Ratio Put Spreader Tunes in to DISH Network Corp. Options
by Andrew Wilkinson - August 5th, 2010 4:39 pm
Today’s tickers: DISH, LBTYA, HGG, VECO, WBMD, VLO & TFSL
DISH – DISH Network Corp. – The implementation of a ratio put spread on the U.S. provider of direct broadcast satellite subscription television service this afternoon was perhaps put on by an investor looking to lock in recent share price gains. DISH shares, which are currently up 2.4% on the day to arrive at $20.77 by 3:40 pm ET, have rebounded nearly 17.5% since touching down to $17.75 on July 1, 2010. It looks like one trader purchased 3,000 puts at the December $20 strike for an average premium of $1.58 each, and sold 6,000 puts at the lower December $18 strike for an average premium of $0.83 a-pop. The investor responsible for the transaction receives a net credit of $0.08 per contract, and keeps the full amount at long as DISH’s shares exceed $20.00 through December expiration. The trader is perhaps utilizing the spread to protect the value of a position in the underlying shares. If this is the case, downside protection kicks in should shares reverse course to trade below $20.00 by expiration day. The decision to employ a ratio spread rather than a 1-by-1 spread or a plain-vanilla long put stance suggests this investor does not expect DISH shares to collapse ahead of expiration at the end of 2010. The firm is scheduled to report second-quarter earnings ahead of the opening bell on August 9, 2010.
LBTYA – Liberty Global, Inc. – It looks like one options strategist expects shares of the international producer of video, voice and broadband internet services to remain range-bound through October expiration. Liberty Global’s shares are currently down 0.20% to stand at $29.65 as of 3:05 pm ET. LBTYA reported an adjusted net loss of $2.42 a share for the second quarter of 2010 after the market closed on Tuesday. But, shares moved very little following earnings. Perhaps the lack of fluctuation in the price of the underlying shares during earnings season bolstered the strangle seller’s premonition that LBTYA’s shares are likely to trade within a specified range for the next couple of months. The investor appears to have sold roughly 10,000 puts at the October $27.5 strike for a premium of $0.70 each in combination with the sale of about the same number of calls at the October $32.5 strike for an average premium of $0.35 apiece. The trader pockets…
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Another Manic Monday – Greenspan Finally Agrees With Me
by Phil - August 2nd, 2010 8:14 am
Wow, Alan Greenspan and David Stockman both came to my side of the debate in the same weekend and the market rockets – very interesting.
First, we had Alan Greenspan on Meet the Press, regurgitating my "Tale of Two Economies," which was our theme for 2010 investing and, of course, is something I have been carping about for many years as income disparity has become critical in this country. Somehow though, it sounds more official when a crotchety octogenarian says it – so we’ll give the Chairman his due:
Our problem, basically, is that we have a very distorted economy in the sense that there has been a significant recovery in a limited area of the economy amongst high-income individuals who have just had $800 billion added to their 401(k)s and are spending it and are carrying what consumption there is. Large banks, who are doing much better, and large corporations, whom you point out and the--and everyone’s pointing out, are in excellent shape.
The rest of the economy, small business, small banks, and a very significant amount of the labor force, which is in tragic unemployment, long-term unemployment, that is pulling the economy apart. The average of those two is what we are looking at, but they are fundamentally two separate types of economy.
Another conservative darling who turned on his masters this weekend is Reagan’s OMB Director, David Stockman, who eviscerated current Republican fiscal policies in a NY Times Op-Ed this weekend, summing it up neatly with the title: "How the GOP Destroyed the US Economy," which is a must read but here’s a few juicy tidbits:
IF there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase…
…This approach has not simply made a mockery of traditional party ideals. It
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Pass/Fail Friday – Europe’s Stress Test at High Noon!
by Phil - July 23rd, 2010 8:23 am
What a way to end the week!
The EU has decided to leave us hanging until the last moment as they hold off on releasing their bank stress test results until after the markets close (11:30 EST) which leads me to believe the results may not be good or they wouldn’t be waiting until the markets are closed and then giving investors the weekend to digest the results. If the tests are good, then the US will rally and Asia will rally and the EU would have to gap open on Monday and that would annoy investors over there (kind of like we were annoyed yesterday) but, if the results are bad, then we can drop back to 10,200 or lower and Asia can sell off and they will gap down on Monday but perhaps less of a panic sell-off than if they got hit with the news on a Friday morning.
