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What a wild week that was!

This morning I said, "I wish I was good at Photoshop." Next thing I know, Evogroup came through with this Image:

So when I said, "If you were to reverse this picture and overlay the daily movement of the Dow since that day, it pretty much follows the exact profile of that mountain," I was pretty darn close. Not bad for a picture I picked out on May 17th to illustrate where I thought we were (the climber) at the time.

Mountaintop Dow

Of course, I’m very happy to report that our portfolios, all of them, reflect the accuracy of that call as we took full advantage of the dip, the mini recovery and the subsequent bigger dip to give us three consecutive fantastic weeks.

While we parked ourselves relatively in neutral earlier today, that didn’t last for long as we flipped around and went with Diamonds Trust, Series 1 (DIA) calls at 10 to protect our bearish set while we cashed out of the put side. We didn’t have all that much faith in the early rally, but when oil went down and the transports went up (the SOX were strong all day) we had the exact premise I laid out in the morning when I said "Oil MUST fall below $65 and the Transports MUST reverse." None of us expected what happened at about one, especially myself as I was out to lunch, but I made a call to buy X the moment I got back and that made for a nice day trade on momentum.

We picked up a few more fun plays, but entered the weekend back in neutral. This after lunch rally looked suspiciously like the Asian after lunch rally yesterday, which was followed by a 300-point drop!

Simley Face

It was a really wild way to finish off a crazy week, and this will make four weeks in a row where I think we should just take these amazing gains and travel the rest of the year; next week can’t get any better (although I’ve been wrong about that three weeks in a row!). We did wind up with half cash, which was goal number one for this week and we are once again well positioned and ready for whatever the markets may bring us.

ZMan and I had our second radio address to the nation on Market News First (click for podcast) and we scored a real home run going back to the well with the Valero Energy Corporation (VLO) $75 puts which went from .85 on Wednesday morning to $3.25 yesterday, before settling back to $2.10 at the close.

I also recommended selling the Google (GOOG) $510 calls at $13.50 (now $9.05) and, of course (as you our readers heard from us on Monday), and Z and I agreed the inventories were a disaster for oil and picked shorts on the ConocoPhillips (COP) $75 puts,
GlobalSantaFe Corporation (GSF) $67.50 puts and the Schlumberger Limited (SLB) $80 puts, all of which made doubles within 48 hours - NOW THAT’S GOOD RADIO!

Our live Endeavour International Corporation (END) trade was the dog of the week (sorry), but we had plenty of time to get out yesterday morning as news hit that their well ran dry, but we were on top of that trade well before the market opened and were able to exit without too much damage (10%). That was better than Zman’s predicted $1.75 that we’d be forced to sell at if they missed this well.

Dead End

Despite the crushing loss in END, our boring old Stock Portfolio is now up 30% for the year as my very bad old Tesoro Corp (TSO) shorts forgave us just a bit. The Knot (KNOT) came roaring back to life with a nice $2 jump as the rest of the market fell down. As a fundamentalist, I don’t even look at that portfolio very often and was very pleasantly surprised with the gains we got from our 10 remaining positions. Metallica Resources Inc. (MRB) is back at our entry at $4.59, so that’s going to be an accumulate as a great mining hedge. It’s a long-term hold, though. National Beverage Corp. (FIZ) is also getting cheap again around $12, ahead of their June 12th switch to the Nasdaq.

The Short-Term Portfolio was our star of the week, posting simply spectacular gains as our very heavy DIA put position paid off in spades after over a month of rolling. Our protections started as June $132 puts and we spent roughly an additional .30 per 100-point Dow move (and there were two plus a roll to July) to reposition our insurance play. However, if anything we were over-insured for the drop and fortunately, wise enough to cash in! My May 24th statement in comments on the subject was:

All these index puts are meant to be insurance plays, but if you don’t take a 50% payoff on an insurance play then what the heck are you holding out for? If you bought a $1M life insurance policy and you “almost” died in a car crash and they offered you $1.5M, even though you’re still alive, would you turn it down? When in doubt, sell half!

No Doubt

We had no doubts and stopped out of all of our puts yesterday, buying back the DIA July $132 and $133 puts later. However, we kept them balanced against the August $138 calls we picked up in the morning as we don’t know what the heck is going to happen on Monday. The 84 remaining positions in our Short-Term Portfolio are up 74.1% and that’s AFTER going half cash on the week, so saying this was a good week would be a bit of an understatement!

