Who would have believed when the Great Financial Crisis was winding down five years ago that the feather merchants, unrepentant as always and eager to make up for lost time, would be right back at it, erecting an even bigger, shakier house of cards? A recent Wall Street Journal headline offers a hint of their dubious success so far: “With Rates Low, Firms Near Borrowing Record.” Fresh evidence that epic malinvestment is more robust than ever would be scary enough by itself. But to make matters worse, Wall Street and the news media, if not the American public, continue to treat the architects of the next crash with fawning deference and respect, hanging on Janet Yellen’s every word as though the patronizing blather she spews each week to “manage our expectations” were somehow of great import. » Read the full article
The lunatic stocks have been pretty docile lately, making it impossible for the broad averages to move higher by their wonted leaps and bounds. Particularly troubling is that Apple — no lunatic stock, but most surely a reliable bellwether — has turned lower after narrowly failing to reach a 103.07 rally target I’d flagged. This bears watching, since a breach of the corrective target noted in today’s tout could hint of more trouble immediately ahead.
At this rate, it may be Christmas before my very modest (and very short-able) rally target at 2008.00 is achieved. True, there is no actual, bullish buying to make it happen, only demand from short-covering bears that has been anemic lately. But the corrections have been shallow as well, keeping shorts pinned on the ropes. Nevertheless, so that we don’t miss an important downturn while we’re busy getting bored to death, I’ll suggest setting a screen alert at 1992.00, which is where the hourly chart would be warning of possible trouble.
Tesla’s bullish rampage looks like it could hit 305.55 on the next big thrust. Accordingly, I’ll recommend bidding 1.54 for the October 3/Sep 5 300 calendar spread 8 times, good till Friday. You should adjust your bid by 0.05 up or down for every 50 cents the stock moves above or below 262.50. Please note as well that a pullback to the red line, a Hidden Pivot midpoint at 241.39, should be regarded as a buying opportunity, especially the calendar spread (albeit it at a much lower price). _______ UPDATE (August 26, 11:43 p.m. EDT): Volatility has gotten crushed, and so you’re doing well if you buy the spread now for 1.34 (with TSLA at 262.00). Since the spread price can fluctuate wildly from one day to the next, I’ll suggest that you recalibrate it hourly if you’re a buyer, using a spread price midway between bid and offer as “fair value.” It has a delta value of around 9 at the moment, so you should adjust your bid for the spread by 0.01 for each 0.11 move in the underlying.
Subscribers are working two bullish calendar spreads (x16), but I would suggest increasing the size of the position if TLT corrects down to the 115.18 target shown. For now , we are long September 20 118 calls against short August 19 118 calls that we will roll into August 29 calls this Thursday and Friday. We’ve already done the roll twice, reducing the cost basis of the spread to 0.04. This week’s roll will entail covering (buying back) the short calls and shorting a like number of August 29 calls, effectively selling the August 22 118/August 29 118 calendar spread.
It was marked on Tuesday at 0.17, off a 0.26 offer, but any price higher than 0.04 will effectively turn the position we’ll have – long the Sept 20 118/August 29 118 calendar — into a credit spread. This means we can’t lose – will make a profit no matter what TLT does. Ideally, come September 20 , TLT will be sitting at 118, our spread will be trading for around 0.50, and we’ll be carrying it for a credit of perhaps 0.50. The imputed profit would be $1600 — not bad, considering our risk is already close to zero.
My long-term outlook for T-Bonds is very bullish, a view that goes sharply against a consensus which clings to the belief that interest rates – and the stock market — can only go up. That is a bet we should be eager to fade. We may have a chance to do so at still better odds if T-Bonds continue to sell off on the manufactured idea that the Jackson Hole conference will open the floodgates for more stimulus and inflation. _______ UPDATE (10:38 a.m.): The Sep 20/Aug xx calendar spread is recommended at this point only for those who did the original spread, since there’s not enough time left on it to roll its cost basis down to zero or less (i.e., a credit). If you are new to the spread, try buying the Nov 20/August 29 calendar for 0.90 with TLT trading around 115.80. The spread has a delta value of 0.20, implying that being long one spread is equivalent to being long 20 shares of stock. This means that, using a spread price of 0.90 as a benchmark, you should adjust the price you pay for it by one penny, up or down, for each 5 cents that TLT moves away from 115.80. ______ UPDATE (August 23): The strategies detailed above continue to rack up solid gains for subscribers that have come with minimal risk. If you have yet to take a stake, I would strongly urge you to do so, and to monitor reports in the chat room from those who are working the order. If there are any questions about how, and when, to initiate a trade, please don’t hesitate to ask me or others about it. _______ UPDATE (August 26, 12:01 a.m.): These spreads are working well, to put it mildly — especially for subscribers who increased their position size as suggested whenever TLT was weak. Check my August 26 posts in the chatroom for further, detailed guidance. In brief, I am suggesting covering half of the 118-strike spreads for 0.90 or better this week, and to roll the short side of the Nov 22 120/Aug 29 120 to Sep 5.