Fuggedaboutit Friday - Dip? I Didn't See No Dip?

ilene's picture

Fuggedaboutit Friday - Dip? I Didn't See No Dip?

Courtesy of Phil at Phil's Stock World

Dip Buyers of the World unite!  You have nothing to lose but your 401Ks...  

Ah, could there be a more thorough perversion of Marxist ideals than not only confiscating a portion of the workers' wages but using that money to actually pay for the means of production in exchange for infinitesimal, powerless shares of ownership?  It's BRILLIANT but that's the stock market, we had that back in 1848 when Marx penned his little Manifesto but what we didn't have - what should really have old Karl rolling over in his grave today - is union busting.  And it's Union Busting by the Government no less!

While the hunt continues for runaway Democrats, state Senator, Robert Jauch, a longtime Wisconsin lawmaker, said Thursday that - despite rumors that some of his colleagues had returned to the state, "everybody is outside of Wisconsin . . . all of us."  Jauch criticized what he called the "police state mentality" of Republicans in the Capitol and took issue with Walker's assertions that Democrats who had fled the state were abandoning their duties.  "I'm doing more from the Land of Lincoln to communicate with citizens in my district than he is," Jauch said, adding that the Senate Democrats talk regularly and are "trying to reach out through back channels to see what the solution could be. This governor has dug himself in - that's very clear."

While the Capitalist tools at Forbes are already cracking the Cristal and celebrating the demise of unions, it is more likely that (like many hair-brained Republican schemes) - defeat will be snatched from the jaws of victory because, even if Walker's Republicans don't back down (and they will), they have already reignited the National Labor Movement in much the same way that 8 years of George Bush polarized the usually disorganized Democratic opposition and led to a rout in 2008.  This is not about politics though, this is about investing and who will control the country in 2012 is indeed something to consider.  

Another thing to consider is, if they do take away collective bargaining rights in Wisconsin - the next Global city you see erupting into riots may be the one by your house. That's how pissed off the Democrats are now and you'd know this if you ever spoke to one or read one of their "liberal" publications, like the NY Times, instead of listening to Fox, whose new chief, Roger Ailes is currently involved in a controversy in which it is alleged (falsely, I am so sure) that he conspired to lie to Federal Investigators in order to push Bernie Kerik through the vetting process so he could become Director of Homeland Security.  I am sure this is all a total misunderstanding and will be cleared up immediately and I applaud Fox News for ignoring these ridiculous allegations as well as the rest of the MSM for burying this scandalous and certainly untrue story.  Now, can I have my mommy back?  

So fuggedaboutit!  That was the very good advice back on April 23rd of last year when I said: "Goldman who.. Greece what?  Oh we fixed that thing last week! Yeah, the Germans (who are $4.5Tn in debt), the French (who are $4.4Tn in debt), the English ($9.2Tn) and, of course, the Italians ($4Tn in debt) are gonna give the Greeks a little something to keep the lights on until Christmas. Hey the world’s supposed to end in 2012 anyway so it’s not like we gotta keep worrying about this stuff, capiche?"  We coasted along that bottom from April 'till QE2 but it was indeed a good time to buy.  

Lesson number one then is:  You don't have to feel like it's a rush to buy.  When this train leaves the station - we WILL know it.  ALL the levels will fall - not MOST of them, which was what kept us from BUYBUYBUYing too much at the "top" as we kept ourselves flexible and cashy.  Having cash on the side allows us to do fun things like yesterday's trade idea from the Morning Alert to Members:  

I’m going to cut commentary short to say PCLN March $445 puts are $8.50 and were $40 yesterday. Figure 1/2 of that was earnings premium and they are still down a ton so not at all unreasonable to play them expecting to get back to $12. You can actually hedge it by selling the NEXT WEEKLY $450 puts at $4.50 in whole or in part but I’d go for the naked puts at the moment.

As you can see from the chart, that was a very popular trade for us and we had ample time to buy as the puts slipped all the way down to $7.25 before hitting our goal at $12 (up 41%) at about 11:15.  These are the kind of fun "hit and run plays" we can make with out sidelined cash while we wait for the market to get realistic:  


Option contracts generally come in lots 100, so it is $850 at risk but, with PCLN, that's like shorting 2 shares of the stock at $470, which is the price we thought was too toppy in the morning.  PCLN only fell to $455, which would have made 2x $15 on the stock ($30) but the option paid $350 per contract - that's what we mean by leverage!  Keep in mind that leverage goes against you too as that dip to $725 was a $125 loss (14%) so the idea is not to lever your risk and to scale into positions and set sensible stops.  Of course it is unlikely you were going to short 2 shares of PCLN and that's where options are really your friend.  