So, because the results were already delayed and because the ECB has chosen to wait until Friday afternoon – I’m going to have to at least make a small bet that we have a failure. We already hedged the Dow in yesterday’s Member Chat as we weren’t sure of the timing and we wanted to lock in our gains for the week but now let’s look at a nice, profitable way to play a sell-off in the financials.
- FAZ is the 3x Ultra Short ETF on the financials and you can just buy that ETF for $14.62 a share and a 3.3% move down in XLF should translate to a 9% gain to $15.94, not a bad day’s work right there! Thanks to the uncertainty we now have, this trade can be augmented with the sale of the August $14 puts and calls for $2.65 and that drops the net purchase price to $11.97. If XLF finishes below $14, another round of stock would be put to you at $14 for an average entry of $12.99, which is 12% lower than the current price so this trade assumes the financials don’t go UP 4% by August 20th. If FAZ finishes over $14 (.62 lower than it is now) the net return on the $11.97 is 17%, not bad for 3 week’s work….
- Since XLF is also $14.45, we can also have some math fun. In theory, XLF should move 1/3 of what FAZ moves so for XLF
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Testy Tuesday – Already?
by Phil - July 13th, 2010 8:19 am
Wheeeee, this is fun!
It’s only been a week since I called for "Turnaround Tuesday" and asked the question "Will CNBC Apologize to America" for their ridiculous, sickening parade of negativity that chased their poor viewers out of the market (now 600 points ago) by completely misrepresenting the economic outlook in order to protect the TERRIBLE advice given by Jim Cramer, the Fast Money Crew, their sponsors etc. etc. – it was all one national frenzy of media negativity designed to shove retail investors entirely out of the market while the cognoscenti went shopping.
It’s not just CNBC, of course, it’s a problem with the whole MSM but I ranted about corporate (top 0.01%) control of the media last week so let’s move on as we wave bye-bye to all the beautiful sheeple who were kind enough to sell us their stocks at the bottom, despite my warnings. Our 500% upside plays are now well on their way to making 500% for us and our "9 Fabulous Dow Plays Plus a Chip Shot" are also looking good already. Even the trade ideas I mentioned right in last Tuesday’s post are well on track as I said last week:
On Friday, I had said to Members right at 9:38, in the Morning Alert: "If we run up, then it will be prudent to get more neutral into the weekend but if we stay down and hold our levels, then saying a little bullish will be fine. Out of short-term short trades if you haven’t already. Keep in mind we have some great 500% upside plays you can still grab here if you think you are too short."
The latter was a reference to our 500% upside plays. We also went with EEM July $38 calls at .99, and a QLD $50/53 bull call spread for $1.30 (selling puts as well for more profits) as well as long plays on RIMM, AA, HOV, VLO and TASR. My optimism was based on the considered TA analysis I shared with Members at 2:39:
After completing last month’s "Omega III" market pattern on the Trade Bots, it’s now time to spring the bear trap and run the "Apha II" into options expiration on July 16th. Maybe there will be as little logic to the rise as there was to the fall – who really cares – it’s just our jobs to try to
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Turnaround Tuesday – Will CNBC Apologize to America?
by Phil - July 6th, 2010 8:24 am
I wasn’t worried, were you?
Actually, we were worried enough this weekend to revisit "5 Plays that Make 500% if the Market Falls" as we took off our very profitable April 28th disaster hedges in last week’s dip, leaving us net long and just a little nervous going into the weekend. As I mentioned last week, I find myself in the very strange situation during capitulation cycles of having to push back against general Member sentiment as even the most experienced traders tend to fall victim to the combination of market and media manipulation when it’s as relentless as it has been for the last 10 sessions as the markets dropped 7.5%, pretty much without a break.
We first noticed the all-out media attack on the markets way back on June 15th, when CNBC featured the tag-team combination of Pimpco’s Mohaned El-Erian and Nouriel "Doctor Doom" Roubini – one who is pushing his bonds and one who is pushing his book and both of whom can be counted on to spin things as negatively as possible. That very effectively put the breaks on the rally from 9,800 on June 7th to 10,450 (6.6%) on June 15h and ran us back down to lower lows as EVERYTHING that happened since then was put into a negative light. I won’t rehash all the idiotic statements made by Cramer or the Fast Money crew or the rest of the Criminal Narrators Boosting Commodities – it’s either obvious to you or you’ll never see it at this point.
