Posts Tagged ‘Options Strategies’

Fabulous Friday – Counting our Blessings in the Market Collapse

Wheeeeeee – isn't this fun?  

We're certainly having a good time and, if you've been following our posts and getting our trade ideas – you probably are too as yesterday's DXD trade idea, for example, made 100% in a day for the 2nd time this week!  

Now let's say you put just 2% of your portfolio into a hedge like that against a worry that we'd have a 5% drop.  Well, on Tuesday we collected 100% of that 2% on a 2.5% drop and yesterday we collected another 100% of 2% on another 2.5% drop – there's 4% back and we never even fell 5%.  This is how you hedge and hedging is what we teach you to do at PSW (sorry, Memberships now full, try the wait list for next month).  

Of course, if you find yourself on the wrong side of the market, the Futures also make excellent hedges and it just so happens that we teach that as well!  We did a Futures Webinar just this Wednesday and you can watch us make money live on the replay.

 Those are the hedging strategies that led us to call for shorts yesterday (right in the morning post) at 1,100 on /TF (Russell Futures), 4,040 on /NQ (Nasdaq Futures), 1,965 on /ES (S&P Futures) and 16,900 on /YM (Dow Futures).  Aside from the Alert we sent to our Members, we also Tweeted out and Facebooked? the trade ideas – THAT'S HOW SURE WE WERE!  If you followed those, we closed the day at:

  • Dow (/YM) 16,550: down 350 points at $5 per point – Gain of $1,750 per contract 
  • S&P (/ES) 1,918: down 47 ponts at $50 per point – Gain of $2,350 per contract 
  • Nasdaq (/NQ) 3,950: down 90 points at $20 per point – Gain of $1,800 per contract 
  • Russell (/TF) 1,060: down 40 points at $100 per point – Gain of $4,000 per contract 

The margin requirements for the Futures trades are roughly $4,000 per contract so we're talking net gains of
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Thrilling Thursday – Comedy or Tragedy?

Russell 8-0-0, Russell 8-0-0! Wherefore art thou Russell8-0-0?  Deny thy dollar and refuse to fall, or, if thou spike not, be but consolidating at resistance and I’ll happily Capitulate….

If it's good enough for fair Juliet, it's going to have to be good enough for us as the Russell finally makes it over our 800 target – the last barrier that was keeping us on the bearish side.  Above these lines – it's time to stop worrying and love the rally as we romanticize the deadly combination of QE2 the Obama tax cuts as: "A pair of star-crossed lovers take their life, whose misadventured piteous overthrows doth with their death bury their parents’ strife."

Of course Willie Shakespeare has nothing on Jimmy Cramer, who's pearls of wisdom are also sure to be repeated centuries from now.  Last night the Bard of Wall Street sang a veritable sonnet in praise of the stock market and foretold a tale of woe for anyone dumb enough to take profits into this rally:

 

We got the correction this morning, Dow fell 35 points…  Today's action was proof positive that you need to stop worrying and learn to love corrections…  What scares me, and what should scare you, is that if you sell your stocks here, you won't be able to get back in.  You should be worried about stocks getting away from you, because I think we can be on the verge of something big – something very positive.   FORGET the fact that stocks have run up a lot in the last 6 months.  For more than 10 years, this market has done nothing, THAT is the most important frame of reference…

What's changed?  We are finally starting to see big breakouts from a slew of breakouts from several large cap companies including: CAT, UTX, FCX, SWK, CBE, ETN, CSX, UNP and so many other big industrials.  Ladies and gentlemen, we have waited over a decade for this move and what do people want to do now that it has arrived?  They want to sell!  That's right, they want to sell.  That's right.  They want to dump the stocks (sell button sound effect) because they are up


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Turning $10K into $50K by Jan 21st – Week 16 Update (Members Only)

What a wild ride! 

We’re right at the mid-point after 3 months after starting this group on June 11th, when the Dow was at 10,200 and we’ve been up and down over 5% in each direction several times since then.  Despite the aggressive nature of the virtual trades listed here, we try to keep this a low-touch virtual portfolio to better teach the effectiveness of letting the strategy do its work by NOT adjusting the positions from month to month.  So far, so good as we’re up over 160% in the first 3 months and back to mainly cash as we head into the home stretch.

