Yes I did mean the 2013 and of course you don't net out a full profit until the 2013s run their course but, again - if you WANT to own XLE at net $50 and are willing to be paid $4 NOT to own it - then why the aversion to this trade?
We often trade longer time periods for lower strikes if it's margin efficient. Portfolio margin usually assumes a 20% move in the stock and once you get above or below that zone, your margin requirements get very low, which turns this into a very attractive trade for margin accounts.
Obviously, if you don't have a leveraged margin account, you should stick to "cheaper" plays like the XLF or even just simply buy a bull call spread that pays well like the XLE 2013 $66/70 bull call spread at $2, which pays 100% if XLE gains 5% and holds it through Jan 2013 - no margin just a straight 100% play to hedge some upside. Those are easy and can be found on hundreds of option picking sites - we like to go a little deeper when looking for opportunities.
So call it what you will but let's say you want to put $400 into that trade 2 spreads. That offsets $400 of increased energy costs but, if XLE flatlines or goes down 10%, you lose $400.
If however, you sell the 2013 $50 puts for $400, you are in the same $400 bull call spread but now you have decided that IF XLE falls from $67 all the way to $50, you will be willing to buy 100 contracts at net $46.
Now we take that $400 from the sold contracts and that ups your net entry on XLE to $50, which is still 30% below the current price. If you don't want to be long on the energy sector in 2013 with oil around $60 - walk away from this side of the trade!
If you do think that owning $5,000 worth of XLE at $50 is a good long-term use of your funds, then take the $400 for agreeing to buy it and use it to buy 2 call contracts. If XLE goes to $70, your consolation prize for not owning 100 shares at $50 is to get paid $4 for 200 shares of the spread ($800). Last I heard, even making $800 on $5,000 is pretty good money but nobody holds $5K in margin unless they are in an IRA so it's $2,500 - $500 depending on the type of margin account you have.
Even more importantly, look at your profit window. You have a $0 cost basis UNLESS XLE falls below $50. Since the idea was to hedge $10K of annual fuel purchases, even at $33 (50% off) if your fuel costs dropped $5K then you would only lose $1,700 on the short puts and, if that ratio stayed in place, you would never lose money to the downside. So what is risk? Risk depends very much on what you are protecting.
As I said, a lot of these strategies are counter-intuitive and have to be learned just like any profession is learned. It takes time and practice and you need to develop different ways of looking at your portfolio as well as your life and goals so you can set a path towards what you really need to achieve in your long-term planning.
PS - we just got off the Qs and are very tempted to go with SQQQ at $30.50 here - of course we're using options and selling short puts but just the basic ETF has a good chance of bouncing here and $30 is a nice, obvious stop-loss.
The bottom line on these (or any) short put sales is you have to REALLY WANT to own the underlying ETF long-term at the strike you sell. If so, then you are simply allocating a percentage of your dormant cash to a position you would be willing to take down the road. We rarely move from at least 50% cash positions so having spare margin is rarely an issue - that's a big difference between stock traders and options traders.
Also, as I mentioned in last week's S&P trade idea, if you have a Portfolio Margin account - there is a world of difference in what you put aside. I thought I was being clear saying that you are, in the XLE example, COMMITTING to buiying $5,000 worth of XLE at $50 (100 shares from one option contract). Whether that commitment costs you $5,000 in an IRA or $2,500 in ordinary margin or $505, as it does on my TOS margin screen is something that very much depends on your individual account.
Options trading is not a one size fits all exercise we teach different strategies for different types of accounts and different trading goals - can't possibly cover what amounts to a year of course-work in every 3-page post unfortunately but if I refer to our educational materials or training articles I get accused of trying to sell my service (heaven forbid!) so there's no way to make 50,000 people at SA happy, is there?
For a while I told them not to pick up my weekend articles to Members because we do touch on fairly advanced issues that require a bit more than a casual familiarity with risk management but SA cut the part where I mentioned that our service is all about helping people learn how to manage and adjust these trades over time so what can I do?
Anyway, if you want to learn option basics, you don't have to give us money. Market Tamer is an excellent service that specializes in teaching option strategies and they have a 14-day free trial and then just $147 a month. If you sign up you get a free copy of the same book that we give to Members on our own site so, if you want to learn more about basic options trading - try them at bit.ly/gQjaui
PS - Seeking Alpha edited the hell out of this post because it contained a special offer for Membership - you can read the unredacted version on our site: www.philstockworld.com.../
That's why most people don't hedge - it's counterintuitive.
That's also why we spend months and years teaching people how to hedge their portfolios - it's not the kind of thing you can get a "cheat-sheet" on.