Let's say you wanted to use $2,350 shorting 10 shares of PCLN (50% margin) and you hoped to make 2.5% ($11.75) times 10 for a $117.50 gain.  The short play never would have gone negative on you.  Premium buying is tricky - which is why, as I said yesterday, we prefer to sell it.  What you can do is allocate $800 (1/3 of max) to an initial position of 1 short contract and plan to double down at, say a 40% loss, assuming you still believe in the position at that point.  40% of $8.50 is $3.40 and the delta on the contract (change in price per $1 move in the underlying security) is .30 so PCLN would have to rise more than $10, through $380 for you to lose $3.50.  

So your risk is $350 in stage one - assuming you choose to abandon the short if they break $480.  $350 is 15% of your full allocation and, of course, you can set your risk tolerance lower than that if you wish.  We never went low enough to trigger a second round entry but, assuming PCLN $445 puts did fall to $5 and we decided to stick with them, then $500 would have bought us one more put and we would then have two puts at an average of $6.75 with only $1,350 of our $2,350 deployed.  Another 40% down would bring the contracts to $3 and we would be about 50% down on our position but doubling down again (assuming we still believed) would cost $600 for 2 more contracts and we would find ourselves with 4 PCLN $445 puts at an average of $4.875 ($1,950) with the current value at $3 ($1,200).  That's a $750 loss AFTER the stock has moved $20 against us.  What would the loss be on 10 shares of PCLN that went $20 the wrong way?  $200. 

We risk losing $300 more but we MAKE $200 more on that $15 move in our direction (10 shorts would have made $150) in just 90 minutes - AND - we only tied up $850 to do it.  That's what options are about - not taking crazy leveraged bets but taking STRATEGIC, HEDGED positions that allow you to diversify your risk and take advantage of opportunities quickly, without making big up-front commitments.  

Despite our faith in the stick we only found 3 new bullish trades as we had picked up bunch of well-hedged plays already on the way down, taking advantage of the boost in the VIX to enter the kinds of positions we do like (where we sell premium to suckers, rather than being the suckers buying the premium).  By the way, that XLE trade (shorting at $78), also from yesterday's morning post, also worked like a charm and they fell to $76.50 (2%) in the afternoon which is very nice, even if you are just playing the stock.  Oil had a really spectacular fall, from $103.65 at the open all the way down to $95.50 at 3:30 and you do not want to even think about how much money that makes in the futures if you didn't play it!  We actually flipped long on oil at the end of the day but stopped out already as they ran up last night and pulled back off the $98 line.  That oil trading is CRAZY!  

Crazy is also the continuing Global situation with Gaddafi losing more and more territory in Libya as violence there escalates. Iraqi citizens are rising up now, protesting the rampant corruption in the Government we set up over there as well as the poor government services.  I would suggest we give them all a tour of Detroit so the protesters will understand it's not like we're playing favorites - THIS is actually how we run our own country too!  

Ireland will be overthrowing their Government later today (and maybe their creditors right after that) but they are doing so at the ballot box and Russia is attempting to avoid unrest by raising interest rates, which will make the buying power of the money their people have rise and hold the line on inflation - those Commie Bastards!  How dare they worry about the purchasing power of their people?!?  Over in the UK, in a speech subtly titled, "Ten Good Reasons to Tighten,"  the BoE's Andrew Sentance argues for gradual hikes now to lessen the need for aggressive moves down the road. "We cannot be confident that the current drivers of global inflation will quickly fall back."  Oh no - the dominoes are falling!

Of course, what sucks for the American worker is great for our Multi-National Corporate Masters and we all love a good puppet show, so they brought out the President to say "U.S. companies shouldn't worry about inflation if they're planning on expanding their business." Obama says at the first meeting of his Council on Jobs and Competitiveness. "We're not seeing a broad-based inflation trend."  Yeah, I wish I was kidding, but he actually says this stuff....

