Manic Monday - Dubai, CitiGroup and GS Move Markets

by Phil - December 14th, 2009 8:28 am

What a morning it’s been already! 

Last night, at about 11:30 EST, Abu Dhabi gave a $10Bn bailout to Dubai (until the end of April, anyway) with the following statement from Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee: "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices."  That was enough to send the Hang Seng from down 300 points to up 300 points in less than 30 minutes of trading (on both sides of their lunch break) while the Shanghai went from -2.2% to +1.7% and the Nikkei also reversed a 100-point drop, but only managed to get back to even at the close. 

US futures trading also went wild, up over 100 points at the time but we’ve given up about half of those gains as of 7:30.  Does it make sense that the Dubai crisis, which dropped us from 10,450 back to 10,250 when it came up, should be the catalyst to get us over 10,500 just because they were bailed out?  Of course it doesn’t - that’s why we went to cash.  This is one of the most ridiculously irrational markets I’ve ever seen.  The other "good" news this morning is also the same old songs:  Citigroup will repay their $20Bn TARP loan by diluting their stock by about 20% and GS says oil will go to $85 early next year.   

I don’t know why they even bother to pretend anymore - they should just put 10 market-boosting statements on a chip that randomly plays one of them whenever the MSM needs a quote for the morning.  People don’t seem to notice it’s the same thing over and over and over again so why even bother with the pretense?  Speaking of pretense - I mentioned in the Weekend Wrap-Up that we expected this nonsense this morning but, had I realized that Greenspan AND Cramer were going to be on Meet the Press yesterday, I would have gone more bullish as those are the two biggest market hypers GE could have used for this week’s quotes.

Europe seems happy enough with Asia’s recovery and all the bull*** commentary (that’s bullISH - what were you thinking?) and they are up about a point ahead of our open DESPITE the FACT that Q3 euro area employment is down 0.5%, the fifth straight quarter of contraction.  All sectors reported declines,…

Posted in Uncategorized | 47 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Wrap-Up - Too Bearish or Just too Early?

by Phil - December 13th, 2009 9:18 am

Well, we’ve been here before.

Once again the market has staged a spectacular recovery on virtually no volume and mixed news.  While we went into last weekend just a little bit bearish (about 55%), this Friday the market topped out about 150 points higher than last Friday, closer to the top of our range so we went much more bearish on Friday, perhaps too bearish considering this was the best Friday finish since Nov 6th and we haven’t had a down Monday since October 26th.

Our plays this week turned very bearish to balance out the more bullish set we took in the first week of the month (see last week’s Wrap-Up).  Almost all of our bullish trade ideas have already made 20% and some are way over our goals as we were able to cash out a lot more winning bullish plays and press our bearish plays, turning the $100K Portfolio extremely bearish and twice as invested as last week.  Big winners from the last wrap-up included:

• DIA $104 puts sold at $2.25, now $.55 - up 75%
• DIA $103 puts sold at $1.65, now .30 - up 81% 
• SONC Jan $10 puts sold for .85, now .55 - up 35%
• DIA $104 puts sold at $2.55, now $55 - up 78%
• BAX artificial buy/write (too complicated to summarize) - over goal already!
• AMZN Dec $150 calls sold at $4, now .10 - up 98%
• USO Dec $39 puts at .82, now $3.50 - up 326%
• FXP Dec $8 puts sold for .70, up 64%
• OIH Dec $120 calls sold at $3.25, now .27 - up 92%
• AMZN Jan $140/135 bear put spread at $2, now $3.60 - up 80%
• IWM $60 puts sold for $1.30, now .72 - up 44%
• NSH June buy/write at $18/20.25, now $25.86 - ahead of goal  
• AMZN Dec $145 puts sold at $5 (average), now .25  - up 85%
• AMZN Dec $150 calls sold at $3, now .10 - up 96%
• TBT June $42/26 bull call spread at $1.80, now $2.60 - up 44%
• TBT June $42 puts sold for $2.15, now $1.30 - up 40% (pair trade)
• SRS Dec $8 puts sold for .42, now .17 - up 60%
• FXP Jan $6 calls at $1.40, now $2.10 - up 50%
• IYR Dec $46 calls sold for .85, now .20 - up 76%
• USD Dec $30 calls sold for $1.80, still $1.80 - up 43%
• DIA Dec $104 puts sold at $1.60, now .55 - up 65%

Of course we had a few trades from that week that went bad too as well as many that are still in…

Posted in Uncategorized | 23 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Dean’s Guide For Beginning Options Investors

by Phil - December 12th, 2009 1:26 pm

At the beginning proceed with caution – or – FOR GOD”S SAKE DON”T DO WHAT I DID!