Hedging is a whole other mindset for investors that needs to be practiced over time and learning how to do it properly is as real a course of study as any pursuit you will go for in college. It's a shame they don't teach this in business school but it's the first course you get when you apprentice at a major brokerage so why shouldn't you take the time to learn it if you are going to be managing your own money?
Unfortunately, everyone wants a simple answer and a quick solution - hedging is neither. Much the way you may have heard that diet and exercise can keep you healthy, hedging and balancing your portfolio can keep your finances healthy as well.
Both take hard work and determination over a great deal of time - something not everyone is prepared to do, unfortunately.
It was big of Frank to apologize and I appreciate it.
Hopefully we can all keep in mind there is a person on the other side of the web and treat them with respect when we are writing. It's fine to disagree but chat commentary shouldn't resemble professional wrestling - we should be ALL concentrating on arriving at the truth and that means recognizing each other's points of view as valid - so that we can better understand the positions we arrive at.
Best Holiday Wishes to all - there's a special Christmas post at PSW for all of my readers: www.philstockworld.com.../
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
Hi Richard. Not 1% margin, I was saying with a portfolio margin account. In OXPS on the trade calculator, I'm seeing a $411 net credit and net $8,301 margin requirement in ordinary margin. I don't us OXPS anymore so I couldn't tell you what portfolio margin is over there but it's a low-cash (credit at today's prices), low-risk, high-margin trade without portfolio margining. If you qualify, you may want to consider looking into it but it's a very dangerous tool if you don't manage it correctly as it allows you to place tremendous leverage on your account that can get away from you.
This is what I mean when I say that wealthy investors and institutional traders have tremendous advantages when trading... Note on the short straddle example under SPY (the kind of trade this is) that PM requires 1/3 the margin that regular margin does and the wider the spread, the lower it goes.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
Is there anyone else here who did not understand where 20,000% comes from other than Frank?
I'll assume there are plenty of people who couldn't grasp the context of the trade idea he is having a fit about as the whole thing was a tongue in cheek example of how ridiculously easy it would be to make money if DB's 1,550 target is realized - even though in my prior comment I said I was being tongue in cheek...
What is Frank's problem? Go back and read his history (all 21) of comments. Why read every day if it irritates him so much?
The real scam here is Frank. An anonymous guy who has contributed nothing at all of his own yet tries to tear down the work of others. Society is sadly filled with these people and the silent majority just sits there and lets it happen. Why is that? Why do we allow the Franks of the World to drag everything into the mud?
Clearly I outlined a trade, then made a comment to explain the trade but a person like Frank gets to ask a question that's already been answered (to anyone who has passed 5th grade math as I checked and my daughter got 20,000% too) and my lack immediate gratification to a loudmouth jerk then becomes "evidence" that it's a Scam and anonymous Frank gets to make libelous accusations with the obvious intent of damaging my business and that seems to be OK with everybody (he even got a thumbs up).
Who is Frank? Is he the guy from DC with some sort of agenda? Does he have a rival site that mine is taking subscribers from? My growth is pissing off a lot of people, that's for sure. All you have to do is have a hotmail address and your comments carry the same weight as any other contributor or rational, thoughtful commenter on Seeking Alpha, right?
Does my writing promote my site? Of course it does. 90% of what I write is on my Member site, we make dozens of trades every week there and they work because we DON'T advertise them out to thousands of people. Option trading is not like stock trading - I get no benefit from herding lemmings into our trades so if you want "free" advice - stick with Cramer (he says to buy NFLX, we're shorting it again).
Thanks to those who said something supportive - you guys are like the few good men in Sodom and Gomorrah who keep what little faith I have left in this process while people like Frank strive to turn Seeking Alpha into another Yahoo message board.
But, like I said, all that is required for the World to become corrupt is for good men to sit silently while it happens.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
Actually, every weekend for a year we used to wrap up every trade and track performance but then there would always be some loudmouth who issues challenges or otherwise makes an ass of himself. On the whole, it makes it pointless for a writer to share ideas as SA as it attracts people like you so I let them post my articles but I stay out of chat and I give out very few trade ideas.
As usual, as soon as I forget why I shouldn't share - someone like you reminds me why I shouldn't bother.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
This is worth commenting on.
I guess saying "Sorry for the sarcasm" wasn't enough to tip off that we're tongue-in-cheek on these plays.. Also, my other 1,500 articles in which I constantly say that we teach people to SELL options to suckers who think they are going to be rich is not good enough - each article must be a complete thesis on derivatives trading?
Sadly, SA only gets the free commentary so it will always be just a slice of what we actually talk about at PSW and they don't pick up our weekend posts, where we discuss hedging etc.
