150 OCT 133.00 DIA CALL (DAWJC)
100 OCT 131.00 DIA CALL (DAWJA)
300 OCT 132.00 DIA PUT (DAWVB)
200 SEP 133.00 DIA PUT (DAWUC)
300 SEP 133.00 DIA CALL (DAWIC)
100 OCT 130.00 DIA PUT (DAWVZ)
200 SEP 132.00 DIA PUT (DAWUB)
Dont’ forget the virtual portfolio is very bullish otherwise with few put positions (although lots of covers) and I’m not too worried about the Octobers so it’s more about my 400 Sept puts vs my 300 Sept calls than the 400:250 October mix.
CVX will be a DD and XOM I’m buying the $85 puts as it was a premise oil would go down after the weekend, not today. Again, scaling will save your virtual portfolio!
Selling 1/2 Sept DIA calls into the initial excitement (and the Qs) will rebuy to cover on a dip. XXX Selling by the way means setting .10 stops, not just randomly selling!
I am so mad that I have to go! Obviously holding 133 is critical but let’s really make sure our lagging indexes stop lagging. At 13,325 I’d start getting concerned that the Dow can’t hold it. The Qs need to get back to $49 to be bullish from here but it’s all about Bush/Bernanke and I hate to lay something out so far in advance but at this point I’d be tightening my puts up (that I am doing) ahead of Ben. If Ben rallies the market, Bush can only add to it so dump the puts then.
If Ben kills the markets, then I would stop out of the calls, mattress the puts and wait for George. If George reverses the decline then just do the reverse (and don’t forget you can mattress up and down).
Gold is shooting up ($684) and the dollar is crumbling as there are few combinations of these two guys talking that will give foreign investors a reason to think we’re not driving this economy straight to the 7th level of Hell with all this…
Do we really need Bernanke AND Bush to each have a plan to save the markets from 13,250 today? Bernanke is scheduled to say something at 10, followed by the President, "who is expected to introduce a plan to reduce some of the pressure on squeezed homeowners by, among other things, changing the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages," according to the WSJ.
We spoke extensively about this in chat yesterday and I said early on (as we pressed our Dow squeeze plays and added Nasdaq squeezes): "Bernanke can send us below 13K tomorrow or back to 13,500 with a single word (Imagine the power!). If Santy Clause doesn’t come down the chimney tomorrow the market will throw a tantrum but Mommy (Paulson/Schumer/Bush) will tell us that Santa may still show up on the 18th if we’re good so it’s likely to be chop, chop, chop if we don’t get a firm indication of a cut."
The bulls can thank Bush for giving the markets a strong kick-start but did the President schedule his statement to add what would have to be unnecessary top-spin to Ben’s statement or is Bush coming on to counter the Fed statement after the Chairman wouldn’t give him what he wanted?
I certainly hope that’s the case as that was the plan I laid out for Ben yesterday when I said: "The only responsible thing for Bernanke to say tomorrow is that the economy is strong however certain sectors which were overheated, housing in particular, are cooling down and that the sub-prime issue is unique but controllable BUT NOT through a Fed rate cut. While the Fed stands ready to provide liquidity as necessary, we do not see it as necessary at this time and we believe that it is the responsibility of Federal regulators to step in and help resolve issues for Americans who find themselves faced with mortgages that will be difficult to maintain. That’s it. I have a big stick and I’m not afraid to use it will be a lot smarter than using the stick and having everyone realize it’s not big enough."
As I said in the morning, I would be thrilled to hold our levels. It only took 18 minutes of trading before I decided: "AAPL going well, I’m getting out of Sept DIA puts but will rebuy if we break back below -100." By 9:54 I got bullish: "GRMN, TASR, CROX, AAPL, RIMM – nasdaq is flying so I’m going with QQQQ $46s as a mo play, $2.60 with a .15 stop."
The Nasdaq was kind enough to pick up another 28 points from there in the next 90 minutes but I remained skeptical, saying just 15 minutes later: "I am not buying into this rally, just playing the motions so please note that a lot of moves I am making here are quickie trades where I’m very happy to make 10%. If I do not XXX a trade, then it is a trade I am discussing or telling you about but not a trade I think would be good for the average person and, if you are a $10KP player, then you shouldn’t be doing those either in this market."
