Click to enlargeYou ask, What is our aim? I can answer with one word: Victory - victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory there is no survival. - Winston Churchill
I do HAVE to say "I told you so!"
When I was interviewed on Monday and they asked why I'm bullish, I replied that "stimulus trumps everything" and that's what we've been playing for, especially in our new White Christmas Portfolio, which will be off to a rockin' start with the aggressive upside trades that I not only mentioned in yesterday's post - which made easy fills yesterday morning, as the markets shook out the last of the weak hands on yet another rumor-driven dip.
We got our daily double on the AGQ calls as expected and SSO fell all the way to $44.20 (150% profit on that trade if they finish Friday above $45) while FAS dropped $13.35 and that spread will be good for a 2,100% gain if FAS can get back to and hold $14 - which should be a snap thanks to our friends at the EU.
In the morning aert to members, I put up this cute little Gif to illustrate the day's action and it was a real roller-coaster day but we stayed generally bullish, taking quick profits off our morning bear plays on DIA and USO. We added a bullish trade ideas for Amazon.com (NASDAQ:AMZN) (complex spread), TNA (short Nov $40 puts at $3.60) but that was it for the day because my comment to members at 11:01 was: "Dollar rejected at 76.80 – still hope for the bulls!"
Well, those bulls were us and we already had our bets in place from last week, when things were cheaper so there was nothing to do but watch as the markets took off like a rocket from that point forward. Heck, we were so bullish we even sold Netflix (NASDAQ:NFLX) puts (Nov $67.50 puts for $3) as a bullish offset to a DXD hedge (which we'll pull the bottom of today). On Monday we had picked up bullish trades on Apple (NASDAQ:AAPL) and Corning (NYSE:GLW) and I mentioned EWG in Friday's post (those should be looking good this morning) as well as our plays to go long in the Russell Futures at 700 and Oil Futures at $87 - trade ideas that are now up $46,000 per contact on the Russell and $6,000 per contract on oil - not bad for a few day's work...
Friday's morning alert to members had 4 bullish trade ideas. We still have to finish the month, but I'm feeling very good about the first three:
- TNA ($42 at trade) Nov $40/44 bull call spread at $2.20, selling Monsanto (NYSE:MOS) Nov $55 puts for $2 is net .20 on the $4 spread.
- FAS ($13.40 at trade) Nov $11/13 bull call spread at $1.10, selling the $11 puts for .80 is net .30 on the $2 spread.
- DIA ($116.50 at trade) Nov $114/120 bull call spread at $2.95, selling $112 puts for $2 is net .95 on the $6 spread.
- YRC Worldwide (NASDAQ:YRCW) is still 0.055 per share and I still like them long-term (and I never like penny stocks).
We were taking these aggressive trades because we had cashed out the bulk of our virtual portfolios ahead of the EU uncertainty. That leaves us with lots of margin to play with (good for put selling) and allows us to make small commitments that give us a big bang, so we don't miss much on the rally. Putting just $1,000 of cash to work on each (out of a $100,000 portfolio) gives us a chance to pick up $20,000 on the TNA spread, $6,666 on the FAS spread and $6,315 on the DIA spread - that's $33,181 from $3,000 committed - being in mainly cash certainly doesn't mean you can't make a little money now, does it?
Our other trade ideas from Friday's post (all of which should be doing very nicely) were:
- Barrick Gold (NYSE:ABX) ($44.70 at trade) 2013 $35/45 bull call spread at $5.50 offset with the sale of the $35 puts at $3.65 for net $1.85 on the $10 spread.
- ABX ($44.70 at trade) short Jan $42 puts at $2.40 for a net $39.60 entry.
- Chesapeake (NYSE:CHK) at $27.50, selling 2014 $25 puts and calls for $14.75 for net $12.75 with a 96% profit if called away at $25 and a net $18.88 entry if another round of the stock is put to you at $25 (a 31.6% discount off the current price).
- FXE ($138.25 at trade) March $138/142 bull call spread at $1.90, offset with short $120 puts at $1.30 for net .60 on the $4 spread.
- SQQQ Dec $21/28 bull call spread at $1 with various $1 bullish offsets for "free" protection.
- XLF ($13.05 at trade) Jan $10/13 bull call spread at $2.30, selling $13 puts for $1 for net $1.30 on the $3 spread.
Notice I added the price of the stock or ETF at the time of the trade and I'm doing that because we get endless questions about whether we ever just pick stocks, rather than options and the answer to that is: EVERY TIME we pick a bullish option position, of course we are also bullish on the stock. Most of the stocks I picked on Friday are up 5% in less than a week and I guess if I were a boring old stock picker I'd be crowing about it but WE CAN DO SO MUCH BETTER!
This is what we teach people at PSW. Why should you spend $40,000 for 100 shares of AAPL with the hopes that they will climb to $460 (up 15%) by Jan 2013 when you can (and ANYONE can do this) SELL 1 Jan 2013 $300 put for $22.50 (collect $22,500) and buy the 2013 $350/400 bull call spread for $27.50 ($27,500) so for net $5,000 (not $40,000) out of your pocket you control the same 100 shares of AAPL and all they have to do is hold $400 and you make a $4,500 profit and even if AAPL drops all the way to $300 - you only lose $5,000, vs $10,000 if you bought the straight stock.
THAT's why we play options - you don't have to leverage your risk, you can HEDGE your risk so you can ride out these ridiculously choppy markets and put LESS cash at risk while taking full advantage of positive moves. Options trading gets a bad rap because people misuse it to leverage risk but that same leverage allows you to REDUCE your exposure (as in the AAPL example) to VASTLY improve your chance of success in a position.
Getting back to today's markets: GDP came in at the expected 2.5%. A lot of people thought we'd jump from 1.3% in Q2 to 3% in Q3 without any stimulus but those people are IDIOTS and they can feel free to be disappointed and sell if they want to - the world needs counterparties! Government spending was still very low and there was no inventory build (and we discussed shipping data in detail in last night's member chat), so lot's of room for improvement and, by the way, did I mention the $1.7 TRILLION DOLLAR STIMULUS? That's just from the EU - wait until China, Japan and the U.S. do something too - we're talking 3% of the global GDP already and I'll bet they crank it up past 5. A few trillion here and a few trillion there and soon you're talking real money ...
We will be keeping an eye on our big chart levels but today will be dominated by the euro squeeze as the bears get their asses handed to them, despite being told - over and over and over again - that there was a fix coming and that it was coming today. As I mentioned in various posts last week - follow the conservative media in this country at your own peril - they are so used to lying to their viewers that they can't even separate fact from fiction when it matters (see Friday's post for a great example of how Murdoch's Journal goes particularly out of it's way to misinform it's readers - also it was the Journal that is spinning all the shipping news negative yesterday).
The dollar is already flying down toward the 75 line in pre-market trading and look out above for the indexes if the dollar fails to hold that mark. As we expected, this is doing nothing for gold as we're moving into a risk-off trade environment but I will caution that we still fear Yentervention from the BOJ (aimed at propping up the dollar) as well as this weekend bringing a renewed focus on the U.S. and our many, many economic issues as well as China.
Just the EU stimulus alone will not be enough but, for now - it's sure going to be a big help!
Disclosure: I am long FAS, XLF, AAPL, NFLX, YRCW, FXE.
Additional disclosure: Positions as indicated but subject to change