But, to defend leverage. Let's look at the SPY trade. You are selling a 2012 $85 put for $2. That obligates you to buy 100 shares of SPY at $85 so your entire commitment is $8,500 and that triggers if the S&P is down 400 points from here (about 30%). If the S&P falls 50% from it's current level, your loss is not $8,500, just the difference between 8,500 and 6,200 or about $2,300. That, outside of a complete market meltdown - is your risk.
On the upside, you are taking your $200 credit and buying one SPY 2012 $145 call. There is no limit to your upside, you collect every dollar that SPY is above $145 x 100 so, in an extreme example, if the S&P gains 50% instead of losing 50%, it goes to 1,860 and those calls are $41.50 each for a $4,150 gain.
But the point of the play was to show that if you buy into DB's 1,550 number, then someone who is willing to risk, say $23,000 on a bet that the S&P wouldn't drop 50% can put up virtually no cash (.50 total) and buy 10 upside contracts that would return $10,000 at 1,550 on "just" a 25% rise.
In other words, if the markets were actually this easy and things were so bullish, then we will have lots and lots of very rich people running around. Stocks are not going to make you one of them because inflation will eat you alive on moves like that so you need a little leverage - as long as it's done correctly.
The key to a play like that is that the S&P can rise 25% and you make your goal but if the S&P falls 25%, you lose nothing at all. Always try to structure your risk/reward profiles with strong positives like that and you can do pretty well in any market conditions but this is not a game for small retail traders - which is why I often complain that the markets are unfair and that the middle class is getting screwed by a game that is stacked against them but it doesn't seem to bother too many people on SAlpha (judging by comments on my previous post), who must all be in that top 1% with portfolio margin accounts, who can afford some aggressive plays in their portfolios.
Also, these are not all or nothing plays. They unfold over a year and can be adjusted along the way. Even during the great crash, it took a full year for the S&P to fall from 1,500 to 750. As much as you don't want people to mess around with derivatives without understanding the risks - scaring them away from derivatives that can hedge their portfolio against inflation when used responsibly is also a great disservice.
Because the traders only skim fees off the top and the bulk of the money is in the form of the $1.8Bn/day (at $90 a barrel) or $657Bn a year the US sends to oil producers, which is $3.3Tn global dollars a year, 40% of which goes to OPEC. In order for a trader, who may clear 1% of the transaction, to make $1 instead of .45, he needs to jack the price of oil up to $100, costing the consumer $55 so he can make an additional .55. It doesn't matter to the trader how much global suffering is caused by $2Tn being added to the price of oil and yanked out of consumer's pockets, all he cares about is he's making .55 more per barrel traded.
If oil is in short supply why are inventories at record highs? Why is daily supply at record highs while demand is at decade lows? When have you waited on line for fuel since the 1970s? When has anyone?
What if speculators didn't tie up 600M barrels of oil in fake demand contracts on the NMEX, were 6Bn barrels of January oil were traded this month yet only 25M barrels will actually be delivered?
That's just 0.4% ACTUAL deliveries to people who ACTUALLY want oil vs 5,975,000,000 barrels traded by speculators who are merely distorting the price.
Which Way Wednesday: Muni Bombs Fall [View article]
I answered a similar question in Member Chat yesterday:
"I’m just reading a lot of really messed up stuff and it’s my job to give you the real news, whether you like it or not. I’d love to put on rose-colored glasses and do nothing but pick stocks that are going to go up every day but it’s not what I’m seeing as being a sound strategy right now and, unlike the rest of America, I seem to remember a very terrible global meltdown that occurred just about 2 years ago and I know a lot of people who lost their asses listening to the idiots in the MSM telling them how great everything was while I would make jokes about fiddling while Rome burned and calling it a Meatball Marketplace (where bad news "just doesn’t matter") but it turns out that was too subtle for some people they got caught up way too bullish so now I’m going to scream "the sky is falling" and risk the ridicule, rather than allow anyone here to misinterpret my thoughts about this "rally." "
Wednesday Worries: After Ireland, Who's Next? [View article]
Ah, see, once again I am reminded why I should never post trade ideas on Seeking Alpha!
Not only did we post that Trade but we posted the follow-up roll of that position in the SA Instablog (and another follow-up note today) but, whether Dracena took the time to look at that or not, the damage is done as he questions our integrity as if we lied about the position. It's a no-win situation putting up trades here.
They've been there for 2 days. The XRT trade mentioned in Wednesday's post had text that was "yadda yadda'd" which read:
"You can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), PCLN weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and NFLX Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit. "
So I actually said, in the same paragraph that Dracena is quoting - to go to the instablog on Seeking Alpha. Did the puts open at .35, yes! Did the puts finish at .55? Yes. Was this the same trade we are openly tracking on Seeking Alpha? No.
I am very sorry if Dracena Advisors LLC took this trade idea and went in at .80 and didn't stop out with a 10, 20 or 30% loss and did not scale in and did not roll and did not hedge. I cannot babysit trade ideas and we have to assume some level of ordinary care will be taken by people making trades.