Of course, if something drastic were to occur, then adjustments would be necessary but, on the whole, we’ve been fortunate to have the market pretty much behave right in line with our expectations.  We are now turning bearish so it’s time to cash out our remaining bullish winners or, at least, be prepared to!  

The idea of these picks was to find $10,000 worth of small plays that we thought could gain 500% by Jan 21st as part of a larger virtual portfolio. If you can do this with just 10% of a $100K virtual portfolio or 5% of a $200K virtual portfolio, that’s plenty of risk for these uncertain times and it’s a nice 25-50% bonus on the entire virtual portfolio if it works out. Risk can be a component of a conservative virtual portfolio if we wall it off safely.

Our first play was a fundamentals play on YRCW, assuming they wouldn’t go bankrupt.  That went very well (see prior updates for details) closed out with a total profit of $7,710.  YRCW is now YRCWD after doing a 1 for 25 reverse stock split that took them up to over $5 and, of course, they get interesting to us again under $5 but our big money was made on a Double Down at .11, 25x of which is just $2.75 so we’re not going to get too excited unless we see around $4 for a new entry.

20 C Dec $3/4 bull call spreads were .62 each ($1,240) and paired with the sale of 10 2012 $4 puts at $1.08 ($1,080) for net $160 investment in the artificial buy/write. The $3/4s are now .85 ($1,700) and the $4 puts have dropped to .70 ($700) so…
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Hedging For Disaster – 5 Plays that Make 500% if the Market Falls

Well, I am totally disappointed with Friday’s close. 

I was going to be pleased but then we had a very sharp, last minute sell-off on heavy volume that pretty much ruined the day.  I have been bullish and we have been buying at what we thought was a bottom, moving up to 35% invested in long-term, hedged positions but what if the 20% built-in protection (see "How to Buy a Stock for a 15-20% Discount") isn’t going to be enough?

You know I am a big fan of taking cash off the table in either direction, and we were not greedy and took most of our short-term bearish hedges out in the last two days.  We had a couple of new hedges already in this week’s Member Chat but let’s look at some other trade ideas that can bullet-proof our virtual portfolios, all the way back to the March, 2009 lows.  Our usual  Mattress Strategy is not going to be enough to save us if we have another "flash crash" - especially one that sticks!   Keep in mind that this is the biggest market decline we’ve had since February ’09 so adding a layer of protection here doubles our returns if this is the first leg of a major sell-off, or it gives us a smaller hedge that we can roll up later while we take our bigger hedges off the table.  As I have to say WAY too often to members – It’s not a profit until you cash it in! 

Hedging for disaster is a concept I advocated during another "recovery," in October of 2008, where we made our cover plays to carry us through a worrisome holiday season and into Q1 earnings – "just in case."  That "just in case" saved a lot of virtual portfolios!  The idea of disaster hedges high return ETFs that will give you 3-5x returns in a major downturn.  That way, 5% allocated of your virtual portfolio to protection can turn into 15-25% on a dip, giving you some much-needed cash right when there is a good buying opportunity.  At the time, I advocated SKF Jan $100s at $19.  SKF hit $300 around Thanksgiving and those calls made a profit of over $280 (1,400%), so putting even just 5% of your virtual portfolio into that financial hedge would give you back 75% of your virtual portfolio when you cash out. 

Keep in mind these are INSURANCE plays – you expect to LOSE,
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Thank Jobs It’s Friday!

Do I know what the jobs data will be at 8:30?  Nope.

Then why would I title a post "Thank Jobs It's Friday!" – what if the report sucks and we go down?  Well, at this point, even if that does happen, I think that will be the end of it.  We've been building up to this "terrible" jobs number all week and we got a rotten ADP Report and a rotten Unemployment Report so everyone is expecting a rotten Non-Farm Payroll report.  When everyone expects the same thing, we like to bet against it.  Sometimes we're wrong and sometimes we're right but you make some amazing money when you are right.  The magnitude of the short squeeze that would follow a significantly BTE NFP Report could send up up 300 points or more on the day, likely with a big finish this afternoon and some follow-through on Tuesday as the rest of the world plays catch-up.

