PSW Rewind of 2009 – The First Quarter
by Phil - January 1st, 2010 2:42 pm
Thursday’s close was very exciting, wasn’t it?
Well it sure was for us as my 10:01 Alert to Members was a play on the DIA Jan $103 puts at .56. Thanks to the late afternoon dip, they finished the day at .90 (up 60%) after peaking out at .95, a very nice win to close off the year. That was the only Alert trade all week as this market has been too tough to call and we don’t make trades just for the hell of it. I had been sniping at DIA puts all week expecting a pay-off but Thursday it finally came together.
Of course, I also strongly advocated hedging on Thursday morning and listed 4 trade ideas in the morning post to hedge ourselves against the possibility of just such a drop so don’t say you haven’t been warned. Whether there will be follow-through on Monday or a full reversal remains to be seen and, even if I knew, I wouldn’t tell you here because this is a review – predictions are another article entirely.
We treaded very cautiously into last year because our PSW Holiday Retail Survey was not looking very pretty so it was no surprise to us, on Dec 26th, when we got some horrific retail reports. These are, of course, the same reports that we "beat" this year – but not by much. Dec 29th was Monday and Israeli jets attacked Hamas targets in the Gaza sending oil flying up to $48 a barrel. That gave us a nice commodity rally into the close of the year but January 2nd was a Friday and we decided (fortunately) to take the money and run on our long plays, holding open our main cover of SKF Jan $120s at $4.35, which hit $80 later in the month (up 1,732%) and USO Feb $32 puts at $3.40, which hit $10.50 in the Feb dip (up 208%) so, on the whole, not too differently positioned than we are now, coming into the new year. Visually 2009 looked a little like this:
January – Waiting for Obama, or Something, to Change
We began January much the same way we ended December with my Wed Jan 7th comment being: "We call it "Testy Tuesday" for a reason and our 5% rule was tested twice during the day but the market failed to…
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Two Week Wrap-Up – Trading Our Range
by Phil - December 6th, 2009 7:58 am
Your "crystal ball" was dead-on with the insights into the report on jobs as well as the initial rise and then correction. Truly impressive. – Champstar2
We didn’t have a weekly wrap-up last week because of the holiday.
In our Nov 21st Wrap-Up, I had said next week we’ll be watching to see if we can get more bullish above our 25% lines at: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and that became the bottom of our new range while I sent out a 9:41 Alert to our Members on Nov 23rd sticking with our upside targets of Dow 10,471, S&P 1,113, Nas 2,205, NYSE 7,266 and Russell 605. That has been a very reliable range to play for the past two weeks and we’ve been having a good time playing both ends of it.
Rather than just wrapping up this week’s moves, I thought we’d add the prior week as the pattern is very much the same (and it was the same the week before) so it certainly bears (oops, don’t say bears!) studying. Of course, when I talk about patterns, I don’t just mean the chart pattern where we have all of our gains for the week on Monday and Tuesday on low volume and then larger volume selling for the rest of the week as the funds who pump the futures up dump their ill-gotten gains on retail investors. I’m talking about the global new patterns, as reported by the MSM, that make this sort of manipulation so effective. It’s not that I’m so good at predicting things – it’s really just that I’m good at spotting the BS…
Monday - Stuffing the Futures for Thanksgiving
I was pointing out that morning that 90% of the market gains since October had been coming on a single day each week and how a lot of that was happening in the very thinly-traded Futures market, where a few thousand shares traded overnight are able to lever the entire US market up by Trillions of Dollars. It’s a very sick and broken system that has been seized by manipulators to yank investors around, making sure retail investors have little ability to participate in these wild market moves as the game is already over by the time trading starts the next day.
This week, we had 2 days like that with both Tuesday and Friday gapping up over 100 points…
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Profit-Taking on Illumina, Inc. Options Illuminated
by Andrew Wilkinson - October 20th, 2009 4:18 pm
Today’s tickers: ILMN, USB, CCJ, BSX, VMED, SPY, GME & QSFT
ILMN – Illumina Inc. – The biotechnology firm’s shares slipped 3% today to $42.48. Profit-taking by one investor pushed the ILMN ticker symbol onto our ‘hot by options volume’ market scanner. It appears the trader originally sold 5,000 puts short at the November 35 strike for 95 cents apiece back on September 22, 2009. Today, the investor closed out the short position by buying the put options back for 25 cents each. Net profits enjoyed on the closing purchase amount to 70 cents per contract for a total of $350,000. Next, the investor reestablished a short put position by selling 5,000 puts at the November 40 strike for an average premium of 1.12 apiece. The full 1.12 premium may be fully pocketed by the trader if shares of ILMN remain higher than $40.00 through expiration.