Our usually mellow Long-Term Portfolio had an active week as we covered pretty much everything by Thursday; I’d rather give up a month of gains on our leaps than take a bracket’s worth of hits. The 35 open positions there are up 105% and we are about 40% cash there, but feeling good about our hedges.

Our month-old Complex Spreads Portfolio even had a good week (for boring plays) with 23 very hedged positions finishing up 13% but with a gain on capital at risk of 25%, which is our goal with these plays. I’ve been very happy getting these plays out of the STP as they do not need the kind of attention that STP trades do. Plus, it has helped me focus more efficiently, so I recommend this concept wholeheartedly. On the whole, it’s an extension of what I do with the LTP - it simply never occurred to me to make a subset of our short-term trades before!

The $10,000 Portfolio was our worst performer of the week, dropping down to $9,494. I’m not worried yet, though, as we are well hedged and waiting for many callers to expire and pay us a nice premium. I’ll be very surprised if we aren’t pleased with the performance by next weekend. My goal of the portfolio, since it was started from scratch this month, was NOT to lose money if the market tanked. Well, the market tanked and we’re still in the game - mission accomplished.

All in all, we closed out 53 positions on the week with a 90% average gain and a 54% return on capital at risk. With our DIA puts, it wasn’t so much the final gains as the reversal of the losses that led to such a great improvement in our fortunes as we had been placing nearly 15% of our prior gains in that bank for just such a rainy day.