If you’re reading this article, understand that I’ve walked in your shoes. Like you I was a new member to Phil’s Stock World, arriving on the site looking for companionship and education on my options journey.   Probably like you, I had read a few books on options, dabbled in some trades, made and lost some money, but I was still looking for a system, as well as a teacher.

Having read Phil’s daily posts on Seeking Alpha, I was both amused and intrigued, here was someone who spoke plain English, obviously had some education, a passion for the markets, and an opinion on most everything! He also wrote on the importance of “being the house” – of being the on the side of the odds, and being consistent in an approach to investing.  All these things appealed and made sense to me, and after reading the article Phil wrote on “How to Buy Stock for a 15-20% Discount” I decided to jump in with both feet. Being a quick study, I took the plunge in late 2008, just in time to have a single, very successful month in December.

Wow – 10-15% gains in my first month! It was a great Christmas Season! I was going to retire early! Obama took office with great promise, and I was keenly optimistic for 2009. I invested heavily, in a variety of sectors, across the board. I sold lots of premium, and things were looking good.

Well, you know what happened next, things went bad, then worse, and then downright scary!  I had a number of sleepless nights, and the more I read, both on Phil’s favorites as well as the main street media, the worse things looked.  I did my best, but on a number of issues, I pulled the plug and panicked.  Not understanding how to roll down, I just sold, generally exactly when I should have been buying.  In my first three months of trading, I probably lost 30% of my holdings.

Fortunately, I have some background (martial arts training) that taught perseverance, and I didn’t bail out on my new education altogether.  I don’t expect you to understand from a martial arts perspective – but there’s a great summary on lifelong learning called “Mastery” by George Leonard – a former editor at Esquire.   If you’d read…

Posted in Education, Immediately available to public | 3 Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Thoughts on the Statistical Recovery

by ilene - December 12th, 2009 11:51 am

Thoughts on the Statistical Recovery

Courtesy of John Mauldin at Thoughts from the Frontline

Thoughts on the Statistical Recovery
Lies, Damn Lies, and Government Statistics
The Problem of Seasonal Adjustments
The Job Creation Engine
A Double-Dip Recession?
Dad Gets a Lively Lesson

We are clearly starting to get some better data points here and there. But as I pointed out this summer, it is going to be a recovery in the statistics and not in the things that count, such as income and employment. This week we look at the nascent recovery (which could be at 3% this quarter) and try to peer out into the future to see what it means. We look at how recoveries come about, and why I am concerned that we will see a double-dip recession. Plus, I learned some new tricks courtesy of my new granddaughter, to whom Tiffani gave birth this week1 There is a lot to cover, but it should be interesting.

But first, a quick commercial nod to my subscription service, “Conversations with John.” It was one year ago this week we launched the service, and we are pleased that so many of you have subscribed. As a bonus for renewing or subscribing, I am going to be doing a special predictions issue, where I will interview at least six analysts who have been right the past few years and ask for their specific predictions for the coming year.

For new readers, this is where I sit down with some of my friends and hold an in-depth conversation, generally 45 minutes to an hour, and post it on our web site, along with a transcript. We have had some fairly well-known names over the past year, and the reviews from subscribers have been excellent.

As a Holiday Special, we are offering a subscription at the special price of $129. Just click on the link and type in the code JM09 when asked to do so in the subscription process (at the conclusion of the process, not the beginning, but we’re working on that.) This is a big savings over the regular $199 price. Just click on the link to learn more and see what subscribers are saying. http://www.johnmauldin.com/newsletters2.html

Plus, when you subscribe you get access to the Conversation archives. That is worth the price of admission itself. And now, let’s jump into The Statistical Recovery.

Thoughts on the Statistical Recovery

In the ’50s through the early ’80s, recessions were typified by large layoffs at manufacturing…

Posted in Appears on main page, Immediately available to public, Permissions, Uncategorized | No Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

BANK OF CANADA: STOCKS ARE OVERVALUED

by ilene - December 11th, 2009 6:18 pm

BANK OF CANADA: STOCKS ARE OVERVALUED

Courtesy of The Pragmatic Capitalist

It’s refreshing to see a Central Bank that at least appears to reside in the same world as the rest of us.  While Bernanke remains oblivious to new bubble formation and overheated equity markets the Central Bank of Canada remains quite concerned about the the state of the global economy.  In their recently released Financial System Review they provide a mildly bullish outlook for the global economy, but remain defensive in terms of their outlook on the sustainability of the recovery:

• The crisis of confidence that disrupted global financial markets in late 2008, resulting in heightened counter-party risk and intense funding pressures, has largely abated.

