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Today's 7:27 Alert to Members on $10,000 Portfolio and Other Interesting Notes

|Includes:BAC, DIA, EDZ, FAS, ProShares UltraShort FTSE China 25 ETF (FXP), NFLX, PCLN, QID, USO, XLF, XRT
 Good morning!

Wild action this morning.  The dollar was down at 80 when the Nikkei opened and they ran it up to 80.37 at the Asia close (4am) but then it got more legs and hit 80.66 and nobody (in power) wants to see that so they’be been pushing it down for 2 hours and it seems to have, so far, ruined a planned pop into the open.  

One problem may be the Obama Tax Cuts, which seem to be catching a lot of flack.  My guys say the Senate is iffy and the House is no way at the moment but those are the same guys who thought the Dems would easily hold the Senate and would do OK in the House in the last election so they have a long way to go to rebuild their credibility with me!  

Ideally, we’d love a no vote that freaks out the markets (remember when the Republicans defeated TARP?) and then we can do a little bottom fishing so – boring as it seems, cash remains king for now…

There’s no news driving the markets and Asia is still looking weak (good for our FXP play!) and India is down 2.5% so EDZ might be a good pickup this morning if you want to hedge – remind me in chat and we’ll see how it prices out although we’re cutting it close on our October play there.

Let’s take a look at the 1050P ahead of the markets:  

We said goodbye to NFLX with 5 at $3.20 and 5 at $2.75 for a $975 gain to cash so $29,432 and I’m still hoping to squeeze $31K by the end of the week, which will still leave us with a tough $19K to make in the next 5 weeks so we’ll have to keep on our toes for some news-driven opportunities we can sink our teeth into.   

Our open set is not quite as thrilling.  This is very much my fault for never replacing out anchor long, which was 20 FAS $21 calls at $1.48 (don’t look, you’ll cry) or the DIA calls that I screwed up the tracking on.  Even in the original post, we were supposed to go long on BAC at $11 and we folded the 10 XLF $14s (bought at .60) way too soon.  

My problem in these trades is I hate to chase, especially in small, unhedged positions – and that can work to my disadvantage in a strong uptrend.  We saw the bottom in financials very clearly and entered several positions but we got stopped out by a pullback and then a sharp move up kept us sidelined.  We should have had better balance and once you get off balance – as you can see – it’s hard to fix!  

What should we do?  Chase XLF at $15.50?  That seems crazy just 2 weeks after we sold them at $14.50, doesn’t it?  While my distrust of momentum plays keeps me from making a lot of big mistakes, it also can lead to missed opportunities but, as I often say – you have to know what kind of trader you are and I am not a big swing home run hitter – I like to hit singles and I like to swing for average.  Every once in a while, we may knock a few out of the park, but those are just happy accidents – my goal is to get 6 out of 10 right and make 20% or more on the winners and not lose more than 20% on the winners.  This makes running a very aggressive portfolio like this challenging to say the least – hopefully we can all learn to be better traders through this process.  


  • 5 QID Jan $10 calls at $2.30 (net of rolls), now $1.95 – fine for now. 
  • 20 DIA Jan $111/Dec $113 calendar put spread at net $1.02, now .68 – We spent .25 to roll the Dec $114 puts to the Jan $111 puts to buy more time to be right and now the Jan puts are covering the downside to bullish bets through that expiration.   This play is now effectively a slightly bullish play on the Dow holding 11,250 through next week but the roll is easy enough to make for the putter that we won’t cry if we get our sell-off.  
  • 10 XRT Jan $46 puts at net $1,  now $1.02 – This is the problem I’m having with this portfolio.  It’s meant to be for small players but now there are 44,801 open contracts at this strike!   Come on guys – be realistic…  

A note on this point.  If you have a lot of people piling into a strike, you create a lot of motive for someone to make sure that strike expires worthless.  Obviously, it’s hard for someone to control a whole sector ETF but 44,000 puts is controlling $209M worth of stock and that ain’t chicken feed.  

This is much more of an issue when people all pile into a short call or short put as you paint a real target on yourselves to "dare" "them" to try to force you to capitulate.  That’s why scaling in is key.  If you scale into, say, short NFLX Dec $195 calls at $3.50 and they go to $5, then you can DD no problem.  

If they then pop NFLX to $205 and your calls are $7 but you are only 1/2 in, then you can still roll up to 2x the $210s or just roll to the Jan $220s.  So by scaling in at $195 you are giving yourself a margin of safety all the way to $223.50 – a 10% buffer.  Back to my baseball example – I’d rather try for 4 singles (1/4 entries) where I have a $28.50 buffer on a $190 stock than go for one home run where I move all in at $195 and have no wriggle room on the way up.  Keep that in mind!  

  • 10 USO Jan $36 puts at $1.10 average, now .82 – we doubled down at .73 and rolled up from the $35 puts for .25, long time left so we intend to let the January NYMEX delivery cycle play out into next Thursday.  At .70 I would like to DD if possible.  .66 was Thursday’s low and that would give us 20 at avg. .90, at which point we would look to get 1/2 back out at .90+



So we have $4,000 at risk here, pretty much our entire profits to date and they are sort of all bearish.  We’re down about $1,200 already so we’ll have to be careful and we MUST find an upside play if we’re heading higher today.  Jobs are at 8:30 so not much we can do about it until the open but let’s get ready for action!  

To save sending an extra Alert this morning, our watch levels remain:


  • Breakout LevelsDow 11,500, S&P 1,220, Nasdaq 2,600, NYSE 7,750 and Russell 725
  • Watch LevelsDow 11,220, S&P 1,185, Nas 2,500, NYSE 7,550 and Rusell 715 
  • Up 10% (must hold)Dow 11,220S&P 1,177, Nas 2,420, NYSE 7,500 and Russell 700
  • Up 7.5%Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672
  • Up 5%: Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666 


So, once again, it’s the NYSE that’s in play at the 7,750 line to give us an idea of direction.  Oil $88.50 is also worth watching as is copper $4.10 and, of course, our beloved Dollar and the 80.50 level.  XLF at the $15.50 line is another good one so plenty of things to watch this morning.  

There’s Natural Gas inventories at 10:30 and Nat Gas is at $4.61 at the moment.  They are expecting a good draw but they may be a short on the futures if they get a nice move up to maybe $4.75 as it’s too much, too soon for them.  

So we’re still betting down but we’re resigned to the possibility of up. 

Have I mentioned cash is king?

Be careful out there, 

- Phil

Positions as indicated but subject to change, all portfolio moves are virtual and for educational purposes only.