Well the markets did exactly what we expected today, only a little faster than we thought.
This is that very special week in the month when we turn into day traders as it’s so much fun to take advantage of the relatively low premiums and there is nothing quite so much fun as option expiration week during earnings season.
This is a no so rare occasion actually as we obviously get 4 periods right in the middle of earnings but we also get some fun with the stragglers a month later and, even if no one announces earnings, we always have the four horsemen; Google, Apple, Amazon, RIMM… as well as our new friends; BIDU, FXI, FSLR, PTR (the gang of four) and old standbys like SNDK, XOM, VLO, CROX, MA, ICE.. Oh heck, I could go on all day – so many stocks to trade, so little time!
We get a ton of mail from non-members asking what the heck we do on the member site so I thought rather than do the wrap-up, it’s a good day to review a few trades from today. This morning I posted a very appropriate picture of market action as I said: "So no dwelling on bad news today! Time to go with the flow and swim upstream with the other salmon – let’s just keep an eye on that 2pm beige book and enjoy our day!" The image of the poor little salmon swimming right into the bear’s waiting jaws was pretty much exactly what happened to the bulls who bought into the very brief morning rally…
We were on top of things right away as my first two comments of the day set the tone for the morning action:
October 17th, 2007 at 9:31 am | Permalink
YHOO – don’t go giving your callers their premium at the bell, it will deflate. DO roll yourself while you’re getting a good price but try no to pay more than yesterday’s spread (.80) as the rest is unneccesary premiums.
October 17th, 2007 at 9:36 am | Permalink
Wow SOX up 9 at the open, that’s huge. I DO BELIVE IN SEMIS! BA keeping up with the Dow, they will be a good leading indicator one way or the other. Let’s see if GOOG breaks $630 but I’m already seeing a lot of profit taking so I’m going to DD on my open DIA $141 puts at $2.70 XXX
October 17th, 2007 at 9:39 am | Permalink
BIDU $320 puts at $9 are a good gamble as a mo play. Stop at $8 XXX
The BIDU puts topped out at $15.40 around 2pm, up 71% – we have rules governing day trades that take out a trade like this with a stop at 20% of the best profit (based on sales) so, with a $6.40 gain the stop would be $1.28 lower or $14.12 and you can see very clearly on the day’s option chart the pattern of us entering and gradually exiting this trade (I called the trade over a little early at 1:06, $13) – Good job and congratulations to all!
As I often say, PSW is not about picking stocks, our site is dedicated to making people better traders and it makes me very proud to see so many people profiting by following our system.
FilmFlam pointed out right at 9:44 that Citigroup was turning down, my reply was: "C – Oh no! That’s BAD. Where is the faith people? BSC not doing well either despite CONFIRMATION that the Chinese want to buy some. CME is often a fun short into expiration. $620 puts are $3.50 and make a fun gamble if you don’t mind losing it."
That’s how we do things at PSW, we chat, we analyze and we come up with trades all day long. The CME trade was our first daily double, rocketing up to $8.50 at 2:30. At 10:13 I noted that OIH was acting strangely and FITB was falling fast, confirming the premise I’ve had that regional banks would lead a decline as they are unable to insulate themselves from sub-prime woes like the big boys.
The oil inventories were, as predicted, a build and our oil puts all moved into the money and gave us a nice win for the morning, which was knocked down in a pointless afternoon recovery (we held on). We took out our SU $100 puts we had sold for .60, a $2.40 gain on that position and rode out the rest of the day, waiting for the other shoe to drop in the oil patch. Meanwhile the conversation shifted to FSLR, leading to the following comment:
October 17th, 2007 at 10:50 am | Permalink
TOOK out SU but not XOM putter (as the price wasn’t right) just in case we get a huge sell-off but I’m just looking for this to break the spirit of the oil bulls, not to kill them.
C – they have $27Bn in quarterly revenues. If they go down so does the country so I figure better to be an optimist and buy them down here otherwise you should be just buying gold and sticking it under your bed.
IBM – I’m in naked Nov $115s on all.
FSLR already up on anticipated earnings. With a current p/e of 169 and a forward p/e of over 100 (and that is INCLUDING an anticipated 195% increase in sales for FSLR as well as .19 on profits, raised from .17 they guided last Q) on the whole I’ll stick with my October caller as protection and deal with the rolling after the news.
That led to a play (1:06) but it wasn’t time yet so we’ll keep this review in time order or it will get very confusing. We are, of course, all over the place in chat as hundreds of members make hundreds of comments each day, many of those contain picks and suggestions every bit as good as mine but that’s a review for another day. I just want to say that this is, as always, a team effort and without the thoughts and suggestions of our many great members, a lot of these great trading ideas would never happen.
