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Tempting Tuesday – Things Begin to Look Up Again

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Tempting Tuesday – Things Begin to Look Up Again

By Phil of Phil's Stock World 

Now what?

 

Suddenly we're heading back over our 50 dma lines and we've wiped out most of that drop below our Must Hold lines (above). In the bigger picture, we're back to consolidating for what could be a big finish to the year.

Much of the outcome is up to the Fed tomorrow and expectations are high for a big boost in QE to make up for the termination of Operation Twist. Anything less than an additional $45Bn a month pledged in tomorrow's statement will be disappointing and might reverse equities yet again. It's a little early to go gung-ho bullish – just in case the Fed disappoints.

We have no need to chase as were buying at the bottom – like HOV, which was our bullish featured pick in the morning post on November 16, when the stock was at $4.30 (now $5.38 – up 25%). Like the trade ideas I've been posting this week, a lower entry could have been made by buying the 2014 $4/7 bull call spread at .75 and selling the $4 put for $1.40 for a net .65 credit. A month later, the bull call spread is $1.10 (up .35) and the short put is .80 (put is down .60 - but we shorted it, so we're up .60 on the put).

These are sensible ways to play stocks in a choppy market. We give ourselves 15-25% hedges to the downside – built into the spread – and we leverage our upside considerably so a 25% gain in the stock returns 146% on our investment.

Once after the Fed tomorrow, we could be set up for a move back to 13,600 if Bernanke can manage to instill a bit of investor confidence going into the close of the year.

There are still plenty of opportunities out there. Just yesterday we still had plays on IMAX and AAPL in the morning post and, in Member Chat, we added bullish trade ideas on NOV and GDX early in the morning – in anticipation of another bullish day. GDX took off but NOV is lying flat. Our trade idea on NOV was an artificial buy/write, selling the 2015 $55 put for $7.40 and buying the $60/82.50 bull call spread for $10, which is net $2.60 on the $22.50 spread that's currently $8.44 in the money.

Of course, we have other strategies that let us generate a cash income while we wait for this position to mature and we discussed that yesterday. Early this morning we discussed yet another bull call spread on AAPL, which has a 122% upside over 24 months with no margin requirements – these are the kind of opportunities we can take advantage of, even in this very choppy market. ("The max profit on a bull call spread comes by waiting for it to expire in the money. In between, you are either on or off track but it's a targeted bet in both time and position so you always need to be realistic about where you are and where you expect to be. With AAPL, for example, you can buy the 2015 $450/550 bull call spread for $45 so you have 122% upside if AAPL is over $550 in Jan 2015. Since you expect to realize a $55 gain over the next 25 months, you are "on track" if you are making $2 a month and off track if you are not.") 

Asia was generally flat but Europe is up 1% this morning, mainly on news of German Investor Sentiment (ZEW Survey) jumping to 6.9 in December, a big reversal from -5.7 in November. This is the fist time the index has been positive since May and, as we discussed on  Friday – the German markets have been kicking our asses all year and we'd rather see them do well while we try to catch up than to see them pulled down to our level, which is less than 1/2 of their gains for the year.

So plenty of room to run if investors get in the mood, and that mood will depend on the Fed tomorrow and whatever Fiscal Cliff pronouncements we get out of Washington this week. Small Business Optimism is dreadful at 87.5, now heading back to 2010 lows.  It isn't just the hurricane or the fiscal cliff – optimism has been declining all year but the break below 90 is very serious and is something we do need to keep an eye on next month.

 

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Wed, 12/12/2012 - 08:36 | 3055173 LongSoupLine
LongSoupLine's picture

"...investor confidence..."

As a reformed investor, I'm confident Phil's Stock World can go fuck themselves. Take your fucking guesses and fucking aapl "buy" with you too you fucking idiot. This stinking shit reads like a fucking Barrons sell side lemming trap.

Wed, 12/12/2012 - 08:17 | 3055146 B2u
B2u's picture

Bernanke speaking to big banks and HFT.  Just liike Saruman, damn the "little" people.  To WAR, leave NONE alive.

http://www.youtube.com/watch?v=rEe1XtP-gfQ

Wed, 12/12/2012 - 07:24 | 3055108 Supernova Born
Supernova Born's picture

Cartoons and the funny papers are Banzai's exclusive territory, IMO.

Straw-woman better moniker than the less than wildly imaginative one used.

Wed, 12/12/2012 - 03:15 | 3054931 WaEver
WaEver's picture

Phil is Graham Summers' bullish brother

Wed, 12/12/2012 - 01:21 | 3054805 q99x2
q99x2's picture

This guy just beat Hamy Wanger. You go guy.

Wed, 12/12/2012 - 00:46 | 3054752 sixbilliondollarman
sixbilliondollarman's picture

...Are there any retail investors left in the stockmarket? Who's this guy's audience? Sell Dow Futures with both Hands into Quantatative Idiot 5 & the hopefull "Santa Claus rally"!!!!

Fight this idiocy

http://www.youtube.com/watch?v=ID6-lHwzwuU

Tue, 12/11/2012 - 22:42 | 3054437 disabledvet
disabledvet's picture

I'm still trying to figure out if i liked you better when you sucked at being bearish or now when you suck at being bullish.

Tue, 12/11/2012 - 22:40 | 3054432 Tinky
Tinky's picture

Does Phil write for The Onion?

If not, he should.

Tue, 12/11/2012 - 22:29 | 3054387 SAT 800
SAT 800's picture

I suppose there's some reason this crap is sprayed on us. Do they pay the site owners?

Tue, 12/11/2012 - 22:28 | 3054380 ArkansasAngie
ArkansasAngie's picture

Plenty of opportunities for you to make money if you can only convinve me to willingly part with my money

Not going to happen.

Capital peservation time.

Wed, 12/12/2012 - 03:18 | 3054934 vato poco
vato poco's picture

Damn right "there are still plenty of opportunities out there." *Damn right*! Why, just here in Vegas, you can walk into any Strip casino 24/7 and plop down $5K on a craps table 'Pass' line. Just 4 straight passes (only a mere 4!!!!) and your $5K magically turns into $80,000 dollareenies. That shit happens ALL the time, I'm told. Or hit a $5 15-teamer, and walk away with a cool $100K. Or 3 staright hard 10's, parlaying each time. A grand turns into a _hundred_ grand!!! And of course, Vegas always offers "other strategies that let us generate a cash income" while waiting for that hot table to fire up. Slots! Roulette! Baccarat! Keno!

What Angie said: not gonna happen, pal. Take that snake-oil bullshit to Cramer, OK?

Tue, 12/11/2012 - 21:32 | 3054142 bank guy in Brussels
bank guy in Brussels's picture

Phil's Stock World writes above:

« ... bullish trade ideas on AAPL ... another bull call spread on AAPL ... »

Ha!

Even if I thought it was true I'm not sure I would mention it

Phil the clever bear has now become Phil the Bull on the Hedge Fund Hotel

Tue, 12/11/2012 - 22:46 | 3054443 disabledvet
disabledvet's picture

You probably don't know what Times Square was like in the 70's...and beyond "until Mickey Mouse" (ironically enough) "came along and ruined it." I often think that if there is a Hotel for Phil right now..."it's there...back then." You on the other hand...even King Leopold II is starting to feel moved of late so I hear...

Do NOT follow this link or you will be banned from the site!