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Wednesday Wheeee – No More QE For You!

Posted on the 04 April 2012 by Phil's Stock World @philstockworld

Oh, who are we kidding?  I could not be happier saying I told you so and neither could our Members as our "Sell in March and Go Away" strategy seems to have hit the nail on the head – and it's only April 4th!  

Back then (2/24), we were still bullish but the plan was to let the rally run its course and cash out ahead of earnings and our plays from that Wednesday (2/22) which I posted right in the morning post for all to see, have performed very well, of course.  

We had April SQQQ and DXD hedges that failed, of course, but those were paid for by the short sale of AAPL 2014 $300 puts for $15, which are already $10.75, so up 28% already on those pays for a lot of protection.  

Another offset we had looked at was the short sale of FDX April $80 puts at $1.10, which expired worthless (up 100%).  We also looked at longer-term put sales on SKX, with the Oct $12 puts fetching $1.55 per contract, now $1.25 (up 19%), and the T 2014 $25 puts at $2.15, now $1.75 (up 18%). 

Wednesday Wheeee – No More QE For You!Along the same vein, the XOM 2014 $65 puts at $5, now $4.05 (up 19%) were sold to pay for the SU 2014 $25/37 bull call spread for $6 for net $1 on the spread.  The bull call spread is still $6 but that's net $1.95 now – up 95% on the combo.  Our other bullish play on oil was the USO June $40/46 bull call spread at $2, selling he SCO Oct $26 puts for $3 for a net $1 credit.  The USO spread has fallen to $1.40 but the short SCO puts dropped to $1.65 a net gain of .75 – up a quick 75% on a fairly neutral oil play, which was BRILLIANT as it covered many, many of our aggressive oil shorts over the month that went VERY well

Our other trade ideas from the morning post (and the logic and strategies are detailed in the post):  

  • AA 2014 $10 puts sold for $2, still $2 – even
  • X at $28.49, selling Jan $25 calls for $8.50 and 2014 $20 puts for $2.95 for net $17.04/18.52  (see "How to Buy A Stock for a 15-20% Discount" for details on this strategy), now net $18.98 – up 11.4%
  • PEG Sept $30 buy/write at net $27.07/$28.53, now $28.54 – up 5.4% (plus .355 dividend) 
  • HOV 2014 $2 puts sold for .90, now .80 – up 11%
  • BAC 2014 $3/7 bull call spread at $2.75, selling 2014 $10 puts for $3.30 for net .55 credit, now .75 – up 36% 
  • HCBK Jan $7 buy/write at net $5.14/6.07, now net $5.80 – up 12% 
  • FTR 2014 $5 buy write at $2.43/3.71, now $2.24 – down 8% (plus .10 dividend) 

TLT WEEKLYOf course we got much better exits than yesterday's prices as we took the money and ran in last week's cash out but these 10 trades will be good to cycle back into (not HOV or BAC as we're concerned with both now) when we find a bottom to this dip.  There's no shame in going back to the well – especially when the well is filled with gold!

In yesterday's aptly titled "Double Toppy Tuesday" post, we discussed our "sell the rips" strategy as well as buying the QQQ May $67 puts for $1.08 and they actually opened at .96 on the morning rip and finished the day at $1.07 (up 11%), which made them pretty good protection for the against the day's 0.5% drop.  

I made a quick comment in Member Chat as the Nasdaq opened up 0.33% on yet another AAPL run, saying to our Members at 9:41:  

The S&P is not playing and the NYSE is down 0.25 and the SOX are down 0.42 and the Transports are flat so I'm still thinking toppy here – so be careful – this could be just a blow-off top this morning. 

We used the same 836 line on the Russell Futures (/TF) that we used for shorting last week and, as of this morning, we're down to 821, which is a very nice $1,500 gain per contract.  Oil (/CL) of course, we shorted from $105 to our usual $103.50 line, then again below $103.50 (now $102.75) and those contracts are $10 per penny per contract so another $1,500 per contract gain just to $103.50.  

At 11 am we held fast to our bearish short-term portfolios at the market topped out and even added (or rolled to for people in other puts) the PCLN July $560 puts at $7 as PCLN ran up to $730 on a C upgrade.  If they are going to keep offering cheaper puts on PCLN ahead of earnings – we'll take 'em!  My comment on Fed expectations at 11:09 in Member Chat was a pretty good preview for the afternoon:  

Fed – 2pm.  Just the minutes of the last meeting, where they said no QE3 for now.  I don't understand the fuss – they gave us their formula and clearly we're not there so why do people think the Fed is going to lay out the conditions for more easing for the first time in their history and then break those conditions within a few months – even The Bernank is not that crazy.  

That cartoon is from last February – the more things change, the more they stay the same…  

Of course all of our bearish bets were in place, so there wasn't much to do but sit back and watch the carnage.  We did have a good conversation about Star Trek in the afternoon and how far people drive for groceries but things got serious again when I noted to Members it was "80 minutes to Bernanke."

Stock World WeeklyWe were thrilled to have the Fed minutes confirm our bearish outlook at 2pm (public version of my commentary on the Fed for Members is up on Seeking Alpha but, sadly, they don't have color capability, so a little harder to follow – I'm sure the full version will be up in Stock World Weekly this Sunday – and you can get a Free Trial now).   Speaking of Stock World Weekly, they featured my Long Put List this weekend – what fantastic timing!

As the market collapsed, TLT did a funny thing and dropped to $110.50 and my 3:31 response to Button, who asked in Chat why TLT and the 30-year were dropping on the Fed statement, was:  

TLT/Button – No more twist.  First reaction is dumping out of Treasuries on fear that the Fed (essentially the only buyer) may not cover the auctions.  Now we need a bit of panic into the Dollar and TBills to take us the other way.  

Let's DD on the TLT April $110/111 bull call spread at .57 in the $5KP (5 more).  

Wednesday Wheeee – No More QE For You!That TLT bull call spread pays .43 (up 75%) if TLT simply holds $111 through April expirations.  I imagine by this morning they should be good for 20% or better gains already as TLT comes back on the expected Global panic.  This is one of the reasons I drone endlessly on about market Fundamentals to our Members – if you UNDERSTAND why something is happening, then rather than panicking with the herd – you can calmly jump in and take advantage of opportunities when they present themselves.

Now we will watch and wait and see how far this correction will take us.  Since we already have plenty of bearish bets, we'll be looking for bullish ones and our old top 10 list is going to be a fine start but who knows what stocks will go on sale as we head into earnings season.  Europe is already off 2% this morning and our Futures look to be opening down 1% (9am) despite a pretty good ADP report.  Since China was closed today and is missing all the fun (they were UP 1.3% on Tuesday), if we finish down 1% or lower, we can expect them to snap down harshly tomorrow morning and that won't be pretty for the EU open so lot's of fun in store.  


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