Frankly, on this trade, an entry at .80 and a double down at .35 and an exit at .55 would have had you even on the trade, not down 31% anyway.
Those of you who do wish to follow these trades in the future should really sign up for our newsletter while it's still $49 a month (and there's even a 20% discount if you use the link on the left on this page) because that will double as soon as the programmers get it going properly and the posting of trades on this site, including the instablog, will stop as it's simply not worth this kind of aggravation.
Think how ridiculous the entire premise of us lying about trades is. We have hundreds of paying Members who follow every single trade every single day and you think we would lie about them in our main post? How would that benefit us? We are on-line with our Members in the Chat Room all day long - don't you think that would become a big topic of discussion if we were misrepresenting the trade ideas we gave them?
We're not some mass-mailer who tries to hit people for a one-time fee for CD's or Secret Sysems. We have monthly Memberships in an education-oriented site and if we don't perform, then we won't have our Members any more and if we don't track our trade ideas accurately, then we won't have our Members anymore. We're not going to make up trades to impress Dracena Advisors LLC!
It would be one thing if someone asked us "could you please explain how you got this number because here is my situation" but it's a constant thing here were NOBODY EVER thanks us for good trades and SOMEBODY ALWAYS tries to find flaw in what we do.
I'm sure there are perfect services that give you everything for free - I'm not going to try to compete with that!
We (and I speak for all the writers at Seeking Alpha) make our livings by gaining a reputation but there are people who not only think nothing of trying to tear that down but also seem determined to do so at any opportunity. Imagine if people came to where you worked and stood there and attempted to find flaws with whatever you do during the day and then made public proclamations about it or insinuated to your clients that you were somehow dishonest!
Sorry to rant but Seeking Alpha used to be such a fine community and it pains me to see it becoming more like a Yahoo chat room every day. Back in the 90's that's where I used to write (Yahoo Message Boards), very happy to talk to people all day long but that got turned to crap and now this is following the same route and it's the silent majority that lets it happen.
Oh well, maybe the next hot place will last a little longer...
Went to the Big Apple yesterday to see the Bubble Show which was good but not great. Kids liked it but didn't love it as the show was very short and took about 5 breaks to video, which I think is a terrible thing to do in a Broadway show. Kids just want MORE BUBBLES - if they guy needed to take breaks he could have had assistants come out and blow giant bubbles or they could have had a few giant bubble machines to drop some on the cheap seats (do not see this show from more than 5 rows back - we were in 2nd row center and the first row kids popped 2/3 of the big bubbles. Anyway, cool experience as you never imagined so many things could be done with bubbles and that's all I care about - I like to have the kids do at least one thing every month they have never done before...
New York City itself was busy but not crazy. We were in Times Square and that was normal Saturday night crowded. Distinct lack of shopping bags and stores not overly busy. I think perhaps New York is full of the type of people who shop online so maybe not a great indicator. There were huge amounts of tourists though and Rockefeller Center was insanely busy but perhaps that was because the Radio City show (next door) was in turnover when we went by (one show coming out and other show not starting yet). Meanwhile, the tree was NOT lit! I thought they lit it on Thanksgiving but it seems to be Dec 1st.
At 5:30 we were able to walk into Ruby Foos and get a table for 4, that's not a very good sign. We passed a lot of slower than expected restaurants and NONE with lines, which is strange for a pre-theater holiday Saturday. At the show, the gift shop was subdued and the few stores we did poke our heads into, mostly specialty shops as we have no reason to go to a chain store in Manhattan, were certainly not busy.
Even Lego Land seemed more like a tourist museum than a store. Chocolate store was EMPTY and, even stranger, no line at SBUX on a pretty cold day but at $4 per hot chocolate, maybe we can see why. That SBUX claimed to be out of cider and I'm curious if that's a trend to upsell. I'm not a big coffee person and usually when we go to SBUX I get a cider in the winter which, aside from being healthier than coffee, is just $2 and I'm wondering if either they are removing it as it can't make them as much money as coffee or hot chocolate or if perhaps they really are sold out because it's cheap.
Meanwhile, this is why I love doing holiday surveys with you guys, great observations! Including:
Hanna - Very professional report. Pstas - (on IPad) "Why discount something that is supposed to be flying off the shelves?" Nicha - Also very professional and I liked "I think people not in the know especially seniors were buying LCD’s that were 60 hz because they were priced under $500." DKGuy - More upscale cars at Sam's club - very interesting. Cocoralph - Asking cashiers is a great idea. Livingfull - Looking at a mob of shoppers and wondering what it would be like if they were after food and water instead of IPods is the very essence of out-of-the-box thinking we love around here (and that reminds me of observations my Dad used to make and that is very high praise). Escohen - Taking size of city into account with floor space is good observation. We can't assume every store is right for its area. Thanks guys, let's keep up the good work and hopefully we'll be able to build an investing premise out of it!
