Fedless Thursday – Lack of Stimulus Spooks Markets on Halloween

That was the word (or lack of word) from the Fed yesterday and the markets didn't like it one little bit.  Still, as you can see from Dave Fry's SPY chart, the overall reaction was fairly muted, with just a 0.5% drop on the day.  Of course, after the last Fed Meeting on 9/18, the S&P closed UP 20 points to 1,725 and the real sell-off didn't begin until the next morning.  

We're up more than 50 points from that high now and, with no Fed treats, we'll just have to see what tricks the market has in store for us.  All went according to our plan as we had taken the SQQQ Dec $17 calls at $1.25, selling the March $15 puts for .85 in our early morning Member Chat and that net .40 trade finished the day at net .45 for a 12.5% gain in just one day.  

Of course, the complete play was selling one AAPL April $425 put for $8 ($800) to pay for 20 of those spreads ($800) and the AAPL calls finished at $670 net of the now $900 on the spread means a gain of $230 on net $0 laid out.  This is how we hedge and, should the Nasdaq contniue to fall, the gains on the ultra-short ETF would accellerate very quickly.  If not, it's a free hedge against our contract to take a cheap entry on AAPL in April.

At the open, yesterday, at 8:51, in fact, I suggested shorting the Russell (/TF) Futures at 1,120, the S&P (/ES) at 1,170 and the Nasdaq (/NQ) at 3,400 based on the observations I shared in the morning post (all week, actually).  We caught a ride down to Russell 1,100 (up $2,000 per contract), S&P 1,752 (up $900 per contract) and 3,370 on the Nasdaq (up $600 per contract) and that's another great way to hedge we'll be learning more about at our Las Vegas Live Trading Conference coming up on November 10th and 11th.  

For the Futures challenged, we picked DIA weekly $155 puts at .25 and those flew up to .40 (up 60%) before calming down – not bad for a quick trade, though.  

We also sold BIDU Nov $165 calls for $8 in our virtual Short-Term Porfolio on the morning spike and those were already down to $5.54 (up 30%) at the day's end.  Once we had our hedges firmly in place ahead of the Fed, we were able to concentrate on earnings plays and my picks for yesterday were:

EXPE – How can PCLN be "worth" $1,072 (p/e 23) and EXPE only be $50 (p/e 14)?   Yes, EXPE missed last Q but it was .64 vs .79 expected and they fall from $65 to $50.  Still $50, they are expected to make the same $1.35 this Q as they did last summer.  They just did deal with Travelocity that hadn't been reflected last Q (and may not be yet) and Asia was a problem last Q but Chinese stimulus has turned that around. 

• So, let's say they beat so I like selling the Jan $49.48 puts for $3.90 against the 2015 $44.48/34.48 bear put spread at net $3.50 for a .40 credit and worst case is you get assigned short at no more than net $40.38 (20% off) but plenty of time to roll the short puts.   Any move up means you keep the .40 plus whatever value remains on the bear put spread.  
• As a longer-term play, the short 2016 $45 puts can be sold for $9 and that money can be used to buy the 2016 $45/60 bull call spread at $6.50 for a net $2.50 credit so $42.50 entry worst-case with a $17.50 upside at $60 (700% on cash). 

FB – We got out of those, too crazy.  

JDSU – I think they are a buy if they go lower so I like selling the June $13 puts for $1.12, as they have a very efficient $1.30 net margin so the return is great for 8 months.

SBUX – We're short – the STP play stands (Jan $80 puts, now $3.65). 

V – Nov $205 calls can be sold for $4.10 against the March $210/220 bull call spread for $3.50 for a net .60 credit and, hopefully, the short calls expire worthless and you keep the credit plus whatever is left on the long spread.  

People ask me where the trade ideas we feature in our Montly Reviews come from and this, very simply is it.  We come up with trades like these every day in our Member Chat and like most of our trade ideas, they weren't earmarked for any specific portfolio – we simply couldn't possibly track them all and we don't want all of our Members plowing into the same trades – that leads to Cramer-like lemming behavior on stocks we pick.  So, every day, every week, we average 5 trade ideas a day that are NOT part of our virtual portfolios – giving people close to 100 trade ideas a month to choose from.  

These ideas don't come out of the blue, we've played EXPE on and off and discussed them often in Member Chat because we are FUNDAMENTAL TRADERS, who only use options for leverage.  It goes without saying that we liked EXPE at $50 but we liked them SO MUCH that we would rather make two very aggressive plays on them than simply take the stock at that bargain price.  

I think it's fairly safe to say, with EXPE up 16% pre-market, that those trades are both going to be the kind where people ask me a few months later: "How did I miss that one?"  Into the close, we wanted one last short position and I liked /NKD (Nikkei Futures) short at 14,595 and my simple note to our Members at 3:45 was:

If you want a good overnight short, try /NKD at 14,595 with a stop at 14,605 – that's $50 ($5 per point, per contract) at risk and could make $1,000!

We hit our $1,000 goal early this morning and I sent out an Alert to our Members at 3:25 am (money never sleeps) also pointing out a long trade on Oil Futures (/CL), which gave us a quick $500 gain before we wisely ditched it at 7:50.  That is, what we call our "Egg McMuffin Money," quick Futures profits before we start our trading day.  It's been a while since we've done those trades but it's that time of year again.

Good thing we have that seminar coming up in Vegas!