A bad report, on the other hand, is already baked into the cake and we have yet to test S&P 1,000 so we can expect support there.  It wouldn't be pleasant, but we should be able to scramble and protect ourselves if we head lower so the smart move is to play for the mega-move higher, and that's where we are.  Of course, it's also a balance issue.  In our last Weekly Wrap-Up, we had the following open trade ideas going into June 21st (we had gotten bearish at the end of the previous week):

  • APOL July $40 puts spread at .46, now .60 – up 30%
  • BBY Jan $37 puts sold for $4, now $3 – up 25%
  • BP July $30/32 bull call spread at $1, now .70 – down 30% 
  • YRCW at .21, now .15 – down 28%
  • BP Oct $33/July $33 ratio backspread (3:5) at net $225, now $524 – up 132%
  • TZA July $7 calls .08 (net of spread), now $1.50 – up 1,775%
  • SIRI 2012 $1 puts sold at .33, still .33 – even
  • USO July $33 puts at .51, now $1.08 – up 131%
  • GLL July $37 puts, sold for $1.30, now .35 – up 70%


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Flatline Friday? Economy and Markets on Hold

Our charts predicted a flatline and a flatline is what we’re getting!

I do so love it when a plan comes together (see David Fry’s chart).  In yesterday morning’s post I predicted that bad data would send us down at 10 am and I rushed out our first Alert to Members at 9:37 with a call to go naked on our DIA Mattress play, which effectively flips our virtual portfolio bearish and we even added the QQQQ July $46 puts at .85, which we exited just one hour and four minutes later at $1.05 (up 28%) as we 1/2 covered our Mattress Plays back to neutral.  

We do a lot of day trading on options expiration week – taking advantage of the lower premiums.  As I said I would in the morning post, we shorted gold at $1,250 and we even shorted AAPL for a nice, quick gain before stopping out.  At 10:37 I had already said to Members: "I’m done with short plays here.  Not going long but that’s a lot of money already and I’m not greedy.  We’ll see if we hold this 1% dip first," meaning we got the 1% pullback we expected on our 5% rule and we know not to be greedy with our day trades!  At 10:57 we flipped to TNA June $47 calls at $1.20 and we rode those up to $1.60 (up 33%) at 11:54 but it was our TBT short put play that made me the most happy as brand-new Member Flipsiceland told me at 12:12:

Thanks Phil, just paid for my 3 month ‘prescription’ for the members service, in one and half hours.

That’s what I really love about my job, as it says on our logo:  High Finance for Real People – Fun and Profits!  We love making profits and we also like to have fun while we’re doing it…  The fun didn’t stop there as we had a nice winner on OIH puts, Copper Futures long and we hit the turn on the nose as I warned Members at 2:25 that: "Volume is very light with just 80M shares on the Dow at 2pm so VERY stickable but I would have to short into a stick save at this point as we shouldn’t be going up other than some desperate window dressing that can be quickly unwound" and at 3:19 we hit the turn almost on the nose as I said to our Members: "Volume at 3:15
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Freaked Out Friday – Has CNBC Gone Too Far?

CNBC has now gone way too far!

Using their first amendment shield to shout FIRE in a crowded theater, CNBC began stampeding investors out of the market at 3pm when they decided to have a temper tantrum as the Senate had the nerve to approve financial reform, which will hopefully stop CNBC's advertisers from screwing people over quite as hard as they have in the past.  Note on the video, the Dow was at 10,209 at 3pm and then just watch the market move while they speak – what power! 

They say with great power comes great responsibility but what do we do when it is wielded irresponsibly?  Bob Pisani reports from the floor (where he's "in" with the traders) and tells you "The Germans are going to vote tomorrow on whether or not they even want to support the Greek package."  This is total BS as Angela Merkel's coalition controls 332 of the 622 seats in the Bundestag, their lower House of Parliament and this is considered a done deal.  What the EU is worried about is the meeting of the EU finance chiefs AFTER the vote (CNBC doesn't even give you this news) where officials will discuss proposals to better coordinate national budgets and may address unilateral German limits on government bond trading. 