Across the board so far WMT is looking like a buy. We may worry that other stores are discount cutting off their profits to spite their competitors but not WMT, who I very much doubt sell anything they haven't worked out a good deal on for themselves.
California seems to be coming back but we need more data from that big state. That would be a nice indication - I'd be very curious to hear if this is spreading to Tahoe (Vegas seems to be benefiting) and Colorado's ski resorts.
4 Inflation Hedges for 2011 [View article]
We often trade longer time periods for lower strikes if it's margin efficient. Portfolio margin usually assumes a 20% move in the stock and once you get above or below that zone, your margin requirements get very low, which turns this into a very attractive trade for margin accounts.
Obviously, if you don't have a leveraged margin account, you should stick to "cheaper" plays like the XLF or even just simply buy a bull call spread that pays well like the XLE 2013 $66/70 bull call spread at $2, which pays 100% if XLE gains 5% and holds it through Jan 2013 - no margin just a straight 100% play to hedge some upside. Those are easy and can be found on hundreds of option picking sites - we like to go a little deeper when looking for opportunities.
So call it what you will but let's say you want to put $400 into that trade 2 spreads. That offsets $400 of increased energy costs but, if XLE flatlines or goes down 10%, you lose $400.
If however, you sell the 2013 $50 puts for $400, you are in the same $400 bull call spread but now you have decided that IF XLE falls from $67 all the way to $50, you will be willing to buy 100 contracts at net $46.
Now we take that $400 from the sold contracts and that ups your net entry on XLE to $50, which is still 30% below the current price. If you don't want to be long on the energy sector in 2013 with oil around $60 - walk away from this side of the trade!
If you do think that owning $5,000 worth of XLE at $50 is a good long-term use of your funds, then take the $400 for agreeing to buy it and use it to buy 2 call contracts. If XLE goes to $70, your consolation prize for not owning 100 shares at $50 is to get paid $4 for 200 shares of the spread ($800). Last I heard, even making $800 on $5,000 is pretty good money but nobody holds $5K in margin unless they are in an IRA so it's $2,500 - $500 depending on the type of margin account you have.
Even more importantly, look at your profit window. You have a $0 cost basis UNLESS XLE falls below $50. Since the idea was to hedge $10K of annual fuel purchases, even at $33 (50% off) if your fuel costs dropped $5K then you would only lose $1,700 on the short puts and, if that ratio stayed in place, you would never lose money to the downside. So what is risk? Risk depends very much on what you are protecting.
As I said, a lot of these strategies are counter-intuitive and have to be learned just like any profession is learned. It takes time and practice and you need to develop different ways of looking at your portfolio as well as your life and goals so you can set a path towards what you really need to achieve in your long-term planning.
PS - we just got off the Qs and are very tempted to go with SQQQ at $30.50 here - of course we're using options and selling short puts but just the basic ETF has a good chance of bouncing here and $30 is a nice, obvious stop-loss.
4 Inflation Hedges for 2011 [View article]
Also, as I mentioned in last week's S&P trade idea, if you have a Portfolio Margin account - there is a world of difference in what you put aside. I thought I was being clear saying that you are, in the XLE example, COMMITTING to buiying $5,000 worth of XLE at $50 (100 shares from one option contract). Whether that commitment costs you $5,000 in an IRA or $2,500 in ordinary margin or $505, as it does on my TOS margin screen is something that very much depends on your individual account.
Options trading is not a one size fits all exercise we teach different strategies for different types of accounts and different trading goals - can't possibly cover what amounts to a year of course-work in every 3-page post unfortunately but if I refer to our educational materials or training articles I get accused of trying to sell my service (heaven forbid!) so there's no way to make 50,000 people at SA happy, is there?
For a while I told them not to pick up my weekend articles to Members because we do touch on fairly advanced issues that require a bit more than a casual familiarity with risk management but SA cut the part where I mentioned that our service is all about helping people learn how to manage and adjust these trades over time so what can I do?
Anyway, if you want to learn option basics, you don't have to give us money. Market Tamer is an excellent service that specializes in teaching option strategies and they have a 14-day free trial and then just $147 a month. If you sign up you get a free copy of the same book that we give to Members on our own site so, if you want to learn more about basic options trading - try them at bit.ly/gQjaui
Hope that helps,
- Phil
4 Inflation Hedges for 2011 [View article]
Happy Holidays!
- Phil
4 Inflation Hedges for 2011 [View article]
That's also why we spend months and years teaching people how to hedge their portfolios - it's not the kind of thing you can get a "cheat-sheet" on.
