Thank Jobs It’s Friday!

July 2, 2010

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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%
TBT July $38 puts sold for $1, now $2.05 – down 105%
OIH June $104.10 puts at $2.02, now $8.70 – up 330%
TZA July $6/8 bull call spread for .55, now $1.48 – up 169%
TZA July $6 puts sold for .50, now .04 – up 92% (pair trade)
USO July $33 puts at .50, now $1.08 – up 136%
GLL July $37 puts sold for $1.40, now .35 – up 75%

These are all of our open short-term trades, which we published on June 19th and reflected our fairly bearish stance going into the next week (which was a turn-around from the prior week's bullish trades). Our long-term trades are all well-hedged for a 20% market drop so we're hardly in a panic over this little shake. People wonder why we would "flip flop" bullish so quickly and the answer is – BECAUSE WE CAN AFFORD TO! As we make money on the bear side, we look for bullish opportunities to cover our gains. It's a constant game of balance and you can't expect to understand our overall positions if you come in today and read a single article as they evolve over time. This is why, the first assignment given out in our New Member's Guide is to have the Member go back and read the last 30 days of posts and comments – it is VERY dangerous to take this type of trading out of context!

So we've been getting more bullish all week long and we have cashed out the above short positions (adding a few new disaster hedges, of course) and added some now-painful longs but we have 2 weeks to turn it around in July and we remain confident until the jobs report proves the bear case that all hope is lost and we're heading into the Great Depression, Mark II. We are no fools, of course – we have hedged for disaster as well. On Tuesday morning, I felt so strongly about the need for protection that I not only published at TZA spread for protection (TZA July $6/7 bull call at .60, selling Aug $6 put for .48 is net .12 on $1 spread for a 733% upside) in the Morning Post but I also sent it out as a Special Alert to all members (even the Report Subscribers) AND I put it up on Seeking Alpha for my readers there AND I twittered it (which I almost never do) and, of course, put it on FaceBook for my friends, to help them protect themselves as well. THAT's how positive I was on Tuesday morning that the market was going down!

That trade is now up 475% but we got out at 500% because that's plenty of money to make in 2 days. The AMAZING thing to me is that, 2 days after placing that trade, I find myself being branded a "perma-bear" because I've spent the last couple of days saying BUYBUYBUY while, well EVERYBODY ELSE, is saying SELLSELLSELL. Yesterday, I laid out my buying premise for Members,which we also posted on Seeking Alpha, because I want my readers there to understand also why the tone has changed. I won't get back into it now but I will say that I just call them as I see them and if we see 150,000 jobs lost this morning – I'm perfectly happy to rejoin the dark side but, until that time (just a half hour from now) I remain cautiously optimistic.

If you want someone who is always bullish or always bearish, I am not your guy. My job is to find places where risk is mis-priced and take advantage of the fear and irrationality of the investing public. We use options at PSW to both leverage our bets as well as to hedge them and it gives us the ability to take a dozen trades like the ones above.

We had a massive strategy (and political) discussion in Member Chat already this morning and I say "thank jobs it's Friday" because I have spent 3 days now in a room full of bears, who all want to bet the market down and I have been very stingy with my downside trade ideas as I just don't believe in them so, finally, today is the day that I will either be vindicated if we hold our lows (the jobs report doesn't have to be good, just anticipated and priced in if bad) or I will finally come over to the dark side and we will ride this puppy down to 8,650.

Either way, it's going to be fun!

8:30 Update: Oh, how annoying! It's 125,000 jobs lost, so nowhere near the doom and gloom predictions but also not enough to dissuade the bears, especially the all bear 3-ring circus on CNBC who are spinning every aspect of this report as far down as possible. Unemployment is down to 9.5% from 9.7% in the prior report and the number includes 225,000 census workers that were laid off and the Private Sector ADDED 83,000 jobs but that is not at all what I'm hearing on TV at the moment. I AM THRILLED as there is NO WAY that this number will take us lower than the lows we flipped bullish on this week. They will now have to blow something up over the weekend (possible) to take the markets lower, despite all of CNBC's efforts.

Avalon's Peter Cardillo says: "If you axed government layoffs, it wouldn't be a bad reading. The basis of it is, the worst of the declines are over and we should be able to gain strength going forward." I hope Peter is right because we sold a lot of puts at a pretty high VIX and we would be THRILLED just to flatline into July's options expiration (16th) – anything more than that is a bonus. I don't think things are "all better" by a long shot but I do think they are getting better – VERY SLOWLY. Good news for almost everyone reading this – Unemployment for people with a Bachelor's degree or higher is down to 4.4%. High School dropouts are way up at 14.1% (but the best reading in a long time, down from 15% last month) and High School grads with no college up at 10.8% so, finally, a good reason to invest in a college education!

Meanwhile, China revised their GDP UP, yes UP, that's UP, not the down that was being reported all week but UP to 9.1% from 8.7% because of higher contributions from secondary and tertiary industries. That should mark the end of Doctor Copper's wild ride below $3. Oil is at $72.50 and we're in on the futures above that line. The USO $34 calls at .50 make a fun trade to to hold over the weekend, in case prices kick up but it is a high-risk position…. We get Factory Orders at 10am and Treasury's Alan Krueger will give the official spin on the jobs numbers at 10:30 and I'm sure he intends to spread some holiday cheer as the briefing is titled: "Pen and Pad Briefing on Employment Data and Economic Recovery" meaning he intends to be quotable for the weekend papers so we'll be looking for a lift around 10:30.

Our FCX play should be a big winner and they are a great buy at $59 (we sold puts) as Australia backed off on their mining tax and are working out a compromise with the miners. BP had some progress on their well and they are trading up in Europe (we're in that too) and Europe is trading up about 1% but down from 1.5% before our jobs number. Their initial reaction to our jobs number was a rally but then CNBC "explained" to them that the numbers were really awful. Tune in this weekend when I plan to expose this scam from a new angle!

So, we will see what we will see today. I'm very excited as it would have sucked to have to run for covers in a pre-market crash, we're bound to get some short covering into the weekend and if we can pull an up 2% day out then we should get follow-through from Asia and Europe and we could be well over 10,000 again on Monday and what a relief that would be.