish) and 90 shorts ($570ish) is your problem.  Big trouble if it goes over $640 and I think we're there now.  This is really too messy to manage so I'd consolidate the longs at $500 ($170) and the current longs are about $1.3M so you can get 80 of those about even and then I'd roll the 16 short 2024 $580s ($200,000) and the 9 short 2024 $600s ($103,000) to 25 of the April $650s at $38 ($95,000) both sides expire and that leaves you with 80 2024 $500 calls covered by 65 2024 $555(ish) calls which is a $440,000 spread + 15 uncovered that are all well in the money and, once you work off the short puts and calls, you can play with selling more calls and using that money to roll up the short 2024s to higher strikes.  


  26. Pharm, RETA  burnt toast. 

    Phil any thoughts on EVBG, the CEO quit and the stock got cut in half. Id love to scalp this one. 


  27. Nice way to end the week on /NG.  $3.90 is now the stop.

    AAPL/Yodi – Nothing wrong with that.  I tend to roll a bit more conservatively to lock in the gains on the long spread.  I can't imagine AAPL not being rejected at $3Tn – it's a sentiment-change in the making.  $177 is $2.9T so 3% higher is $5 so figure about $185 we should top out and then we look for a pullback of the run from $150 to $185 but $180 is 20% and let's assume we're really at $180 with an overshoot.  The retraces on $30 are $6 so $186 should be the overshoot and $174 and $168 are the pullback lines.  

     

    AVGO/Batman – That's the problem with so many legs.  Yes, I did mean the 2024 $500 calls as a base.  That lets you move from 53 longs to 80 longs without spending money and then you move 25 short calls from 2024 to April (and sell some April puts for balance).   That way, you are back to selling premium that expires each quarter.

    EVBG/Kustomz – I haven't a clue what all that is about so I sure as hell couldn't tell you how I'd play it though "stay away" is a good summary.   Seems to me they've engaged in a string of acquisitions to get growth and who knows how many turkeys they bought to keep things going?  If I were the CEO and things were going great – I don't think I'd be quitting.  In the last 4 Qs they have lost $105M, about the same as last year and that's double 2019.  Revenues are almost double but, again, it's inorganic growth.  

    Again, it's not my field of expertise.  Security software may or may not be a thing people want and these guys may or may not be a market leader in providing it but, at $4.5Bn losing $100M a year with $400M in sales – I think they are too far away from compelling for me to even do more research.  


  28. yodi – ITM options

    In my 401K account at Fidelity I had 2 MGM $45 Puts that I forgot to close before expiry. Fidelity exercised the puts – In the transaction history, I see that they bought 200 shares of MGM at market price ($43.XX) and immediately sold the stock for $45 (per the Put option) and thus closed the position.


  29. vkat_mn,

    Is I see it the seller of the 45 put should deliver the stock at 45 and you should be credited 45-43= 2 $


  30. Getting some stick into the close – all is well.

       


  31. Have a great weekend, folks!

    - Phil


  32. yodi – Correct.


  33. Awesome Phil..have a great weekend folks. 


  34. Phil / AVGO.  Thanks got it ,  looking at the 530 April puts to match them.