I will give Bob a 1 out of 10 on this one because he got the words "German" and "vote" correct but the vote is on a bill that bill allows loans of as much as $184 billion from Germany to backstop the Euro and has nothing to do with Greece, who already got their money on the 18th.  Note how the moment Bob talks about an upside, Maria (who has someone whispering in her ear) cuts him off and spins things into a downward spiral talking about risk coming off the table and Roubini predicting doom (what else is new?) with, she emphasizes, "a 20% correction in the next several months from THESE levels." 

Just to keep track of Dr. Doom for those of you who don't follow him:


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Smart Virtual Portfolio Management II – The $100,000 Virtual Portfolio (Members Only)

Options Sage submits:

Last week’s article discussed smart virtual portfolio management with respect to a $10,000 virtual portfolio.  In this week’s article we will consider a fairly conservative managment strategy, using options to enhance returns in a $100K virtual portfolio as promised last week and next week we will look into a million dollar virtual portfolio.

The Simplicity of Stocks

Making money trading stocks is (or at least, should, in theory be) much simpler than making money trading options!  Making money trading stocks simply involves being correct with respect to direction.  You also have the luxury of time on your side should the stock fail to move as expected initially – you can always resort to trusting that your fundamental due diligence will trump any short-term technical analysis failings. 

Making money with options, on the other hand, requires that you are correct with respect to direction AND TIME.  Take the FAZ July $12/16 bull call spread at $1.10 that we mentioned last week as protection – up a healthy 36% in a week.  The C spread they were protecting, on the other hand, was net $3.07 and is now net $2.94, which is a .07 loss on the C calls against a .40 gain on the hedges.   Using last week's expamle 2:1 ratio, this play is still up .13 per C contract for a $65 gain on $475 cash used for the two positions or 13.6% profit in 5 trading days.  That's what a well-hedged position does for us when the trade moves against us and those are the kinds of sensible trades you NEED to be making in a small portflio! 

We also have to factor in another risk variable, implied volatility.  WYNN traded as high as $96 prior to its earnings report this week and, with a P/E of 145, Phil came up with a couple of bearish plays to take advantage of the run while and  reasoned that, if the stock didn’t report stellar numbers and forecasts, a correction was in the offing.  Phil liked aggressively selling the naked $95
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Fat Finger Friday – Business as Usual, Really

Wow, we are sinking to new levels of idiocy now.

The MSM would have you believe that the tremendous sell-off in the markets was just a trading error.  If it was a trading error, then these markets SUCK!  Are you telling me we put TRILLIONS of dollars, including our retirement savings into a system that can be completely thrown into chaos because a single guy hits the wrong button on a single transaction?  It's a good thing Faisal Shahzad isn't still working on Wall Street anymore, or he could have just pushed a button and caused a lot more damage that way than he did with a faulty car bomb

This is financial terrorism folks, retail traders were stopped out and margined out while the pros made Billions picking up the pieces.  Don't worry though, if you are rich enough and connected enough, the Nasdaq will reverse your losses but if they really wanted to make ammend, they would cancel the day's trading for ALL traders.  My Members don't care, we were, of course, in cash and generally short on our fun plays so we made out like bandits or, should I say, like banksters!  Heck we even used our cash to do some bottom fishing in that ridiculous sell-off.   

This market didn't just sell off because of a trading mistake.  Whatever really happened, it happened because there were no real buyers when the selling came – something I have been warning would happen during the last 3 months of low-volume run-ups.  I keep using the house of cards/Jenga metaphore and that's exactly what we have so be very careful when the same idiots who have been telling you BUYBUYBUY are now telling you to "come back in – the water's fine."   We all know how that advice worked out in Jaws

I'm certainly NOT saying not to buy now.  We dumped our short yesterday as I told member Members during Chat to take the ridiculous money we were getting for the day and run:

  • 2:17: Well you can assume today is a very nice move down and get out now.  Tomorrow, even if jobs are bad and we head lower, then you can still flip to a June spread.  Don’t foget that VIX keeps climbing as we head lower.   Also, don’t forget how nice it is to be in cash and


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Phil's Favorites

Partisan divide creates different Americas, separate lives

 

Partisan divide creates different Americas, separate lives

Even in the physical world, it’s hard to cross partisan lines. igorstevanovic/Shutterstock.com

Courtesy of Robert B. Talisse, Vanderbilt University

When people try to explain why the United States is so politically polarized now, they frequently refer to the concept of &ldq...



