Philip Davis

Options Trader: Friday Outlook

One very important rule we teach is that, once you are ahead 50% on a caller, you set a very tight stop on him. With more than 2 weeks to expiration, we generally buy back any caller that is down 50% or more (assuming nothing bad happened to the stock's outlook) and then we wait for a recovery and, failing that, look to sell the next lower strike and use that money to roll down our long position.

Options Trader: Friday Outlook

Cover - you do realize that this article is Friday the 8th, not the current day's article right?

WMT - at 9:41 yesterday, my comment to members was: "WMT so going the wrong way. What a relief as I thought my $57.50 callers were going to blow me out. This is so great! Let’s pick up 5 Sept $55s at $3 in the $10KX and the $25KP XXX"

So the adjustment to this play was that we had the coverage through earnings and, on the dip, we took out the caller at just .40 and then flipped bullish becuase it was silly for them to go down (see this Thursday's post for my general take on the morning sell-off).

Meanwhile, the March $57.50s were bought for $4.75 and we sold calls for $1 and bought them back for .40 so the net basis on the leaps is $47.15 and they are now worth $6.25, not a bad gain for a week!

Had you not bought back the caller, your basis would be $3.75 on the March $57.50s and you would owe your August caller $1.87, for a net profit of .63, still 17% in one week and not so awful but you can spend just .40 to roll your caller to the Sept $60 calls, now $1.50, which would leave you in the March $57.50s at $6.25 and about 25% covered with the Sept $60s. You can do that month after month so, even without the good timing (and luck) we had, it's a nice little income producer.

Options Trader: Thursday Outlook

Not at $4! That's our magic number. JPM was going to buy them at $8 before the BSC thing hit the fan and diverted them so I like the risk/reward of WM at $4, which has been our buy point 2 other times with outs at $5ish. Buying the stock for $4 and selling the Sept $4 call for .71 is also very attractive and you can add a sale of the Sept $4 put at .60 which gives you a $2.69 basis if you get called away at $4 on Sept 19th or forces you to buy another round at $4 for an average purchase price of $3.35 - that's my kind of play!

Options Trader: Tuesday Outlook

AXP - again you are flat out wrong. Now you are contending (correctly) that we already took out one caller and made a nice profit so somehow the secondary profit on the other caller is a negative. Of course if you were a real member you would bring this up in member chat rather than here and if you were a real member you would have read our strategy section or you would have heard me say perhaps 3 times that day to take callers our we were more than 50% ahead on (and with us being up over 80% on AXP, that would qualify becuase 80% is BIGGER than 50%).

SNE - same thing, the math is just too tedious to go into but it's a break-even position. Seriously, out of 200 open positions those are the best you can do? Right above this comment, at the end of the post are 4 picks that were made pre-market and generated stunning one-day returns, there are 174 free picks made right here on SA in the past 12 months, why don't you make a tracking form and see how they all turned out? Our goals are to make 20% profits and then set trailing stops of 20% of the profits - just follow those very simple rules and see how it goes. I think the body of work speaks for itself as does my work every single day. If it makes you feel better, I have a hedge fund starting next quarter and that will be publicly audited, you can have fun tracking that as well!

NYMEX - they have rules that make it painless to roll contacts to the next month and if you track the totals here:

futures.tradingcharts....

You'll see all they really do on any given day is shuffle contracts from one month to another so this time next month October will have 300K contracts (+ 200K) and Nov will have 120K (+50K) and 20 or 30K will be distributed to other months and they will close Sept around Aug 20th with less than 40K contracts (1,000 barrels per contract).

You'll notice also the incredible volume of trading while Open Interest barely changes each day. That's churning, plain and simple and the churn rate on the NYMEX is 6Bn barrels (6M contracts) in a typical month with only 20-40M barrels delivered (20-30K contracts). That's just a joke.

Trading is down this week as several scammers have cut back activity while the regulators are walking the floor but the second the heat is off, they will go back in business unless real oversight is put in place.

Options Trader: Tuesday Outlook

Do you actully say these things to make a fool of yourself or is that just a natural extentsion of your communications?

AXP earnings were 7/21 after markets. Our spreadsheet of 7/18 had the Jan $45/Aug $40 spread. I would say that lying to make your point is beneath you but that's 3 consecutive posts in a row that you are exposed for the BS you attach to your own name.

Also, your timing is just terrible as we took out our caller on yesterday's dip and now they gained $2, running our long calls up 30% in one day. I hope all my "bad trades" do so well.