Description

  Basis

Open

 Sale Price

Close

 Gain/Loss

%

10 JUN 17.00 VIX CALL [VIXFR]  $       360 5/18  $       740 6/7  $     380 106%
3 JUL 95.00 AAPL CALL [QAAGS]  $    1,585 5/14  $    9,590 6/7  $  8,005 505%
10 JUN 50.00 BIIB CALL [IDKFJ]  $       590 5/25  $    1,220 6/2  $     630 107%
40 JUL 50.00 BTU PUT [BTUSJ]   $    3,930 5/24  $    7,990 6/7  $  4,060 103%
80 JUL 50.00 BTU PUT [BTUSJ]  $    7,850 5/24  $  11,990 6/6  $  4,140 53%
10 JUN 45.00 CHL CALL [CHLFI]  $    1,010 5/30  $    2,040 6/5  $  1,030 102%
20 JUN 80.00 COP PUT [COPRP]  $    4,010 6/6  $    4,790 6/6  $     780 20%
80 JUN 27.50 CSCO CALL [CYQFY]  $    1,770 5/1  $    1,999 6/5  $     229 13%
50 JUL 133.00 DIA PUT [DAWSC]  $  10,010 6/7  $  15,990 6/8  $  5,980 60%
100 JUL 134.00 DIA PUT [DAWSD]  $  21,010 6/7  $  27,990 6/8  $  6,980 33%
150 JUL 135.00 DIA PUT [DAWSE]  $  36,010 6/6  $  50,990 6/7  $14,980 42%
50 JUL 134.00 DIA PUT [DAWSD]  $  10,510 6/7  $  14,990 6/7  $  4,480 43%
100 JUL 136.00 DIA PUT [DAZSF]  $  29,510 5/30  $  38,990 6/7  $  9,480 32%
150 JUL 137.00 DIA PUT [DAZSG]  $  29,260 6/1  $  68,990 6/7  $39,730 136%
700 Dendreon Corp. [DNDN]  $    5,645 6/1  $    5,240 6/2  $    (405) -7%
7 JUN 7.50 DNDN CALL [UKOFU]  $        10 5/31  $       970 6/2  $     960 9600%
500 ENDEAVOUR INTL [END]  $    1,085 6/7  $       965 6/9  $    (120) -11%
10 JUL 115.00 FDX CALL [FDXGC]  $        60 5/11  $    1,640 6/6  $  1,580 2633%
10 JUN 105.00 FWLT PUT [UFBRA]  $    2,010 6/4  $    2,890 6/6  $     880 44%
3 JUN 100.00 FWLT PUT [UFBRT]  $       745 5/29  $       650 6/2  $      (95) -13%
5 JUN 110.00 FXI CALL [FJJFF]  $    1,260 5/30  $    3,240 6/7  $  1,980 157%
50 JUN 37.50 GE CALL [GEFS]  $       910 5/10  $    2,240 6/1  $  1,330 146%
50 JUN 25.00 GLW CALL [GLWFE]  $    1,110 5/16  $    4,990 6/5  $  3,880 350%
10 JUN 500.00 GOOG CALL [GOPFO]  $  15,010 5/29  $    6,390 6/5  $ (8,620) -57%
5 JUN 510.00 GOOG CALL [GOPFU]  $    3,360 6/4  $    8,240 6/7  $  4,880 145%
20 JUN 67.50 GSF PUT [GSFRU]  $    1,710 6/1  $    1,290 6/6  $    (420) -25%
5 DEC 45.00 IBN CALL [IBNLI]  $    1,260 5/1  $    3,740 6/4  $  2,480 197%
60 JUN 80.00 LVS PUT [LVSRP]  $    9,010 4/20  $  18,590 6/7  $  9,580 106%
20 JUN 140.00 MA CALL [MALFH]  $  10,010 6/9  $  12,390 6/9  $  2,380 24%
5 JUN 120.00 MA CALL [MAFD]  $    1,260 5/2  $  13,490 6/6  $12,230 971%
5 JUN 45.00 NFX CALL [NFXFI]  $    1,510 5/31  $    2,540 6/7  $  1,030 68%
4 JUN 85.00 NYX CALL [NYXFQ]  $    1,010 5/23  $    1,870 6/4  $     860 85%
20 JUN 175.00 OIH CALL [ODLFO]  $    5,510 6/4  $    3,790 6/6  $ (1,720) -31%
10 JUL 165.00 OIH PUT [OIHSM]  $    3,060 5/31  $    3,590 6/4  $     530 17%
30 JUL 65.00 OSK CALL [OSKGM]  $       160 5/11  $    5,390 6/5  $  5,230 3269%
100 JUL 47.00 QQQQ PUT [QQQSU]  $    9,010 6/7  $  12,490 6/9  $  3,480 39%
50 JUL 46.00 QQQQ PUT [QQQST]  $    4,510 6/7  $    3,990 6/9  $    (520) -12%
100 JUL 48.00 QQQQ PUT [QQQSV]  $    9,010 5/31  $  19,490 6/7  $10,480 116%
40 JUN 165.00 RIMM PUT [RFYRM]  $    8,010 6/6  $  14,390 6/7  $  6,380 80%
3 JAN 7.50 SCI CALL [YTYAU]  $       655 11/15  $    1,490 6/4  $     835 128%
10 JUN 55.00 SNE CALL [SNEFK]  $    1,510 5/16  $    1,690 6/5  $     180 12%
25 JUN 62.50 TSO PUT [TSORU]  $    6,885 6/6  $    7,490 6/7  $     605 9%
30 JUN 62.50 TSO PUT [TSORU]  $    6,910 5/30  $  14,690 6/7  $  7,780 113%
50 JUN 62.50 TSO CALL [TSOFU]  $    3,510 6/6  $    4,240 6/7  $     730 21%
2 JUN 60.00 TSO PUT [TSORL]  $       230 5/22  $       570 6/7  $     340 148%
50 JUN 75.00 VLO PUT [ZPYRO]  $    5,510 6/6  $  12,490 6/7  $  6,980 127%
50 JUN 75.00 VLO PUT [ZPYRO]  $    5,260 6/6  $    7,990 6/6  $  2,730 52%
50 JUN 75.00 VLO PUT [ZPYRO]  $    5,510 6/1  $    4,490 6/4  $ (1,020) -19%
15 JUN 75.00 VLO PUT [ZPYRO]  $    1,510 6/9  $    4,490 6/9  $  2,980 197%
10 JUN 115.00 X CALL [XFC]  $    3,110 6/5  $    5,190 6/7  $  2,080 67%
30 JUN 69.00 XLE PUT [XBTRQ]  $    2,710 6/4  $    3,740 6/6  $  1,030 38%
20 JUN 68.00 XLE PUT [XBTRP]  $    1,610 6/1  $    1,090 6/4  $    (520) -32%
200 JUN 85.00 XOM PUT [XOMRQ]  $  32,010 6/4  $  30,990 6/7  $ (1,020) -3%
20 JUN 40.00 YRCW CALL [YUXFH]  $    1,910 5/23  $    1,090 6/7  $    (820) -43%

As I will now say for the fiweek in a row, now would be a good time to pack it in and call it a year, but no one sold in May. It remains to be seen if the markets are going to swoon in June, fly in July or bust in August (I’m going to bail on this before forcing a rhyme for September, but I’ll "remember" to get back to it before the summer is at an end . . . )

Have a great weekend,

- Phil

Source: Options Trader: Weekly Wrapup