October 17th, 2007 at 11:52 am | Permalink
GOOG – VERY IMPORTANT – you will NOT get anything like what is being offered for Nov contracts after earnings so, if you intend to roll, do it before then (tomorrow night). On the $620s, I would roll him to the Nov $620s to add $11 worth of protection (and $11 in premium) to the position. Yes you will get a $13 volatility crush BUT you are making a bullish play so if GOOG goes up $20 you will owe him $27 and you will only be able to perhaps roll him to the Nov $630s, which will almost certainly have much less than $15 in premium and will still cap your additional gains. If GOOG stays flat or goes down, then you want as much premium as you can sell to protect yourself (don’t forget you have $42 in premium on your $620s).
Speaking of GOOG, if the market is going to come back we can play the $640s, now $11.50 as a mo play with a stop at $10 if it crosses $631, getting out at either $635ish or if it breaks back below $630. XXX
This was a small, but nice momentum trade that made a couple of bucks (they can’t all be doubles!).
October 17th, 2007 at 12:21 pm | Permalink
VLO and TSO down big. It’s funny how every seems to forget that the integrated majors make most of their money on refining operations too.
C – they pay a nice dividend and they’re just too darn cheap here. Also a China player who exports cheap American dollars and gets back juicy foreign currency – how could you not like them with a forward p/e of 9 and earnings already behind them. This CEO thing is nonsense, I’m sure one of Cramer’s pals wants the job so they’re villifying Prince, who has nearly doubled earnigns and revenues on his watch. Banks are not internet companies and, when one grows like an internet company, that’s when you should watch out.
FXI – HOLY COW! PTR too…
Ahhh… Pisani says change in stock rules is rampaging Chinese stocks. This is end of bubble desperation where they start doing anything they can to keep a rally going. Much like our own change to rules on naked shorting last week that gave a big boost to lots of bad stocks like OSTK and WFMI.
Dollar down, oil $88.50, gold $764…
UTX – may as well take them out and roll down the Jans to $75s for + $2.45 XXX. No reason to sell Nov $75s just yet but don’t let them slip past $2.50 on you.
C – $50 was a good place to scale in but here is good too…
PFE – not worth paying them a nickel. Just let them expire and hope for a bounce to sell into. They may be pinned for expiration anyway.
CROX – oops, wrong side of that trade!. You are lucky to get out at the moment with a small loss. I do like the Jan/Nov $70 puts spread at $2, which would be a free change of position for you. XXX PS, that would be starting with Jan $70 puts at $7.85 and waiting to see if you can get closer to $7 on the Nov $70 puts but cover by EOD no matter what.
FXI – until we understand the new rules, can’t really say what overpriced is. MSTR has a great business, wouldn’t bet against them. The Jan $205 puts are down to $20.15 and the roll to the $210 puts for $1.20 is an imperative. Let’s wait a while to deal with the caller but we’ve got that $1.20 in the bag already so gaining $5 in position for $1.20 is a nice bonus. XXX
Of course a lot of these are answers to member’s questions, perhaps a little confusing out of context but that’s what we do all day, we talk stocks and exchange trade ideas, when we hit on a good idea I give it an XXX. Not all trades get the "kiss" of approval but "XXX" indicates a generally recommended move, as opposed to something we are just talking about or a trade too risky for most (we have all levels of traders). The CROX play worked out perfectly as that was a dead top call for the day while the FXI and UTX plays were just the normal positioning we do as we work our spreads.
October 17th, 2007 at 1:06 pm | Permalink
GOOG straddle – lots of moving parts but at $625 those better be some damn amazing earnings! I’m sticking with the strangle, already a free trade.
PTR putter stopped out, ready to sell next one if it breaks down.
FSLR breaking down. $140 puts are just $1.50 but super risky of course.
CHINA – beware! Now that we know why the shares went nuts it’s old news to the smart money who, unless the dynamics of the new regulations have really altered the fundamentals, will be dumping the shares on all us “smart” retail shareholders who THINK we know something that gives us an advantage. It’s all the classic elements of a con in a nutshelll…
FSLR was our second Daily Double with the $140 puts flying to $3.25 at 2:30. Remember we had been watching that one since 10:50 – timing is everything!
October 17th, 2007 at 1:27 pm | Permalink
EBAY – Sell the $40 puts for $1.60, Sell the $40 calls for $1.40-$1.60 on the bounce. Buy the $42.50s now for .32 to cover the calls, buy the $37.50 puts at .35 or less to cover the puts. Hope for a $2.50 move in either direction and you win will be the amount of your winning side’s put or call after you pay the winning putter or caller back. Of course a flatline at $40 would be great. This only works if Ebay does run up, otherwise you have to abort the put side. Otherwise I would spread the Nov/Oct $40s as I think they have more upside than down.