Meanwhile, in California (which would be the world's 9th biggest economy if separate), Governor Jerry Brown pledged to cut $25 billion from an $85 billion spending plan to close the state’s budget gap if lawmakers block a special election to allow voters to extend temporary tax increases.  If lawmakers don’t approve the special election, Brown said he’d hold up the budget for as long as it takes to eliminate the $25 billion deficit through spending cuts. “It’s very fundamental, whether you vote the taxes or you vote the cuts,” said Brown.

Isn't that funny?  In California, the Republicans are blocking a VOTE BY THE PEOPLE to decide how they want to deal with the deficit and they are being touted as HEROES by the Conservative pundits but, in Wisconsin, the Democrats are blocking a vote by their legislature and they are being vilified by the same pundits, right after the commercial break.  It's a wonder they don't get confused sometimes and spit hateful epithets in the wrong direction...

Asia managed to close green this morning and our pre-markets are flying but we're going to stay well-hedged into the weekend.  Russian terrorists have already served notice that they intend to bomb Olympic sites while Libya is in danger of becoming a terrorist-controlled state that is already allied with Italy (from a 2008 treaty).  

Speaking of Asia, our friend Hugh Hendry has 20 charts laying out his short on China, through Japan CDS swaps, generally postulating that everyone is over-invested in China and that a massive correction is coming and I'll leave you with this food for thought from Hugh: 

undefined  undefined


Note the quotes on that last page.  We are truly partying like it's 1999 and, soon, the music WILL stop.  Perhaps Hugh is grabbing his chair a little early but at least he still has somewhere to sit - Chuck Prince does not! 

Have a great weekend, 

- Phil


Try PSW's stocks and options trading services here >

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
apberusdisvet's picture

Both the right and the left cheery pick to make points;  gee isn't the propaganda from both sides fairly obvious by now?

Jim B's picture

Wisconsin teachers make about 100K with Benies, I should have such problems.... Oh and get 2 months a year off....  



Fred Hayek's picture

It's closer to 3 months off total.  If it's the same as here in Massachusetts, they work 180 days which comes out to a nice neat 3/4 of the work of a person in the dreaded private sector who gets 2 weeks off and is therefor working about 240 days.  So that rate of compensation is 4/3 of that or the compensation rate of someone making $133,000 per year.  They're very well compensated, better than most of the people paying their salaries.

Fred Hayek's picture

It's closer to 3 months off total.  If it's the same as here in Massachusetts, they work 180 days which comes out to a nice neat 3/4 of the work of a person in the dreaded private sector who gets 2 weeks off and is therefor working about 240 days.  So that rate of compensation is 4/3 of that or the compensation rate of someone making $133,000 per year.  They're very well compensated, better than most of the people paying their salaries.

TheMerryPrankster's picture

when he said "U.S. companies shouldn't worry about inflation if they're planning on expanding their business."


He meant Silver and Gold mining businesses.

Ned Zeppelin's picture

The public unions couldn't bankrupt states and counties on their own. They needed the politicians to go along.  Just like the politicians are owned by the TBTFs in Washington, the public unions have had too much influence on politicians. 

But you are missing the picture if you do not understand that when collective bargaining for public employees is outlawed, the influence of the TBTF/elitist class over that very same legislature will remain untouched, and in fact strengthened.   You just helped them eliminate one of their annoyances - they don't care about the money you pay, or worker's rights, or any such bullshit - the TBTFs/elitists care only to castrate a group that supports the Demoncratic Party and is a source of pwer that challenges their own stranglehold on the legislature. 

You may not like public employee unions but you need to think along the lines of "the enemy of my enemy is my friend," and support the unions in this one. Distasteful, yes, but I'm not about to help the TBTF/elitist scum to win another one.   



ilene's picture

Good point.  For more on public vs. private workers pay, you may want to read this article:  http://baselinescenario.com/2011/02/22/conventional-meaninglessness/

flattrader's picture


By now you may be aware that included in Scott Walkers so-called budget repair bill is a provision to sell WI state owned energy producing assets at no-bid and with no-review.  It's unclear which assets Walker plans to hand over to the Koch Bros. at a discount for putting him into office, but I know there are people combing .xls files to see which might be at risk for transfer to the uber-wealty brothers.

This is theft, pure and simple disguised as some noble effort to slay the union dragon.

[You can then bet that the cost of energy for some WI communities will skyrocket.]