Hedging is a whole other mindset for investors that needs to be practiced over time and learning how to do it properly is as real a course of study as any pursuit you will go for in college. It's a shame they don't teach this in business school but it's the first course you get when you apprentice at a major brokerage so why shouldn't you take the time to learn it if you are going to be managing your own money?
Unfortunately, everyone wants a simple answer and a quick solution - hedging is neither. Much the way you may have heard that diet and exercise can keep you healthy, hedging and balancing your portfolio can keep your finances healthy as well.
Both take hard work and determination over a great deal of time - something not everyone is prepared to do, unfortunately.
Wednesday's Worry - ETF Madness Hits $1 Trillion [View article]
It was big of Frank to apologize and I appreciate it.
Hopefully we can all keep in mind there is a person on the other side of the web and treat them with respect when we are writing. It's fine to disagree but chat commentary shouldn't resemble professional wrestling - we should be ALL concentrating on arriving at the truth and that means recognizing each other's points of view as valid - so that we can better understand the positions we arrive at.
Best Holiday Wishes to all - there's a special Christmas post at PSW for all of my readers: www.philstockworld.com.../
Merry Christmas,
- Phil
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
Good table illustrating the power of PM is here: www.cboe.com/micro/mar...
This is what I mean when I say that wealthy investors and institutional traders have tremendous advantages when trading... Note on the short straddle example under SPY (the kind of trade this is) that PM requires 1/3 the margin that regular margin does and the wider the spread, the lower it goes.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
I'll assume there are plenty of people who couldn't grasp the context of the trade idea he is having a fit about as the whole thing was a tongue in cheek example of how ridiculously easy it would be to make money if DB's 1,550 target is realized - even though in my prior comment I said I was being tongue in cheek...
What is Frank's problem? Go back and read his history (all 21) of comments. Why read every day if it irritates him so much?
The real scam here is Frank. An anonymous guy who has contributed nothing at all of his own yet tries to tear down the work of others. Society is sadly filled with these people and the silent majority just sits there and lets it happen. Why is that? Why do we allow the Franks of the World to drag everything into the mud?
Clearly I outlined a trade, then made a comment to explain the trade but a person like Frank gets to ask a question that's already been answered (to anyone who has passed 5th grade math as I checked and my daughter got 20,000% too) and my lack immediate gratification to a loudmouth jerk then becomes "evidence" that it's a Scam and anonymous Frank gets to make libelous accusations with the obvious intent of damaging my business and that seems to be OK with everybody (he even got a thumbs up).
Who is Frank? Is he the guy from DC with some sort of agenda? Does he have a rival site that mine is taking subscribers from? My growth is pissing off a lot of people, that's for sure. All you have to do is have a hotmail address and your comments carry the same weight as any other contributor or rational, thoughtful commenter on Seeking Alpha, right?
Does my writing promote my site? Of course it does. 90% of what I write is on my Member site, we make dozens of trades every week there and they work because we DON'T advertise them out to thousands of people. Option trading is not like stock trading - I get no benefit from herding lemmings into our trades so if you want "free" advice - stick with Cramer (he says to buy NFLX, we're shorting it again).
Thanks to those who said something supportive - you guys are like the few good men in Sodom and Gomorrah who keep what little faith I have left in this process while people like Frank strive to turn Seeking Alpha into another Yahoo message board.
But, like I said, all that is required for the World to become corrupt is for good men to sit silently while it happens.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
As usual, as soon as I forget why I shouldn't share - someone like you reminds me why I shouldn't bother.
Merry Monday - Will Santa Deliver Dow 11,500? [View article]
I guess saying "Sorry for the sarcasm" wasn't enough to tip off that we're tongue-in-cheek on these plays.. Also, my other 1,500 articles in which I constantly say that we teach people to SELL options to suckers who think they are going to be rich is not good enough - each article must be a complete thesis on derivatives trading?
Sadly, SA only gets the free commentary so it will always be just a slice of what we actually talk about at PSW and they don't pick up our weekend posts, where we discuss hedging etc.
But, to defend leverage. Let's look at the SPY trade. You are selling a 2012 $85 put for $2. That obligates you to buy 100 shares of SPY at $85 so your entire commitment is $8,500 and that triggers if the S&P is down 400 points from here (about 30%). If the S&P falls 50% from it's current level, your loss is not $8,500, just the difference between 8,500 and 6,200 or about $2,300. That, outside of a complete market meltdown - is your risk.
On the upside, you are taking your $200 credit and buying one SPY 2012 $145 call. There is no limit to your upside, you collect every dollar that SPY is above $145 x 100 so, in an extreme example, if the S&P gains 50% instead of losing 50%, it goes to 1,860 and those calls are $41.50 each for a $4,150 gain.