USB – US Bancorp. – Options activity in the near-term November contract suggests at least one investor anticipates greater volatility in the price of USB shares through expiration. Shares of the financial holding company edged 1% lower this afternoon to $23.56. A long strangle play took place through the purchase of approximately 2,000 puts at the November 23 strike for an average premium of 65 cents each, and the purchase of 2,000 calls at the November 24 strike for about 73 cents apiece. The strangle cost the investor a net 1.38 per contract to implement. The transaction may prove to be profitable to the trader if shares of USB either shift above the upper breakeven point at $25.38, or if the stock moves beneath the lower breakeven price of $21.62, by expiration day. Volatility on USB rose 13% from an intraday low of 31% to a high of 35.5%.
CCJ – Cameco Corp. – The world’s second-largest producer of Uranium experienced a more than 5.5% rally in shares during the trading session to $31.31. Shares in a number of uranium companies rose after an Australian newspaper revealed BHP Billiton Ltd. declared force majeure on uranium and copper sales from its Olympic Dam mine. Force majeure is a contract provision that excuses a supplier from liability due to uncontrollable circumstances. In this case, a BHP mine in South Australia will be out of commission for at least a month due to mechanical difficulties. Investors expecting shares of CCJ to rally higher purchased near-term call options…
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Uranium company sees calendar call spread
by Andrew Wilkinson - April 20th, 2009 5:05 pm
Today’s tickers: CCJ, BAX, XHB, T, VIX, PCP, PG, JNJ, HIG & USO
CCJ Cameco Corporation – The producer of commercial-use uranium to fuel nuclear power plants has experienced a share price decline of about 4.5% to $17.08. According to one news source, uranium-oxide concentrate for immediate delivery rose 2.5% or $1, to $41.50 per pound last week, although uranium spot prices have declined by more than 26% since December 1, 2008. Additionally, trading last week jumped to more than 4.3 million pounds up from just 2.2 million pounds in the first three months of the year. CCJ edged onto our ‘hot by option volume’ market scanner after one investor initiated a calendar spread. Perhaps with revived demand for uranium and trading volume for the commodity on the rise, this investor is hoping that CCJ’s share price will receive a boost in the next six months. The trader purchased 7,500 calls at the September 22.5 strike price for an average premium of 52 cents per contract. The long call position was funded by the sale of 7,500 calls at the January 2010 22.5 strike price for 1.15 apiece. The investor receives a credit of 63 cents on the trade and is hoping shares rally through $22.50 by expiration as he would then be able to exercise the call options and take delivery of the underlying shares. The fact that the sooner-to-expiration September calls have a higher gamma means that its premium will rise faster for a given rally in the underlying share price. On the flip side, the investor could see the credit pocketed today erode if the calls fail to land in-the-money by expiration in September. We’re unsure what the investor will do with this strategy should shares rally but not far enough to allow September exercise – an event that would leave him short of calls after expiration.
BAX Baxter International, Inc. – Shares have dipped by about 1.5% to $50.95 for BAX, a company that develops, manufactures, and markets products that aid persons with hemophilia, immune disorders, infectious diseases and other chronic and acute medical conditions. A complex combination trade took place that grabbed our attention, but the trade is likely marked inaccurately on the exchange. The trade shows the sale of twice as many calls purchased, which makes little sense and so we’ll describe the way we think the trade went. Using the May contract…
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Weekend Wrap-Up – Dynamic Portfolio Adjustments!
by Phil - March 14th, 2009 11:40 am
Was that a great week or what?
No really, I’m asking as I’m not sure yet… We had a great rally once we got Monday out of the way but, all in all, it was a hell of a lot of work to get back to where we were last options expiration day (Feb 20th). We nailed the market turn to a tee, beginning with my calls to go long on QLD, HOV and FAS while shorting the SKF at $250 (now $138) in last Friday’s appearance on LiveStock. In fact, my closing comment in Friday morning’s post was: "We EXPECT a 400-point BOUNCE along this downtrend so we’re not even impressed with anything less than 7,000 next week."
We did a little further investigation in member chat yesterday and decided that we need to break 7,450 on the Dow to actually be impressed next week. Our main concern is we get a quick spike up to that level and then a rejection that sends us racing down to the bottom so we will be positioning to guard against that next week. At the moment, we ended the day slightly bullish but would not be surprised by a drop back to the 7,000 line and we’re positioned for that, as we sold the 3/31 $72 puts against our longer puts. The $2.25 we collected from those pays for us to roll up our long protection 400 Dow points but, to the downside, put a break on our insurance at the 7,000 line (the point at which they go in the money).
By contrast, last Friday, my advice to members was to cover the long DIA puts with $70 puts at $4.32. Those are now .61 and the profits from that already paid for more than half the cost of our long June puts. This is very important to understand as we often talk about being 50/50 or 60/40 bearish but when you can offset 1/2 the cost of your 60% bearish side like this, it makes it very easy to go with the flow on a market rally. The only other stock I picked on Friday was AMZN as $62.50 for reasons I elaborated in the live show, they finished up near the highs at $68.63 but the FAS as $2.85 was a real winner, finishing up at $5.15 yesterday – not bad for a week’s work.
Of course nothing says…
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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
(