• The likelihood of system-wide stress arising from the household sector over the medium term is judged to have risen as a result of increased indebtedness.

• Although the uncertainty surrounding the global economic outlook has diminished somewhat, it nevertheless remains elevated.

• Several medium-term risks have intensified.

The Bank says those risks are:

1.  No exit strategy in many countries.

Hmm, sounds familiar….

2.  Asset prices could outpace fundamentals.

Not according to Bernanke.  Then again, he does subscribe to the Greenspan policy of print or die which helped him to forecast approximately none of the problems that got us here to begin with….

In terms of the equity markets the Bank of Canada once again provides a very pragmatic view.  In addition to overheating equity markets they remain uncertain that revenues will follow-thru to sustain the earnings growth we have seen thus far:

The recent rally in equity markets is supported, at least in part, by better-than-expected earnings in the second and third quarters of 2009, with 70 per cent of S&P 500 firms surpassing expectations in the second quarter, and with 80 per cent of those reporting third quarter earnings up to 23 November exceeding expectations. In the second quarter, these better-than-expected earnings were largely the result of cost-cutting measures, while third-quarter earnings were also supported by revenue growth. For the recent improvement in equity markets to be sustainable, future earnings will have to be driven by revenue growth. Equity markets may thusexperience some reversal if earnings growth proves to be disappointing. While indicators point in different directions, various measures, such as forward price-earnings ratios, suggest that equity prices may have increased by more than warranted in the context of an expected slow recovery.

All in all it’s a very good and balanced read.  Take some time to review it…

Posted in Appears on main page, Uncategorized | No Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter

Japanese ETF Options Active (After Philstockworld’s Thursday Pick)

by Andrew Wilkinson - December 11th, 2009 5:29 pm

Today’s tickers: EWJ, RX, UUP, DRI, IMAX, SFD & AET

EWJ - iShares MSCI Japan Index Fund – Shares of the Japan exchange-traded fund rose 0.3% today to $9.92. The roughly 125,000 contracts exchanged on the fund today is likely the work of one investor adjusting previously established positions. The trader may be unraveling a portion of a bearish risk reversal established back in late-September. It appears 62,500 puts were sold at the March 10 strike for 53 cents apiece, spread against the purchase of the same number of calls at the January 2011 12 strike for 24 cents premium each. The technically bullish direction of the risk reversal play is possibly a closing transaction given the large levels of existing open interest at each strike described above.

RX - IMS Health, Inc. – Shares of the provider of prescription information to the pharmaceutical and healthcare industries plummeted 14% to $18.34 at the start of the trading session. The stock collapsed on news senate democrats proposed an amendment to restrict data-mining practices. Investor uncertainty, as measured by option implied volatility, exploded today on fears the proposed ban may hurt RX’s recent $5.2 billion sale to TPG Inc. and the CPP Investment Board. IMS Health’s shares recovered significantly by midday (EDT) with the stock down a lesser 7.5% to $19.77. Frenzied option traders vied for both calls and puts in the December and January contracts. Investors exchanged nearly 100,000 contracts on the stock in the first three hours of the trading day. Today’s volume blew right past the previous existing open interest on RX of 73,386 contracts. Heavy trading volume and rising investor uncertainty launched option implied volatility up as much as 401.72% to a one-year high of 70.55%. Some traders appear to be selling call options to buy puts in the December contract, while other investors initiated plain-vanilla put buying strategies. Bearish individuals shed more than 6,000 calls at the December 20 strike for an average premium of 46 cents apiece. Traders keep the premium received on the sale if shares of RX remain below $20.00 through expiration. Put buyers favored the December 17.5 strike where roughly 10,000 puts were picked up for about 46 cents each. Some of the puts were spread against the sale of higher strike call options, while other contracts were purchased outright. Roughly 5,000 puts were purchased at the lower December 15 strike where investors paid an average of…

Posted in Uncategorized | No Comments »

 Email This Post del.icio.us Digg Reddit Stumble Yahoo Facebook Twitter