CNBC has been woking the markets over since May 21st, when I first pointed out how negative their coverage had shifted. Over the weekend, we discussed the workings of the game and the players that CNBC work for and, wouldn’t you know it – this morning, timed for lunch in the EU, Dr. Doom Roubini is their very special guest – AGAIN! El-Erian and Gross were kind enough to warn people this morning that "shares are no bargain as the recovery fades" and Barton Biggs is telling anyone who will listen that he liquidated half his tech holdings last week. Funny how they don’t tell you WHEN they are buying or selling, just a mention after the fact to "help you" make the right decision.
“The psychology of the stock market couldn’t be worse, yet the valuation probably couldn’t be a whole lot better,” said Phil Orlando, the New York-based chief equity…
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Advanced Pattern Recognition: Omega III Weekly Wrap-Up
by Phil - June 19th, 2010 6:46 am
What a fine and predictable week it was!
How can you not have fun when the market does exactly what you expect it to do every day? Why it’s almost as if we stole Goldman Sach’s evil playbook (and the Russell once again is at 666) so we too can make profits EVERY SINGLE TRADING DAY – just like they do! This is a real testament to my famous saying:
We don’t care IF the game is rigged, as long as we know HOW it is rigged so we can place our bets accordingly.
Remember it was last summer that Goldman’s secret trading program was stolen. At the time, Goldman Sachs asserted that: "There is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." I believe this was a misquote and what GS meant to say was that there was a danger someone ELSE could use it to manipulate the markets in unfair ways. Was it just a coincidence that the indictment of computer thief Sergey Aleynikov on Feb 11th coincided with the beginning of this year’s massive rally or was that the day GS regained sole control of their pet program?
Does this sound conspiratorial? Well perhaps then you haven’t read Tim Lavin’s "Monsters in the Markets," where he points out: "Algorithms now trigger 70 percent of all trades in U.S. equities. The speed and volume of everyday trading have propelled the market into a new and esoteric dimension, and rendered traders in the pits largely obsolete… At least a few high-frequency traders have learned to make a killing by detecting the more simplistic algo strategies deployed by basic pension funds and mutual funds, buying the next stock the funds plan to buy, and then selling it to them at a higher price. This may not be illegal, but it’s almost certainly unfair to the funds’ investors. “It is increasingly clear that there are quite a number of high-frequency bandits in the high- frequency-trading community who pump up volume statistics, front-run investor orders, increase transaction costs, and hurt real liquidity,” according to former NASDAQ vice-chairman David Weild."
We certainly know better than to trust our money to fund managers! Last Friday ("Pattern Recognition 101"), we determined that the TradeBots were following the rally pattern we now call Omega III and that meant we expected the day to finish…
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Wonderful Weekly Wrap-Up
by Phil - June 12th, 2010 8:28 am
I love it when a plan comes together!
Last week, I felt like I was going to have to call Animal Control to help me fight off the bears. As I mentioned in last week’s Wrap-Up, all 14 misses (out of 55 trade ideas for the week) we had were bullish plays that we were grabbing on the way down. On Friday we went bullish on USO, SSO, DIA, TBT (well, we’re always bullish on TBT), AET, ABX, Copper Futures and even poor BP. Those followed up on bullish plays we had taken on Thursday on TSRA, USO, MEE, FCX, EEM, ERX and XOM. We went into the weekend still bearish but we were excited about flipping back to bullish. My closing comment in the Wrap-Up was: " I’m hoping for a blow-off spike down on Monday with heavy volume, hopefully followed by a recovery over the next few days" and, gosh darn it, wouldn’t you know that’s EXACTLY what we got.
I don’t MAKE the markets do these things, I simply tell you what is going to happen and how you can make money on it… Needless to say, we had a LOT of fun this week at PSW! Last weekend, however, was such a bearish frenzy in the MSM that it was making our Members nervous and THAT I do not tolerate so I wrote : "The Worst-Case Scenario: Getting Real With Global GDP!" to illustrate why I felt our bottoms would hold and I began a Top 20 Buy List on Sunday and boy did we get some fabulous entries this week!
Monday Market Movement – Will We Survive?
As I said on Monday Morning: "I already stuck my neck out calling a bottom so now we’re just waiting patiently." We were disappointed to have not gotten a stronger statement from the G20 over the weekend but it was just the Finance Ministers, so we weren’t expecting too much until the big boys meet at the end of the month. While we were in a buying mood, I cautioned against getting too bullish until we took back our anticipated "weak bounce" levels, which were the orange lines on Monday’s Multi-Chart:
I pointed out (on another Multi-Chart) that Europe was already gathering strength so we were pretty confident things would go our way but, as I said in the 9:50 Alert to Members, SOX 340 and TRANQ 2,000 had be taken back before we could feel confident. My outlook for the day was:…
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Testy Tuesday – Gentle Ben vs. Reality
by Phil - June 8th, 2010 8:26 am
Behold the power of prayer!
