August 2012

The nervousness of yesterday's opening inflated the puts somewhat, moving them beyond the reach of the lowball bids I'd suggested.  We shouldn't be leisurely in trying to buy them, however, since Tuesday's bull trap in Apple and many other stocks has created a supply overhang that will not be easily surmounted.  Assuming yesterday's buoyancy will linger nonetheless for yet another day or two, I'll recommend bidding 0.68 for eight November 62 puts on the opening, but lowering the bid to 0.62 if the first try goes unfilled. You should also check back after the first hour, since I'll have a better feel for pricing the options after the mood of the day has been established.  _______ UPDATE ( 10:24 a.m. EDT):  We missed buying the puts again when the Cubes opened on a gap lower. Stay with this one.  But understand that we will never, ever chase puts or calls because directional plays are too hard to beat even when we are not giving up a nickel's worth of edge here and a dime there.

The broad averages are hovering in a high-risk zone, as noted in today's E-Mini S&P tout. There was 'news' that the Fed 'might' have quantitative easing on their agenda at the September meeting, but as of Wednesday night this wasn't having a discernible impact on index futures.  It would seem that the central bank is going to leak this story one drop at a time, allowing the usual bunch of thieves and imbeciles to make of it what they will. ______ UPDATE (4:35 a.m. EDT):  It is now early Tuesday morning, and Comex Gold appears to be having a delayed, explosive reaction to the latest, desperate  QE3 murmurings.  The December contract is up $25 at the moment, although the E-Mini S&P, trading a measly 1.25 points higher, seems, understandably, and perhaps finally, to be scrupling over the insane political idea that QE3 will somehow prevent the U.S. economy's slide into Depression and save the world. If the broad averages do not soon join in Gold's revelry, it will be possible to infer that traders at last understand that the Fed used up its last bullet -- which is to say, its credibility -- when QE2 expired.

The futures are in a high-risk zone, having broken out above March 27's watershed high, but we can be cool with it as long as we play by the rules. This means first of all that we should require a pullback to at least 1401.00 (daily chart, k=1387.50 on 7/30; A=1349.25, B=1424.75)  before inferring that the futures are ready to take another leap, giant or otherwise. More immediately, camouflageurs should seek entry opportunities on the 15-minute chart. The nearest and subtlest of them would come on a print slightly exceeding a small 'external' peak at 1415.25 recorded on August 21.

I don't often advise opening positions that are not based on Hidden pivot swing points, but let's limber up our put-buying reflexes today with a 0.67 bid for eight November 62 puts.  If the QQQs are trading above 68.25, you should lower the bid to 0.63.

Because the recent high exceeded last March's watershed top, it would be a great place for Mr. Market to spring a nasty bull trap. We should therefore be on our guard against a spectacular collapse from these heights, notwithstanding the fact that I've drum-rolled Dow 14000 recently.  To join our vigil in real time, click here for a free subscription.

Staying short this little sonofabitch, even off  perfectly timed entries, has proven so difficult lately that being short is probably what we should want to be. Even if not, and assuming a topping pattern is under way that could take yet more weeks to complete, we should be prepared for increasingly vicious swings in both directions. Most immediately, yesterday's dive remains a work in progress, with a 1405.00 midpoint support and, if exceeded, a 1396.75 'D' target. However, without some more distributive chop Tuesday night, I hesitate to suggest bottom-fishing either number, even via camouflage. Alternatively, there being no 'external' lows to leverage for purposes of getting short, I'm going to suggest remaining on the sidelines for now.

Based on activity reported by subscribers yesterday in the chat room, I'm tracking eight December 620-October 620 put spreads @ 14.00, with a kicker of four September 615 puts shorted @ 6.20.  To reduce margin requirements or get around account restrictions, some of you may have spread off the naked Seps by buying puts of a lower strike. However, if there are any changes in the "official" position, I'll include specific spread-trading advice as well. So that we don't underestimate the potential danger represented by the naked Seps, I'll monitor their fluctuations closely.  Their delta value is small, but if AAPL were to fall 30-40 points in a day, they would probably rise by enough to at least offset our gains on the spreads. For that reason, I'll suggest keeping close tabs on my updates, and if you haven't done so already, signing up for "E-mail Notifications" on your My Account page.  These e-mails are sent out in real time and represent the quickest way I can inform you of a position change. I will generally do so in the chat room as well, and always via a written update to the tout itself, but the 'Notifications' feature allows you to tailor the alert on the receiving end to whatever literal bells and whistles you might require. For now, though, and regardless of whether you've already spread off the Sep 615 puts, I'll suggest bidding 4.20 for four September 625 puts, good-till-canceled. If successful, we'll have lowered our margin requirement and locked in some better-than-free puts tied to the nearest expiration month. 

Looking for a cheap, low-risk way to play a $600 stock that can lurch and careen all over the place on any day?  We’re talking about Apple, of course, and you needn’t fear the stock if you use puts and calls judiciously and follow some simple rules. Yesterday, for instance, Rick’s Picks suggested calendar-spreading some far-out-of-the-money puts to establish a moderately bearish position.  Although we’ve been quite bullish on the stock and remain so, it may have gotten ahead of itself with the nearly 20% gains achieved so far in August.  Accordingly, when AAPL spiked yesterday morning to a new all-time high of 675, it seemed like a great opportunity to buy some put calendar spreads at the 620 strike, well below current levels. Specifically, we recommended buying the December 620 – October 620 put spread eight times for $14, or $1400 per. This strategy is not outright bearish on Apple; it merely leverages the possibility that the stock is overdue for a nasty correction.  Incidentally, we elected not to buy put options outright simply because, in the 38 years we’ve been trading puts and calls, we have yet to come across a single person who has profited over time by buying naked puts (or calls). Take it from us: spread-trading is the only way to go. On this particular trade, the ideal outcome would be for Apple shares to fall slowly to around $620 ahead of the October 19 date on which the October puts we are short expire. Those puts would be theoretically worthless with the stock trading at or above $620, but the December 620 puts we bought as a hedge against them would have increased in value to as much as $3300. (That’s how much at-the-money put options with two months left on them are selling

Lesson # 1: * U.S. Tax revenue: $2,170,000,000,000 * Fed budget: $3,820,000,000,000 * New debt: $ 1,650,000,000,000 * National debt: $14,271,000,000,000 * Recent budget cuts: $ 38,500,000,000 Let's now remove eight zeros and pretend it's a household budget: * Annual family income: $21,700 * Money the family spent: $38,200 * New debt on the credit card: $16,500 * Outstanding balance on the credit card: $142,710 * Total budget cuts: $385 Got It ? OK.  Now your second lesson: Lesson # 2: Here's another way to look at the Debt Ceiling: You come home from work and find there has been a sewer backup in your neighborhood -- and your home has sewage all the way up to your ceilings. What do you think you should do ? Raise the ceilings, or pump out the crap? Your choice is coming Nov. 2012