By 10:41 we started working back into our DIA puts and I called a roll on the Qs with tight stops at 11:20, 2 minutes before the day’s high on the Nasdaq. At 11:46 I went from manic back to depressive and said: "QQQQ – now I’m squeezing the Qs with the $48 puts at .70 in a 2:1 ratio to the $48 calls if they can’t hold 2,585. Ahh, it’s the NYSE that’s bothering me. I really want to see them get positive or I’m worried." The Nasdaq pretty much gave up all of the day’s gains from that point forward.
The rest of the day was just as crazy as a strong(ish) GDP report did give the markets a boost but fear of the Fed, whether they do something, don’t do something, might do something… whatever, drove investors into fits. We just had fun scalping the indexes, causing Cramer (speaking of schizophrenic) to note how great that play is in last night’s show.
We took a few off the table and added some CVX $85 puts but we finished the day with most of our bullish positions still intact, protected by a tight but longer (1/2 October) 60:40 bearish split on the index puts. My thanks…
I am not buying into this rally, just playing the motions so please note that a lot of moves I am making here are quickie trades where I’m very happy to make 10%. If I do not XXX a trade, then it is a trade I am discussing or telling you about but not a trade I think would be good for the average person and, if you are a $10KP player, then you shouldn’t be doing those either in this market.
Down 50 is not bullish and I said yesterday thad GDP 4+ would rally (or was it 3.9) but now we have a battle between traders who think the economy is fundamentally sound and will grow its way out of trouble and the ones who think we are dying and we need a shot of Fed relief, which is less likely to come with good growth. We held our levels on that drop and I said I would be impressed so I am for now.
Be careful, looks toppy now… Working my way back into DIA $133 puts now at $2.83 and $132 puts at $2.42, saved about .20 by dumping earlier and stepping back in so I don’t have to be too…
I could just reprint Tuesday’s morning post because we’re right back at Tuesday’s levels but today is GDP Day so nothing matters until those numbers are released.
Tuesday’s post was about denial but it was easy to call a drop that morning because there was no data and no market moving news that I thought would save us that morning. Today we have The GDP and the deflator but tomorrow we hear from the big Kahuna – Uncle Ben addresses the nation to wrap up a week of sun and fun and economic chit chat over in Jackson Hole.
Ben had better mind his Ps and Qs when he speaks because we’ve already gotten the warning I mentioned from the German Economic Advisory Board and today the language was taken up a notch by OECD deputy director, Adrian Blundell-Wignall, who said: "The US Federal Reserve should not cut interest rates in response to the recent turmoil in financial markets. The Fed should only cut rates to meet its fundamental objectives of controlling inflation and maintaining the health of the US economy. If the US economy is threatened by a slowdown in activity, then a rate cut would be justified. But if this is not the case, then a rate cut would merely help to bail out investors who have taken ill-considered risks."
We are not the world’s #1 economy anymore, we need to get used to being treated like this!
It’s just 5 minutes until the GDP as I write this so I’ll get the fact that Asia rallied back (woo-hoo!) and Europe had a weak finish, making it all the more baffling how the big boys on Wall Street knew to start rallying almost an hour before the Senator from New York announced he had a letter from the Chairman of the Federal Reserve (what time does mail get delivered?) that said (but not really) they will come to the rescue. Just remember boys, when the SEC asks what prompted your buying remember to DENY, DENY, DENY!
GDP is up 4% vs. 4.1% expected vs. 3.4% last quarter. The PCE index is up 4.2% but don’t worry, the "core" is just 1.3% for all you non-food eating non-energy consuming investors. DENY, DENY, DENY! The GDP chain deflator, which measures the change in prices in total GDP came in as expected at 2.7%, not terrible as it’s the broadest measure of inflation BUT it…
Homer was wrong! Yesterday I said I would be guided by the Odyssey, which states: "It is tedious to tell again tales already plainly told" yet that’s exactly what moved the markets today.
We drifted along at my target levels and it looked like the market was going to give up until about 1:45 when the market started rallying back to retest 13,200. I commented to members: "Wow, huge buying program (I know it’s a program becuase someone is buying GM, no human would be so stupid!). These are good levels and the VIX is sure happy about it. Stops still apply both ways on winners but I’m more inclined to roll or DD on puts that aren’t working right now."
On further investigation I discovered: "This is the result of a letter Schumer released where Bernanke said Fed was ready to act… Not a very strong run-up considering but that explains the buy programs kicking in."