We had a wild ride in the futures in the last 16 hours as they were up 1% and now are barely holding flat at 7:30. Our catalyst was Dr. Ben Bernanke who, as we expected, attempted to boost the markets in a scheduled speech where the Fed chairman said he is hopeful the economy will gain traction and not fall back into a "double dip" recession. "My best guess is we will have a continued recovery, but it won’t feel terrific," Bernanke said.
Bernanke didn’t offer new clues about when the Fed would reverse course and start to tighten credit. However, he did say the Fed won’t be able to wait until the jobs market is fully healed before it pushed rates up. Observing the economy, Bernanke said the news so far is "pretty good." Both consumers and companies are spending sufficiently to keep the recovery moving forward. The private sector, he said, is "picking up the baton" as government stimulus, which mainly powered the recovery in its earliest stage, starts to fade. n relations between the United States and China, Bernanke said there is a real desire between the two superpowers to work together to ease trade and economic tensions. Both countries sort of understand there is a "co-dependency relationship," Bernanke said. The United States snaps up Chinese goods and the Chinese is a major buyer of the U.S. government’s debt.
Wow, really Ben? I guess that’s some "good" kind of codependency and not the actual definition of codependency, which is: "A tendency to behave in overly passive or excessively caretaking ways that negatively impact one’s relationships and quality of life… Codependency may also be characterized by denial, low self-esteem, excessive compliance, and/or control patterns." According to Mental Health America: "Codependency is an emotional and behavioral condition that affects an individual’s ability to have a healthy, mutually satisfying relationship. It is also known as “relationship addiction” because people with codependency often form or maintain relationships that are one-sided, emotionally destructive and/or abusive." Gee, he’s right – we DO have a codependent relationship with China!
Even more interesting is the way the MHA links codependency to Dysfunctional Family Structures, saying:
A dysfunctional family is one in which members suffer from fear, anger, pain, or shame that is ignored or denied. Underlying problems may include any of the
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Wild Weekly Wrap-Up – The Madness of the Markets (Part 1)
by Phil - May 21st, 2010 11:22 pm
Where do I even begin to go over this week?
I think, to set the proper tone, let’s look at my Thursday morning Alert to Members where I said: "Get out, Get Out, GET OUT of the short-term short-side plays if we get back over the 200 dmas. Take the money and RUN. CASH OUT THE SHORT SIDE. Is that clear? We may not hold these lines but that’s why we have October Disaster Hedges, the shorter-term downside plays are huge winners and should be cashed here – we’ll find something else to short if we fall off this support level. 200 dmas need to be held and those are: Dow 10,250 (8,650 is next major support), S&P 1,100 (900), Nasdaq 2,225 (not there yet! 1,800), NYSE 7,100 (5,500) and Russell 630 (still above! 500)."
We never did hold those levels but, as I mentioned in Friday morning’s post, I thought the end of day sell-off on Thursday was a bit forced, and, in my first Alert of Friday morning I said: "TAKE THOSE SHORT PROFITS OFF THE TABLE!" Now, I am not prone to making statements in all caps in Member Chat - almost never is about how often so this was a pretty important statement. Before that Alert, right at 9:42, I had already called for the SPY $105 calls at $2.45 as our first trade of the day. Those calls finished at $4.11, up 67% for the day so a good start to our expiration day!
A good start and our other day trades did very nicely as well:
- FXI June $39 calls at .98, now $1.28 - up 30%
- DIA May $102 calls at .13, out at .45 – up 246%
- DIA May $101 calls at .95, out at .80 - down 16%
- DIA May $101 calls at .10, out at .80 – up 700%
Of course we followed our strategies and took 1/2 the DIA’s off the table at a double so the other half was a free ride (we like to gamble but we’re not crazy!) but the FXI was the only "keeper" for the day, we’ll see if that was a good idea on Monday. We also took (as I said we would in the morning post) a number of well-hedged, bullish plays on BA (from the post), TNA, TBT (have I mentioned how much I like them lately?), INTC, AAPL, VLO, FCX (I guess we’re done relentlessly shorting them!), XOM and…
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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
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