Wheeeeee – that was fun!
A bit more violent than we expected but now you can see why we went to cash on Wednesday. We even took a bullish bet on the Qs at the end of the day as we were hoping for a bounce this morning and we had really cleaned up with DIA July $124 puts from the morning Alert to Members, which came in at .95 and ran all the way to $1.85 but we took the money and ran at $1.40 for a nice 47% gain on the day.
We also picked up AAPL weekly $570 puts for .50 and those made a quick 40% as well, closing at .70 at the day's end.
In the afternoon, we took our winnings and played the QQQ next weekly $63s for .75 and they dropped a dime to .65 but we're playing with house money and a stop at .50 on the hopes there will be a rumor of stimulus that spikes the market back up.
We were too scared to play the Financials bullish with the Moody's downgrade looming but we will be restarting our FAS Money Portfolio today in the hopes that this will be a bottom for the Financials (about $14 on XLF) that we can begin to makes some bets on. Fas Money was, by far, our most profitable portfolio in the first half of the year, cashing in Wednesday with a virtual $12,175 profit with almost no cash in play (but using margin to sell FAS puts and calls on a regular basis).
There are still rumors that MS will suffer heavy margin calls. I say rumors because The Street reports $6.8Bn as a fact but, since Cramer is behind it, I don't believe a word they say.
Moody's lowered its long-term senior unsecured debt rating for Morgan Stanley to Baa1 from A2, with a negative outlook, while cutting its short-term rating for the firm to P-2 from P-1 but this move was a long time coming and MS stock has already plunged from $21.13 in March to $12.26 in early June and that's very close to the $10 line they hit in 2009 – which they tripled off by June.
We don't trust MS enough to bet on them directly but, if they DON'T blow up, XLF should do quite well and, even if they do fall apart, we think XLF has enough strong players to weather the storm. Our previous favorite, JPM, seems to be doing just fun and, with an A2 rating – is still the star of the group! If you want to be aggressive, MS can be played to hold $12.50 by selling the 2014 $13 puts for $3.15 and buying the $10/15 bull call spread for $2.50 for a net .65 credit on the $5 spread that's $4 in the money to start.
Your worst case is you own MS at net $12.35 and Think or Swim tells me that you hold aside just $1.80 of net margin on this trade and that margin requirement will reduce if MS takes off and, if it doesn't, then your premise is blown and you should probably get out. If all goes well, this trade will return $5.65 against the .65 credit an over 8x return on cash and a 3x return on margin if MS is at $15 come the Jan 2014 expirations.
See how much fun we can have with our cash! There are tons of great opportunities out there – so no hurry, we're not rushing into these trades because, with 800% returns, we don't mind missing the first 200% if they "fix" Europe next week because THEN we will feel nice and confident playing for that next 600% of upside. Still, deploying a little bit of cash on a greed play is fun, right?
Speaking of fun plays. Some of our Members had trouble filling LQMT on Tuesday and BNN rushed me off the air before I could mention them as my fun trade of the month. Today they are back to .30 and we still like them. AAPL just extended their licensing deal with the company for 2 more years and we're just looking for another rumor that LQMT's alloys will be used in the IPhone 5 to spike them up again (we caught a ride from .15 to .55 in April) but it's a craps roll kind of bet, so we're thrilled to take a dime and run when it comes.
We'll be going back to the well on our Twice in a Lifetime List (Members Only) as we begin to re-establish some of our long positions but only tentatively ahead of the weekend. We HOPE (not a valid investing strategy) that the EU gets it together and drops another Trillion on the PIGGS – that should be enough to take us to the end of the year at S&P 1,350 or higher but, until we get the ACTUAL stimulus – Cash remains KING!
Have a great weekend,
– Phil
