As last week ended, one might have believed Wall Street investors had just about everything wrong. Stocks were up sharply on bullish payroll news that flatly contradicted something every American knows – i.e., that the Great Recession is still very much with us; T-bonds were getting whacked on the flimsy assumption that the economy is picking up strength; and gold and silver were under attack because, well, because all was right with the world. Even the hacks and scribblers who bring us the news did their bit to feed Friday’s feel-good binge. For one, there was nary a discouraging word on the Web’s main news pages about Greece and its slow-motion bankruptcy – only a story about how Europeans were working diligently to protect the homeless from a cold snap. And the left-tilting L.A. Times, thinking wishfully, weighed in with the most fatuous story of the day: an analysis piece saying that the payroll numbers could prove to be a turning point in Obama’s reelection year — the day when he shifted from slight underdog to favorite. » Read the full article
With the E-Mini S&Ps and April Gold both somewhat lower Sunday, it would appear that they have been resynchronizing. My outlook for both is bullish, although it looks like they could use a day or two of rest before attempting another leg up.
The news media have gotten revved up about a possible pre-emptive strike by Israel on Iran’s A-bomb facilities, but if it were imminent crude would be warning us by moving higher rather than lower (just as it did, mysteriously, two months before the U.S. invasion of Iraq). So that we can tune out the hysterical noise, we’ll want to keep close tabs on the March contract by setting a screen alert at 103, somewhat below December’s high, to warn of an impending conflagration. Incidentally, Rick’s Picks subscribers receive real-time alerts about such things. Want to try a free trial subscription? Click here.
If the lunatic stocks are about to lead the broad averages higher, we should see Priceline bounce sharply from the 1259.21 midpoint support shown. Yesterday’s low came within 38 cents of this Hidden Pivot — close enough for the target to be considered fulfilled. Any further slippage, however, and its ‘D’ sibling at 1224.45 will be in play. This would imply that the stock market itself is likely to go nowhere, or possibly down, in the days ahead. The stock would become shortable on a decisive breach of the red line (i.e., a breach of perhaps 0.30-0.60 cents0, but if you plan on getting short for the potential $35 ride south, you should initiate the trade on the 5-minute chart or less, using a corrective pattern that would subject you to no more risk theoretically than perhaps 0.15 per share. If the trade works and you are still short when 1224.45 is reached or closely approached, reverse the position and buy at the target aggressively using a tight stop.
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. _______ UPDATE (August 28, 9:45 p.m.): With the Sep 5 calls melting away, the fair price for our spread must be recalculated several times daily by anyone seeking to buy it. It was a decent buy at Thursday’s close for around 1.20, but it could shed yet another 0.15-0.25 as the week ends.
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. _______ UPDATE (August 28, 12:43 p.m.): The August 29 118 calls look likely to finish in-the-money. To avoid being exercised, make sure you roll into the September 5 calls before noon EDT Friday. Currently, with TLT trading 119.09, the September 5 118/August 29 118 calendar spread is a decent sale for around 0.28. Keep in mind that the spread could widen, to our great advantage, if TLT pulls back, since the August 29 calls we are short will shed value more precipitously than the September calls that we continue to hold as the long side of our position. Even so, you could do worse than take the 0.28 now and run, since it would simply fatten the premium we have taken in on the weekly short, increasing our net credit. With TLT rallying liking a moofoo, the weekly credits will be more significant to our final gain than the calendar spread itself at expiration.