BIDU - again your astounding lack of comprehension makes me very sad for you. We took the BIDU play on 7/23 with the following 12:55 comment (I don't know if this will format correctly):

"Bidufly for butterfly collection. Costs $8,740 cash and $4K in margin with profit of $2K+ between $260 and $320 (break even way down at $250/$350) and, of course, it’s rollable. We’ll go with 2 in Butterfly Portfolio XXX"

Buy 2 BIDU DEC 2008 300 Call (.BDULZ) $46.80 $9,360.00
Sell -2 BIDU AUG 2008 290 Call (.BDUHY) $23.30 ($4,660.00)
Sell -2 BIDU AUG 2008 290 Put (.BDUTY) $19.70 ($3,940.00)
Buy 2 BIDU DEC 2008 280 Put (.BDUXX) $39.70 $7,940.00

Price - Profit/Loss

$249.76 $0
$260.00 $2,053
$270.00 $4,058
$280.00 $6,063
$290.00 $8,396
$300.00 $6,744
$310.00 $5,437
$320.00 $4,129
$351.59 $0

So (and I will type this very slowly so you will understand it) our break even points on the trade were between $249.26 and $351.29, which means a-n-y-t-h-i-n-g in between those 2 strikes (that would be higher than $249.26 or lower than $351.29) would make a profit. Let me know if this is going too quickly for you...

So BIDU running up to $344 after earnings was LESS than $351.29 so what do you think happened (I'll give you a few minutes to get a pencil and paper to work this out - feel free to phone a friend if there are people who can stand you)? That's right BS, it's a profit!

So profitable, in fact that we were able to take out the $290 puts we sold for an 82% one-day profit ($3,534), rolled our own December $280 puts up to the December $300 puts (that would be a better put because having a higer strike means you make more on the way down) and then were able to sell the Aug $330 puts for yet another $3,190 and we used some of that money to roll our $300 caller out of the money to the $330 calls, collecting yet another $3,000 in premiums AND WE STILL HAVE 3 MORE MONTHS OF PREMIUMS TO SELL!

Again, your astounding lack of knowledge just blows me away. One would think that you were purposely distorting the truth in order to slander me if one didn't know you were such a low functioning individual who is simply to be pitied...

AMZN - same thing, it's right on track and do you even follow the markets? AMZN gained $2.30 today so it's right on track to the targets we adjusted for yesterday. Again, the total lack of comprehension is very difficult to get past, perhaps there is a remedial site where you would be more comfortable?

OIH - my 9:42 comment to members on OIH was "Market held up well off a bad open so far, oil co’s are heading down again as oil can’t even hold $125 with Iran pumping up the rhetoric volume and that is just terrible for oil bulls. OIH is primed for a test of $185 and if they break below that things will be ugly so let’s start scaliing into 5 $190 puts at $6.50 in the DTP and we’ll offer to roll them up to the $195 puts for $2 and to the $200 puts for another $2 whenre we will double down. If we can sell the $185 puts for $5, let’s do that to make the spread."

Following that course we ended up with 10 $200 puts at an average entry of $9.75 and they sold today for $14.15 so, are you being sarcastic or did you actually realize that trade worked?

SNE - Also a covered spread of the Aug $40s, that were sold for $2.90 against the Jan $40s that had a basis of $5.90. With the Aug callers wiped out on the dip, the basis reduces to $3 and the Jans are now trading at $2.75, a loss of .25 with only 4 months remaining to sell more calls against the position. OK, you've got me, it was a catastrophe (that is me being sarcastic, as I'm sure the subtlety escapes you).

That's 3 days in a row you attack me with totally unsubstantiated nonsense, whatever your agenda is, it can be clearly tracked by anyone clicking on your pseudonym (lack of guts is obvious there) who can witness the daily failed attacks you put together. I don't get tired of this, I review my trades on a regular basis to see how they perform so I can improve my performance - for me, this is exercise. I don't know what it is for you....

Options Trader: Tuesday Outlook

I did read that re. the financing of the buyout and I decided I don't mind as MER makes a bonus 4.5% on the loan and I do believe that the average home in America is worth 22 cents on the dollar. I would have to call 5 cents on the dollar a decidedly negative way to spin the value of a home loan but that's what makes a market right!

We counted on that reaction today, loaded up the truck on MER and other financials and had a pretty good day. It doesn't mean my long premise is right and Whitney is wrong or vs. vs - only time will really tell how extensive the damage is but we're effectively buying into the dips now on a regular basis (but covering or getting out EOD as we're not that in love with the financials) and it's kind of a fun way to play it until things settle down.

Options Trader: Friday Outlook

Actually the puts cost less than that, 500 at avg. (300 then 200)$1.37, not sure where that number came from. I think $1.64 must have been the estimated price I was looking at as I wrote. Anyway, we got out at $1.51 with a small profit.

Yes Al, please keep selling me your shares!

Options Trader: Tuesday Outlook

I don't know of a proper Dow study. The S&P routinely changes components too and the Russell just rebalanced but with the Dow just having 30 components, you really can't just go pretending it doesn't matter when you trade 2 in, especially with their whacked out weighting system - that in itself could have used an extensive study to figure out what the hell they did.


SC Boeing: www.bloomberg.com/apps...

I would understand the lack of action by the government if the situation was insoluble, but it isn't. It just takes firm action and some vision. Unfortunately, those are things we are very short of in our government.

Options Trader: Friday Outlook

My prayers are with you Blue! We're all getting religious over on my board today...