What exactly did this letter say that rocked the markets? It said this:
"Dear Senator: Thank you for your recent letters of August 8 and 22, in which you express concern about the potential effects of volatility in financial markets and the tightening of credit conditions on homebuyers, consumers, and the economy as a whole.
"I want to assure you that the Federal Reserve, in cooperation with other federal agencies, is closely monitoring developments in financial markets. As you recognized, the Federal Reserve has also taken steps to increase liquidity in the markets. In particular, our changes to our discount window program are designed to assure depositories of the availability of a backstop source of liquidity so that concerns about funding do not constrain them from extending credit and making markets. Also, the Federal Open Market Committee has stated that it is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets".
Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. (this was released 8/7)
Further deterioration in financial conditions could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require
AAPL – be happy here (around $132), especially if the market starts to fall (watch the Nas). If GOOG can’t break $510 I will start adding back the overly excited $130 covers against my longer plays. As to the $135s, we take that bonus and run in this kind of market (when in doubt, sell half!).
Sorry but I forgot I had the radio show. Picked XOM $85s and VLO leaps (’09 $70s) and TSO $50s as plays off a very big drawdown (about 7M oil and gas) ahead of the holiday. Obviously not a good time to have puts in energy but we may shape up to a nice shortign opportunity ahead of the weekend, which I still think will be disappointing from the demand side.
GS – I prefer the BSC Jan ‘10 $110s for $24.25 against which you can sell the $115s for $3.50 (but waiting for a bounce). On the GS, absolutely when you get way ahead early you want to take out your caller (with stops) or roll him down to one with a bigger premium if you don’t think it’s going to bounce. In GS’s case, it looks like this may turn into a real rebound so maybe see how they do around $175 before reselling. Also, whenever you take out a caller, one of the things you should consider first is should you be rolling yourself down to a tighter call, it reduces your margin requirements and increases your leap’s Delta so a strong rebound won’t burn you as badly when you have callers.
COST/OTHER puts – my rule from Monday applies both ways, let yourself stop back to cash. Oil is at $73 and that’s got to be bad for someone but you wouldn’t think so from this market. We are in real manic/depressive mode right now.
AAPL puts – I’m not a big fan of those. I really like selling the calls much better (Google too) as they are so much slower to gain than lose value. I’ve sold the $130s for…
Yesterday was a wild one and today is our last day before we get some real data to play with.
While I REALLY want to be able to put on a happy face, I have tossed and turned on this all night and I have decided that I am still fairly bearish, despite the big sell-off (which looks a little overdone) and despite this morning’s pre-market excitement.
Had we had this bounce at 2:01 yesterday, I would have felt better about it, I would have thought that real buyers were anxious to get back in the market and put money back to work but we DROPPED 125 points AFTER the Fed minutes were released and trading curbs had to be placed on the markets near the days end.
If we are rallying, we are rallying on the basis that the economy is falling apart so rapidly that the Fed will have to reverse their posture and cut rates. Whoopee! Where do I sign up? Also, do you really imagine that a rate cut from the Fed, EVEN a 1% rate cut, will save a person with a $250,000 mortgage whose 1.5% ($862/month) "teaser rate" is about to jump up to 7% ($1,663/month). Is a 6% rate ($1,498/month) going to keep them in the house?
Now what about the people who have $400,000 loans? What about the small business owners who took adjustable lines of credit to get their business going during the past few years or the thousands of existing businesses who tapped the flow of easy capital with loans that ratchet up. Is 1% going to save them? Is 1% even on the table?
I still maintain that it would be a HUGE mistake for the Fed to demonstrate its impotence by firing their big gun into an overbought market to bail out speculators who bought at the top. Defending $72 oil (up 80% in 3 years), $675 gold (up 68%), runaway food prices (up 32%), $248,000 median home prices (up 25%) or equities that are up 35% is NOT in line with the Fed’s stated goal of fighting inflation.
The original mandate for the Federal Reserve in 1913 was to "prevent financial panics and bank runs by providing loans to the banking system." This led to the Fed supporting a runaway bubble economy in the 20s that ended quite badly for everyone (well, almost everyone). In…
"Today reminds me of that Barrons commercial…”The market goes up you make money, the market goes down you make money….but this time it’s because of PHIL, HAPPY, and ZMAN." – Bryan E.
Every once in a while, one of our members takes the time to say something nice and I really appreciate it, little things like that give me a nice boost of positive energy during the day.