But the point of the play was to show that if you buy into DB's 1,550 number, then someone who is willing to risk, say $23,000 on a bet that the S&P wouldn't drop 50% can put up virtually no cash (.50 total) and buy 10 upside contracts that would return $10,000 at 1,550 on "just" a 25% rise.
In other words, if the markets were actually this easy and things were so bullish, then we will have lots and lots of very rich people running around. Stocks are not going to make you one of them because inflation will eat you alive on moves like that so you need a little leverage - as long as it's done correctly.
The key to a play like that is that the S&P can rise 25% and you make your goal but if the S&P falls 25%, you lose nothing at all. Always try to structure your risk/reward profiles with strong positives like that and you can do pretty well in any market conditions but this is not a game for small retail traders - which is why I often complain that the markets are unfair and that the middle class is getting screwed by a game that is stacked against them but it doesn't seem to bother too many people on SAlpha (judging by comments on my previous post), who must all be in that top 1% with portfolio margin accounts, who can afford some aggressive plays in their portfolios.
Also, these are not all or nothing plays. They unfold over a year and can be adjusted along the way. Even during the great crash, it took a full year for the S&P to fall from 1,500 to 750. As much as you don't want people to mess around with derivatives without understanding the risks - scaring them away from derivatives that can hedge their portfolio against inflation when used responsibly is also a great disservice.
Fake-Out Thursday - Oil Scam Continues Unabated [View article]
If oil is in short supply why are inventories at record highs? Why is daily supply at record highs while demand is at decade lows? When have you waited on line for fuel since the 1970s? When has anyone?
What if speculators didn't tie up 600M barrels of oil in fake demand contracts on the NMEX, were 6Bn barrels of January oil were traded this month yet only 25M barrels will actually be delivered?
That's just 0.4% ACTUAL deliveries to people who ACTUALLY want oil vs 5,975,000,000 barrels traded by speculators who are merely distorting the price.
Fake-Out Thursday - Oil Scam Continues Unabated [View article]
Fake-Out Thursday - Oil Scam Continues Unabated [View article]
Meanwhile, our server went down so we'll do chat here for the duration. Fortunately, I was not backed up on comments in Member Chat at the time....
Which Way Wednesday: Muni Bombs Fall [View article]
"I’m just reading a lot of really messed up stuff and it’s my job to give you the real news, whether you like it or not. I’d love to put on rose-colored glasses and do nothing but pick stocks that are going to go up every day but it’s not what I’m seeing as being a sound strategy right now and, unlike the rest of America, I seem to remember a very terrible global meltdown that occurred just about 2 years ago and I know a lot of people who lost their asses listening to the idiots in the MSM telling them how great everything was while I would make jokes about fiddling while Rome burned and calling it a Meatball Marketplace (where bad news "just doesn’t matter") but it turns out that was too subtle for some people they got caught up way too bullish so now I’m going to scream "the sky is falling" and risk the ridicule, rather than allow anyone here to misinterpret my thoughts about this "rally." "
Wednesday Worries: After Ireland, Who's Next? [View article]
Not only did we post that Trade but we posted the follow-up roll of that position in the SA Instablog (and another follow-up note today) but, whether Dracena took the time to look at that or not, the damage is done as he questions our integrity as if we lied about the position. It's a no-win situation putting up trades here.
The adjustments can be found here: seekingalpha.com/insta...
They've been there for 2 days. The XRT trade mentioned in Wednesday's post had text that was "yadda yadda'd" which read:
"You can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), PCLN weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and NFLX Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit. "
So I actually said, in the same paragraph that Dracena is quoting - to go to the instablog on Seeking Alpha. Did the puts open at .35, yes! Did the puts finish at .55? Yes. Was this the same trade we are openly tracking on Seeking Alpha? No.
I am very sorry if Dracena Advisors LLC took this trade idea and went in at .80 and didn't stop out with a 10, 20 or 30% loss and did not scale in and did not roll and did not hedge. I cannot babysit trade ideas and we have to assume some level of ordinary care will be taken by people making trades.
Frankly, on this trade, an entry at .80 and a double down at .35 and an exit at .55 would have had you even on the trade, not down 31% anyway.
Those of you who do wish to follow these trades in the future should really sign up for our newsletter while it's still $49 a month (and there's even a 20% discount if you use the link on the left on this page) because that will double as soon as the programmers get it going properly and the posting of trades on this site, including the instablog, will stop as it's simply not worth this kind of aggravation.
Think how ridiculous the entire premise of us lying about trades is. We have hundreds of paying Members who follow every single trade every single day and you think we would lie about them in our main post? How would that benefit us? We are on-line with our Members in the Chat Room all day long - don't you think that would become a big topic of discussion if we were misrepresenting the trade ideas we gave them?