Most ZHers are suffering from the syndrome outlined below:

The mental stumbling block, for most Americans, is that financial crimes don't feel real; you don't see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They're crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let's steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They're attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone's claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.  

Windemup's picture

We don' need no stinkin' dip!

Fred Hayek's picture

The teaser on the front page says

" . . so they bought out the President to say . . "

Freudian slip?



ilene's picture

I'm not sure if Phil meant bought or brought - and then changed it in one place and forgot to in the other.  We'll never know. 

chet's picture

I usually read the posts by this guy.  He's got some interesting opinions and gripes, but in the end he's just a Wall Street gambler like the rest of them.

I don't have respect for people who earn all their money gambling on Wall Street.  They aren't productive members of our society.  They are part of the gigantic parasite that is killing the host.

Freddie's picture

Add "pub(l)ic servants" to the list of parasites especially unionized govt workers.

Yossarian's picture

Break. The. PUBLIC SECTOR. Unions!...AND break the TBTF Banksers! 




flattrader's picture

The libertarian Kochs are super rich and gave less than $2 million to Republicans in the last election cycle, which mathematically speaking amounts to nothing.


What BS.  Read this for an overview of the real political spending.

We do know, from Mayer’s reporting, that the Koch brothers have personally given over $2 million to candidates over the last 12 years, their PAC has contributed $8 million to candidates, and they have spent $50 million on lobbying. The Charles Koch Foundation has given $48 million, and another foundation they control gave $28 million. David Koch’s foundation gave more than $120 million. According to Mayer, $196 million dollars in total was distributed in the last 10 years to conservative causes and institutions.


That all, as they say, is not chicken feed, and it begs the question: How in the heck did they stay under the radar for as long as they did?


Part of the reason is that much of what they did was not reportable but, more important, until recently they were not pouring the millions into campaigns through advertising and expenditures allowed due to the Citizens United Supreme Court case.


Fred Hayek's picture

The Kochs also support drug legalization, gay marriage and reductions in defense spending.  But these facts don't help to create an evil villain image, so ignore them.

Freddie's picture

Stop trying to change the subject using your Democrat union talking points about the Koch brothers.  The public gvt union "workers" are bankrupting states and America.  We get it - many of us pay taxes.

flattrader's picture

Have you been in a coma since 2008?

Did you miss the whole Wall Street bail-out thing?

Try this for a refresher--


Try this for some reality--

MADISON, Wis. -- David Rhode is a paramedic in Middleton, Wis. He works 56 hours a week, mostly in 24-hour shifts, frequently carrying wheezy patients up and down flights of stairs. He said he earns about $43,000 a year.

HuffPost asked Rhode, 36, how it feels to be overpaid. His eyebrows went up.

"I drove my Ford Focus here," he said. "I live in a 950-square-foot condominium!"


On the ground floor, Madison resident Pete Silva told HuffPost he had been a firefighter for 26 years when he retired in September at age 52. Silva said he worked 56 hours a week, often 24-hour shifts, driving a fire engine in response to fires and medical emergencies. He said his salary started at $31,000 and had reached $60,000 by the time he retired.


Silva said his pension provides $30,000 a year, which isn't enough for him to live on, so he's taken a job as an instructor in the Wisconsin Technical College System, earning roughly $55,000 a year. His total income is significantly higher than what he earned as a firefighter, but he makes no apologies, arguing that a nice pension was part of the deal he made in exchange for his decades in a dangerous job. He said he sustained two neck injuries from lifting "very, very heavy patients" and has had to replace herniated discs.



worldlymrb's picture

I thought they were Public Servants?


flattrader's picture

Yes, they are public servants--not cannon fodder...and they expect that they will not be put in harm's way intentionally.

Walker thought about bringing in "trouble makers" which would put all first responders at risk.

He's losing support by the second.

flattrader's picture

Since WI Gov. Scott Walker got punked by a gonzo journalist pretending to be one of his corporate masters and admitted to thinking about bringing in trouble makers to the Capitol Building demonstrations, the "police" (one of three groups he exempted from his proposed end to collective bargaining) have seriously reconsidered their support for him.

The largest law enforcement association in the state is now in open revolt


The head has urged his members to "sleep over" in the Capitol Building along the the protestors to insure peace.

The world's largest commune.


Freddie's picture

Public servants my arse.  They extort money from taxpayers.  Fire all the union goons including the cops.