One thing I’ve noticed is that we get more compliments in a down market than an up one and I think I have an idea why:
Unlike most "hedge" funds, we actually DO hedge our virtual portfolio AND teach our members to hedge so that we can make money in both directions. Although generally we make a bit less in a bearish trend (as we are long-term bullish) it tends to be appreciated a lot more during those times.
KeyserSoze Posted August 28, 2007 at 9:12 am |Permalink
Great post to put things into perspective, especially the way wealth is “created” on paper. One of the many strengths of the site (in addition to the strong community and profitable trading strategies/ideas) is the energy you put into sharing the economics and finances behind the numbers. This, and previous posts like it, really helps understand the “why” behind what’s going on with the economy and markets in ways that I don’t see anywhere else.
Greg Reiman – Posted August 28, 2007 at 9:21 am |Permalink
Phil: I second KeyserSoze, your site would be worth the subscription price just for the morning commentary and daily wrap up, as a road map of what is happening and where we are likely to be headed. You are able to put it all in perspective in a way that I could not no matter how much news I read.
mrn – Posted August 28, 2007 at 9:24 am |Permalink
The fact that you try to give the NAKED and UGLY truth, is the #1 reason that I subscribe to this site and have tried and canceled dozens, literally, of others that are premaoil, permagold, permaequity, PERMABULL!!!!
Keep up what you’re doing: Tell the truth about the markets,
The video on the left is a fantastic illustration of the current investing climate. I especially like the way that Homer is repeatedly smacked in the head on the way up (rescued by Helicopter Ben?) and the end is just perfect!
We had a pretty rough ride right out of the gate so thank goodness I set levels in the morning or I don’t think the markets would have known where to stop. I called for the markets to hold half their gains off our recent lows:
This was, as I predicted, the first to break down but made NO sign of recovering.
Is it then, time to hit THE button? It was Homer who said "Once harm has been done, even a fool understands it" in "The Iliad" (and anyone who is thinking "Did Homer Simpson write the Iliad?" must leave this blog immediately!). But today I will be guided by Homer’s later work, The Odyssey, in which he said: "It is tedious to tell again tales already plainly told," which is my take on the Fed minutes – what did they say that we didn’t already know?
I took the Fed minutes as being about as encouraging as they could be for the bulls, they were written way back on August 7th when the Dow was at 13,500, on its way to 13,695 the next day – despite a Fed statement that clearly stated "Although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected."
The market, like Homer (no, the other one!) fell off a cliff on the 8th and dropped a full thousand points by the 17th, and all this came LONG after …
Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.
Initial Unemployment Claims Chart- Click to enlarge
Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.
Unemployemt Claims and Stock Prices - Click to enlarge
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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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Don’t you think this is a bit much?
The bulls can thank Bush for giving the markets a strong kick-start but did the President schedule his statement to add what would have to be unnecessary top-spin to Ben’s statement or is Bush coming on to counter the Fed statement after the Chairman wouldn’t give him what he wanted? 
Remember it was George Bush Sr. who set up the 
That was fun!
By 10:41 we started working back into our DIA puts and I called 
Here we go again!
Ben had better mind his Ps and Qs when he speaks because we’ve already gotten 
GDP is up 4% vs. 4.1% expected vs. 3.4% last quarter. The PCE index is up 4.2% but don’t worry, the "core" is just 1.3% for all you non-food eating non-energy consuming investors. DENY, DENY, DENY! The GDP chain deflator, which measures the change in prices in total GDP came in as expected at 2.7%, not terrible as it’s the broadest measure of inflation BUT it…
D’oh!
"I want to assure you that the Federal Reserve, in cooperation with other federal agencies, is closely monitoring developments in financial markets. As you recognized, the Federal Reserve has also taken steps to increase liquidity in the markets. In particular, our changes to our discount window program are designed to assure depositories of the availability of a backstop source of liquidity so that concerns about funding do not constrain them from extending credit and making markets. Also, the Federal Open Market Committee has stated that it is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets". 
Yesterday was a wild one and today is our last day before we get some 
If we are rallying, we are rallying on the basis that the economy is falling apart so rapidly that the Fed will have to reverse their posture and cut rates. Whoopee! Where do I sign up? Also, do you really imagine that a rate cut from the Fed, EVEN a 1% rate cut, will save a person with a $250,000 mortgage whose 1.5% ($862/month) "
Every once in a while, one of our members takes the time to say something nice and I really appreciate it, little things like that give me a nice boost of positive energy during the day.
Dow 13,100 – 
I took the 
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(