We're not some mass-mailer who tries to hit people for a one-time fee for CD's or Secret Sysems. We have monthly Memberships in an education-oriented site and if we don't perform, then we won't have our Members any more and if we don't track our trade ideas accurately, then we won't have our Members anymore. We're not going to make up trades to impress Dracena Advisors LLC!
It would be one thing if someone asked us "could you please explain how you got this number because here is my situation" but it's a constant thing here were NOBODY EVER thanks us for good trades and SOMEBODY ALWAYS tries to find flaw in what we do.
I'm sure there are perfect services that give you everything for free - I'm not going to try to compete with that!
We (and I speak for all the writers at Seeking Alpha) make our livings by gaining a reputation but there are people who not only think nothing of trying to tear that down but also seem determined to do so at any opportunity. Imagine if people came to where you worked and stood there and attempted to find flaws with whatever you do during the day and then made public proclamations about it or insinuated to your clients that you were somehow dishonest!
Sorry to rant but Seeking Alpha used to be such a fine community and it pains me to see it becoming more like a Yahoo chat room every day. Back in the 90's that's where I used to write (Yahoo Message Boards), very happy to talk to people all day long but that got turned to crap and now this is following the same route and it's the silent majority that lets it happen.
Oh well, maybe the next hot place will last a little longer...
PhilStockWorld's 2010 Holiday Shopping Survey [View instapost]
Good morning!
Went to the Big Apple yesterday to see the Bubble Show which was good but not great. Kids liked it but didn't love it as the show was very short and took about 5 breaks to video, which I think is a terrible thing to do in a Broadway show. Kids just want MORE BUBBLES - if they guy needed to take breaks he could have had assistants come out and blow giant bubbles or they could have had a few giant bubble machines to drop some on the cheap seats (do not see this show from more than 5 rows back - we were in 2nd row center and the first row kids popped 2/3 of the big bubbles. Anyway, cool experience as you never imagined so many things could be done with bubbles and that's all I care about - I like to have the kids do at least one thing every month they have never done before...
New York City itself was busy but not crazy. We were in Times Square and that was normal Saturday night crowded. Distinct lack of shopping bags and stores not overly busy. I think perhaps New York is full of the type of people who shop online so maybe not a great indicator. There were huge amounts of tourists though and Rockefeller Center was insanely busy but perhaps that was because the Radio City show (next door) was in turnover when we went by (one show coming out and other show not starting yet). Meanwhile, the tree was NOT lit! I thought they lit it on Thanksgiving but it seems to be Dec 1st.
At 5:30 we were able to walk into Ruby Foos and get a table for 4, that's not a very good sign. We passed a lot of slower than expected restaurants and NONE with lines, which is strange for a pre-theater holiday Saturday. At the show, the gift shop was subdued and the few stores we did poke our heads into, mostly specialty shops as we have no reason to go to a chain store in Manhattan, were certainly not busy.
Even Lego Land seemed more like a tourist museum than a store. Chocolate store was EMPTY and, even stranger, no line at SBUX on a pretty cold day but at $4 per hot chocolate, maybe we can see why. That SBUX claimed to be out of cider and I'm curious if that's a trend to upsell. I'm not a big coffee person and usually when we go to SBUX I get a cider in the winter which, aside from being healthier than coffee, is just $2 and I'm wondering if either they are removing it as it can't make them as much money as coffee or hot chocolate or if perhaps they really are sold out because it's cheap.
Meanwhile, this is why I love doing holiday surveys with you guys, great observations! Including:
Hanna - Very professional report.
Pstas - (on IPad) "Why discount something that is supposed to be flying off the shelves?"
Nicha - Also very professional and I liked "I think people not in the know especially seniors were buying LCD’s that were 60 hz because they were priced under $500."
DKGuy - More upscale cars at Sam's club - very interesting.
Cocoralph - Asking cashiers is a great idea.
Livingfull - Looking at a mob of shoppers and wondering what it would be like if they were after food and water instead of IPods is the very essence of out-of-the-box thinking we love around here (and that reminds me of observations my Dad used to make and that is very high praise).
Escohen - Taking size of city into account with floor space is good observation. We can't assume every store is right for its area.
Thanks guys, let's keep up the good work and hopefully we'll be able to build an investing premise out of it!
Across the board so far WMT is looking like a buy. We may worry that other stores are discount cutting off their profits to spite their competitors but not WMT, who I very much doubt sell anything they haven't worked out a good deal on for themselves.
California seems to be coming back but we need more data from that big state. That would be a nice indication - I'd be very curious to hear if this is spreading to Tahoe (Vegas seems to be benefiting) and Colorado's ski resorts.