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Monday Market Musings – Enjoying a Day Off

Posted on the 17 February 2014 by Phil's Stock World @philstockworld

Asia was mixed and the UK is up 1% but the rest of Europe is flat but our Futures are up about 0.25% – all on very weak volume, rendering the whole exercise meaningless.  All of last week's rally came on extremely low volumes but it accomplished the mission of taking us back to new highs – reeling in the retail suckers so the big boys can begin another round of selling into expirations this Friday

 Still, we're not going to start shorting until we see some levels breaking down.  When we adjusted our Short-Term Portfolio last Wednesday, we rolled back our TZA hedge to buy more time but also balanced a bit by adding a bullish play on silver:

  • Buying 10 SLW Jan $20/25 bull call spreads at $2.60 ($2,600)
  • Selling 5 CI 2016 $60 puts for $4.60 ($2,300) 

Monday Market Musings – Enjoying a Day Off

Monday Market Musings – Enjoying a Day Off

CI popped up nicely for us and the 2016 $60 puts already dropped to $4.40 but SLW really took off and, as of Friday's close, that spread hit $3 and that means it's now $3,000 – $2,200 which is net $800 from a net $300 start – up $500 in 2 days (166%) and "on track" towards our hopefully $5,000 total if SLW holds $25 (now $25.38) and CI stays over $60 (now $77.71).

What we are teaching our Members with these Trade Ideas is that it is NOT necessary to make short-term trades to make very nice short-term returns.  You could kill this trade now and pocket a very quick 166% but we sincerely like this trade for the long-term and, even though it's net $800 now, we still like it as it pays $5,000 if all goes well – another 525% of upside remains.  

Back on 1/22, we added a similar combo to our Long-Term Portfolio, which was

  • Buying 10 DBA 2015 $24/28 bull call spreads for $1.10 ($1,100)
  • Selling 10 CAKE July $40 puts for $1.30 ($1,300)

Monday Market Musings – Enjoying a Day Off

Monday Market Musings – Enjoying a Day Off

Notice our entry timing on these spreads.  Because we are FUNDAMENTAL traders at heart, we move in when the VALUE of the stock or ETF we are playing hits a price at which we really, Really, REALLY are willing to make a long-term commitment to owning them.  That gives us some fabulous entries – well ahead of where technical analysts can spot a turn.  It also gives us fantastic prices on options we buy and sell!  

Moving picture flipping through pile of money animationIn this particular case, the DBA spread has already jumped to $1.80 ($1,800) and the short CAKE July $40 puts are just .90 ($900) for net $900 off the original $200 credit – a $1,100 profit (550%) in less than a month.  How do we do this – by BEING THE HOUSE – Not the Gambler!  

Monday Market Musings – Enjoying a Day OffBack on 1/17, we reviewed our 5 Inflation-Fighting Picks and there were actually 7 trade ideas features and one of them, a combination using DBA and MCD, hadn't made any money yet.  As our Members well know, that's why we do these reviews – to see if there are any laggards we can pick up chep.  At the time, the trade was:

  • 10 DBA 2015 $26 calls  at $2.15 ($2,150), selling 10 MCD 2015 $75 puts for $2.25 ($2,250) for a net $100 credit, now -$120 - down $20 (20%)

This one was a lot more aggressive, as we hadn't covered DBA with offsetting short calls but, as you can see from the chart above, DBA was testing the $24 line and we though it was going to hold.  Now those 2015 $26 calls are only $1.20 ($1,200) but the offsetting MCD puts have fallen to 0.85 ($850) for net $350, up $450 from the original entry (450%) and up $470 from the re-entry (391%) – that's in 30 days, folks!  

We were wrong about DBA (so far) but we were right about MCD and think of the simple logic of this trade – if Agricultural Prices (DBA is the Ag ETF) don't go up, then MCD makes more money selling food.  This is not rocket science, people – we're simply paying attention to the macro picture and designing trade ideas that can take advantage of the trends we identify.  











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