Actually we've been buying as planned, very pleased to get the bargains today and going with 1/2 covers into the weekend.

Options Trader: Friday Outlook

Oh here you go, it took me all of 20 seconds to Google the latest news on OPEC supply. "OPEC oil supply in May is expected to rise by 700,000 barrels per day (bpd), led by higher output from members including Nigeria and Saudi Arabia, an industry consultant said on Wednesday." Gee, that's not a 5% reduction from Nigeria...


www.guardian.co.uk/bus...

"Nigerian supply is likely to rise by about 200,000 bpd to 2.05 million bpd" Let's see 1.85 M must have been last month so take 200,000 and divide by 1.85M and that looks like a 10.8% INCREASE in production. Must be my calculator that's off righ?

"Iran, which has been storing unsold crude at sea on oil tankers, is expected to produce about 100,000 bpd more in May, bringing supply to the market to 3.65 million bpd."

"They are still putting a lot into storage. The heavier grades are not selling well," Gerber said."


I don't have production numbers on Venezuela but their Oil Minister just announced their reserves are up 30%, must be those pesky environmentalists that are stopping them from pumping 10 ANWARs worth of oil that they've recently added...

www.economicnews.ca/ce...

Options Trader: Friday Outlook

Now, you see, that is exactly the kind of baseless and totally false information I'm talking about!

Here is the EIAs April 2008 Monthly report which clearly shows that the global oil supply was 84.64Mbd in 2005, 84.60 in 2006 and 84.59 in 2007 - flat as a pancake.

www.eia.doe.gov/emeu/i...

While they also do show an increase in demand from 84.62Mbd in 2006 to 85.35Mbd in 2007, the fact of the matter is that global inventories were 3,586Bn barrels in Q1 '07 and are at 3,534 in Q1 '08, a 52M barrel draw over 12 months, NOT 30 days!

www.eia.doe.gov/emeu/s...

The projection for Q2 is for a build of 63Mb to 3,597 IN ONE QUARTER because demand is falling off a cliff and this increased supply is projected to hold steady through 2009.

In short, there is no shortage of supply, simply a growing shortage of demand. Mexico's production in Q4 was 3.35Mbd and in Q1 was 3.30, hardly 5%. Other countries are not broken down in the report but I'd love to see the list you are working from that contradicts the IEA by such a massive amount.

I urge anyone reading these discussions to seek out the facts for yourself, do not believe what you are being spoon-fed, either by the media or by anonymous posters who throw "facts" out without bothering to cite sources.

Options Trader: Friday Outlook

User 198 - These are just exerpts that SA takes from my membership site. All those details are discussed in the member section and the web site is linked at the top of the page. Those were day trades from the day before, we had long Apple calls that we UNcovered on the dip on Thursday and held naked overnight. BIDU was a call we picked up on yesterday's close that we escaped even this morning.

Well Al, on Wednesday our screens told us to go short on XOM, CVX, SU, USO and HES as oil topped $133 and today we cashed most of them out to give you a chance to buy them back up "on the dip." If it weren't for people like you and Ship Shape, we'd have no one to buy puts from so I'm not even going to try to change your mind. In fact, we even grabbed XOM $95 calls at the close so please, go to town on Monday, we'll be shorting again when you get to around Wednesday's close - have a great weekend!

Meredith Whitney Threatens Severe Deflation For Your Portfolio

Actually the efficient market hypothesis was put forthe in the 1960s when rumors were not considered news. There is nothing efficient about any wild rantings (including my own!) being treated as "information" by the market. Surely the wild swings in stocks like C, APPL or GOOG is proof enough of this, there is no efficiency to Apple going from $200 to $120 and back to $200 over 4 months over nothing but a spate of rumors that turned out to be unfounded.

All the efficient market hypothesis really states is that there is no profit to be made by using existing information to price a stock as, in theory, the stock is already priced "to perfection" based on the available information. Whitney's comments were not information at all, they were wild speculation with only a whisp of reality to make them seem plausible - what was efficient was either ignoring here if you already had the stock or jumping in (as we did) on the sell-off as the sheep who follow her kind of nonsense routinely jump out of planes without a chute.

Options Perspective on How To Play Google Post Earnings, Plus C, BAC, XLF

LOL Silverspring! That's a lot of stuff. We teach this all on my site every day but the basics here are my 1/2 covers are owed $70 and we roll them into 2x whatever is $35 even but, by spending $10 more each to roll them up higher, we put them into May calls that are 100% premium. The gist of this is that rather than paying my caller the $75 I owe him, I force him into taking another round of high premium positons, giving me another shot at "beating him" while his $25 calls do an adequate job of protecting my Jan positions.

Of course today we also rolled up out of our Jan $420s as there was no need for us to be that deep in the money now that we see GOOG held up over the weekend.

Meredith Whitney's Out on a Limb With This Citi Bashing

C update - we flipped to the June $25s at $1.70 when C broke over $23.50, couldn't resist...