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Kimble Charting Solutions

India About To Experience Major Strength? Possible Says Joe Friday

Courtesy of Chris Kimble

If one invested in the India ETF (INDA) back in January of 2012, your total 7-year return would be 24%. During the same time frame, the S&P 500 made 124%. The 7-year spread between the two is a large 100%!

Are things about to improve for the INDA ETF and could it be time for the relative weakness to change? Possible!

This chart looks at the INDA/SPX ratio since early 2012. The ratio continues to be in a major downtrend.

The ratio hit a 7-year low a few months ago and this week it kissed those lows again at (1). The ratio near weeks end is attempting to...



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Zero Hedge

Blain: "It's A Bad Week For The Credibility Of Mohammed bin Salman"

Courtesy of ZeroHedge View original post here.

Blain's Morning Porrdige, submitted by Bill Blain of Shard Capital

Saudi….

Its turning into a bad week for the credibility of Mohammed bin Salman, the defacto ruler of Saudi.  After the Globe’s third largest defence spending state was crippled by supposedly unsophisticated Houthi rebels (with some likely assistance from Iran) when they struck his oil infrastructure, this morning the headlines are all about how MBS is now arm-twisting rich Saudi’s to buy into the discredited Aramco IPO. 

In...



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The Technical Traders

Precious Metals Setting Up Another Momentum Base/Bottom

Courtesy of Technical Traders

Just as we predicted, precious metals are setting up another extended momentum base/bottom that appears to be aligning
with our prediction of an early October 2019 new upside price leg.

Recent news of the US Fed decreasing the Fed Funds Rate by 25bp as well as strength in the US stock market and US Dollar as eased fears and concerns across the global markets.  These concerns and fears are still very real as the overnight credit market has continue to illustrate.  Yet, the precious metals have retraced from recent highs and begun to form a momentum base which will likely become the
floor for the next move higher.

The one aspect that many traders ...



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Insider Scoop

10 Biggest Price Target Changes For Friday

Courtesy of Benzinga

  • Credit Suisse raised IHS Markit Ltd (NYSE: INFO) price target from $68 to $76. IHS Markit shares closed at $67.75 on Thursday.
  • Wedbush boosted Restoration Hardware Holdings, Inc (NYSE: RH) price target from $170 to $185. RH shares closed at $169.49 on Thursday.
  • Mizuho lifted Seagate Technology PLC (NASDAQ: STX) price target from $46 to $50. Seagate shares closed at $52.94 on Thursday.
  • UBS raised the price target for Weight Watchers Intern...


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Lee's Free Thinking

Federal Reserve Bank of New York Statement On Repurchase Operation - Roll Over Beethoven!

Courtesy of Lee Adler

This is a syndicated repost courtesy of NY | Press Releases. Original: Statement Regarding Repurchase Operation. Reposted with permission. 

September 19, 2019

In accordance with the FOMC Directive issued September 18, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct an overnight repurchase agreement (repo) operation from 8:15 AM ET to 8:30 AM ET tomorrow, Friday, September 20, 2019, in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 percent.

This repo ...



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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Digital Currencies

China Crypto Miners Wiped Out By Flood; Bitcoin Hash Rate Hits ATHs

Courtesy of ZeroHedge View original post here.

Last week, a devastating rainstorm in China's Sichuan province triggered mudslides, forcing local hydropower plants and cryptocurrency miners to halt operations, reported CoinDesk.

Torrential rains flooded some parts of Sichuan's mountainous Aba prefecture last Monday, with mudslides seen across 17 counties in the area, according to local government posts on Weibo. 

One of the worst-hit areas was Wenchuan county, ...



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Biotech

The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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