Rates are coming down, money flowing into bonds – again. There’s only so many 100+ point intrad-day drops a person can take I suppose…
I’m very proud of this one, EBAY followed my script to the letter and gave us a fantastic spread. Although their earnings were great, it looks like they are going to flatline at the open, giving us a great chance to take out our caller and putter for a huge profit. Thanks to Legh for reminding me to put that play in at just the right time (I had said in the morning it was too early to enter).
October 17th, 2007 at 2:02 pm | Permalink
Beige book – pace of growth has slowed. Consumer spending expanding more slowly. Mfg growth weak across all industries but strong global growth. Slower consumer lending, commercial real estate uncertain. Business nervous in general. Food costs up, companies taking the hit as they can’t pass on prices.
Not a good report.
October 17th, 2007 at 2:04 pm | Permalink
Out of Qs with a dime. XXX
October 17th, 2007 at 2:19 pm | Permalink
Market bouncing – good sign after reading the Book. Yet another thing that just doesn’t matter. Perhaps they figure the Fed has to lower rates again but I don’t see BKX responding.
We dumped our QQQQ puts for a quick 25% as we got exactly the action I was expecting a half hour earlier when we made the Ebay play. That gave us a perfect exit on many of our puts but we didn’t take too many upside plays as I really didn’t like the economic numbers I saw and it seemed safer to stay more in cash while we wait for clarity.
I don’t see how anyone reading that Beige book could see anything positive and the bank news we’re seeing indicates some serious problems in the industry. Today’s bounce was based on the lunacy that all this terrible news means the Fed may lower rates but we’re a little past that – it’s like putting gauze on a severed limb – this economy has serious issues and the markets have been ignoring it for months, you can’t just keep buying just because everyone else it buying, as SOME point fundamentals will kick in.
October 17th, 2007 at 3:09 pm | Permalink
GOOG $600 spread – I’d roll that up to a 2x $630 spread. I think it’s around even and you’ll be a lot less upset if GOOG goes to $660 or higher and the downside protection is still good.
This one is tricky, we’ve been tightening the noose on Google all week but we’ve gotten some lucky moves that have made this a nearly free strangle – can’t wait for this eveing, very exciting stuff!
October 17th, 2007 at 3:38 pm | Permalink
CY and SPWR fell off a cliff! Don’t know what’s up…
October 17th, 2007 at 3:41 pm | Permalink
CY acting like SPWR is only 1/2 done going down. Risky with earnings but I like the Nov $85 puts as a small play.
We don’t know how this one will pan out yet, we take new plays whenever the opportunity presents itself. SPWR will be very interesting as they announce at 1:30 tomorrow so that should be fun either way.
So that’s our day in a nutshell. As promised in the morning it was indeed a "Wild Wednesday" as well as a "Which Way Wednesday," two of my favorite titles. This is, of course, just a small sampling of the day’s comments but it’s good once in a while to reflect on the decisions we make during the day so we can learn from our mistakes as well as our successes.
All in all, it wasn’t a terrible technical day for the markets as we held our levels with the S&P testing or 1,530 mark, the Nasdaq again bouncing off 2,760 (I will have to raise my 2,750 level by 10 at this point!), the SOX broke and held 490 and the Russell touched my 810 downside target. Not bad for levels I set over 2 months ago!
I hope everyone had fun today – I sure did. We have our work cut out for us over the next 2 days as we adjust our spreads but, if all goes well, we can pretty much coast through these earnings with minor adjustments and concentrate on some new plays. My second favorite time of year is a few weeks into earnings, when the sector reports give us a pretty good idea of how to play the remaining companies…
Legh – October 17th, 2007 at 10:18 am | Permalink
Made $400 in one minute on BIDU puts thanks Phil.
Legh – October 17th, 2007 at 10:26 am | Permalink
Wow another $400 in two minutes BIDU up and down.
irished – October 17th, 2007 at 10:27 am | Permalink
Phil. Thanks for the BIDU mo play. Nice change for the weekend!!
Dan W -October 17th, 2007 at 10:51 am | Permalink
Made some change on the CME puts, thanks for the call. Out of it a bit prematurely (yet again), but happy nonetheless.
Joseph – October 17th, 2007 at 12:48 pm | Permalink
Phil – I have locked in my first 50K month (the October expiration period) using the least amount of cash with every position hedged to some degree. My results have improved month-over-month for the past eight months. You have totally changed my trading. Many thanks…
johne – October 17th, 2007 at 12:53 pm | Permalink edit
Hi Phil, I bought your suggested Nov DIA 37 PUTS yesterday at $2.
Today I DD’d at $1.60, The market is going my way. I would be interested in your advice on how you would play this.
johne – October 17th, 2007 at 1:42 pm | Permalink edit
DIA PUTS – Thanks Phil for the advice” “Tight Stops on half” and “don’t get greedy!”
Man I love this job!
Thanks again to all the members, you guys make this fun and I learn as much from you as you guys do from me. I think the site makes all of us far better traders together than we ever were individually. Congrats to all on a great collective effort!
