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MRVL reader and I swing trade the S&P SSO and SDS and ES (emini) and have been using cycle analysis to make the trades.
Tomorrow, Friday, look for the DOW to be up over 100 sometime during the day with a 50+ point drop off the high. I don't know where it will end up, but the cycle has a nice upward move tomorrow and then a fall into the close.
I'll post next week's look tomorrow
Looking for $1300 on the SPX by week end and then?
I know it's been awhile, but I remember many of you liked the cycle calls I was doing a bit back and thought you might want to hear them some more.
These are now daily cycles, not weekly or monthly.
For today, the high should have been reached already with a big decline overall in the market starting the end of the day. That then leads to this week's low sometime mid day tomorrow between 10 and 12 PST. Look for no lower than 1250 to 1270 on the S&P.
Then, Thursday should be kind of dull but watch out! Watch for the end of the day! The last hour to 30 min could see the beginning of a major swing higher into Friday with all losses recovered by the end of the day. Possibly a high on Friday on the S&P of 1310 to 1320.
So, for you index traders, a great way to do this as I do is to play the ultra funds ETFs.
S&P :
SSO = 2x % GAIN of the S&P
SDS = 2x % LOSS of the S&P
DOW:
DDM = 2x % GAIN of the DOW
DXD = 2x % LOSS of the DOW
They trade just like stocks and rise and fall against the married index as stated. If the DOW falls 1% and you own the DXD, then you gain 2%. The beauty of these rather than the eminis is that you can average into these for example slowly rather than getting blown out on a hugely leveraged emini future contract if it doesn't go your way right away. For example, if you only have a $10k account, then just buying 1 ES and seeing it go against you by 10 points kills you by $500, or 5%. But by averaging into the SSO at say $63 with 20 shares at a time or whatever, you don't get into trouble. But by doing that you need a very cheap broker like IB who's only going to charge you $1 per trade.
For the longer term cycles, we have a high coming in in early September with a final 2008 low in Oct. Then possibly a big rally into Feb 2009 to March. Then the next leg down.
Wow. You're right. My source said they lost everything and has been right on from the beginning. Not this time.
My point about BRCM was that the big money guys will buy BRCM over MRVL first because they are a more established company with a better balance sheet that is consistent. In this market, 'they' don't like risk.
MRVL is looking great balance sheet wise based on the last CC. But it's not consistent. At least as of the last year. We'll see going forward.
But since they obviously didn't lose anything with AAPL based on that link, I'm wondering now how that changes things stock wise?? hmmmmm
These days I'm a daytrader, not an investor.
I told you. The iPhone is a very cool toy. However, that doesn't translate into mucho $$$. They'll make a lot, no doubt. But to meet all this expectation of it being the new iPod for AAPL's stock is ridiculous. There are two reasons I'd never buy an iPhone and I'm saying this not because I have anything against AAPL, but just to point out that I'm not the only one who thinks this--- 1) I'm very happy with Verizon and 2) I'd destroy that thing in a week. I like to have my phone in my pocket when I'm out. The iPhone is incredibly delicate on the face. It would suck to scratch that face which would happen in a second (or a week) the way I carry a phone.
Now multiply that by how many others and that's why the iPhone's sales are limited. I hardly ever see anyone with one. Maybe once a week. If it were such a 'must have' thing, by now you'd see tons with them and it just isn't the case.
Now, everyone is starting to copy them. But what's more interesting is that RIMM seems to really have no competition. Their push email just can't be replaced. Another reason Blackberry users won't ever switch to the iPhone.
So, as I've said for a year, WHO THE 'F' CARES ABOUT THE DAMN iPHONE????
It's got to be the most overrated thing in years. If it weren't, AAPL would be at $250 right now.
As for MRVL, it is a pretty big deal they lost a big contract with AAPL. Rev wise it's not much. But it does make the analyst's wonder I'm sure why. And when you have doubts for any reason, watch out below.
MRVL is on it's way to fill the gap at $14.08 and most likely will trade back into the $12s in this market.
However, if it does, the rest will surely follow and I'd be a buyer of BRCM far more than MRVL.
I'm just interested to see how AAPL's stock trades over the next few weeks. $120 most likley you'll see again before year end.
That's not true. But for MRVL, I think there's a reason why it's not going up in the face of a rising $SOX and especially a monsterously strong BRCM. Learn the lesson -- the stock price is always telling a tale. You'd think that based on all the hype around the MRVL CC last month and the gap up and hints at them being a major supplier in the new iPhone, MRVL would be pushing $20+ along with BRCM's move the $30. Why not?
How much you wanna bet MRVL has nothing in the iPhone 2? Someone knows it and they are selling it. I've always said the stupid iPhone is a joke in the bigger picture rev wise because AAPL should not have committed to AT&T only. It's the same reason AAPL is only 5% of the total desktop market. Now Samsung has their iPhone ripoff, the 'Instinct' which sells to everyone else on every other carrier. It's a carbon copy of the iPhone. AAPL screwed themselves here because they had a chance to sell hundreds of millions of this thing but they like always had their head up their rears thinking they are the top dog. Well, I bet they don't come close to selling the amount they predict because they gave bigger companies a huge chance to catch them and they did. Samsung will now easily dominate the space taking away any reason to have an iPhone because it's no longer an only thing.
So, AAPL is probably doomed stock price wise going forward because there is no longer any new catalysts.
But for MRVL, I think the same holds true because MRVL is a constant soap opera and I think large investors are sick of it and will simply buy BRCM if they want in the space. The stock says it all.
The only problems BRCM has is with it's past company exec's personal lives. The company itself is extremely well diversified and established and profitable.
I even am willing to bet BRCM most likely has the iPhone wi-fi now edging out MRVL.
So, Monday might not be very good to MRVL if iGadget breaks this down Friday night and finds no MRVL.
Any rally in the stock over the next three days might be very good short/put buying ops.
MRVL has a huge gap from $14 that never got filled and most likely will starting next week if I'm right.
My program is giving me sell signals now on semi after semi. So, watch out.
Specifically I got a sell (short signal) on XLNX yesterday and now NVDA today. BRCM is already on a sell signal. MRVL is holding very well, but the fact that it can't move up (or down) is probably signalling an attempt coming here to fill that gap. I think with the incredible 70 mill shares traded on Friday with most around $17.20 (VWAP price) that is a number that is going to have to be really beaten up to see it go under in any substantial way.
So, if MRVL breaks $17 on volume, that should set up a move to $16 and possibly lower with the overall market looking weak. But that is a level you want to start buying becuase I think the next move up will be the breakout out of this 2 year downtrend.
Just keep in mind the valuation here. At $.50 for the year - if that's what they do - on a GAAP basis, that's a PE of something like 42 at $17. So, it's getting actually expensive now.
But that's fundamental. You can't put a premium on hype. So, let's see.
Now, after doing much DD on this last night I have to come to the only conclusion that every reason I originally got into this stock 2 years ago is now coming true. That report is what we've all expected now for quarters.
So, I think it's time to start to light up this board again.
Technically, the stock has gotten way ahead of itself here. That gap has to be filled to some extent. What you want to do now is start buying slowly as it falls with the $15s being your target entry level. Big money doesn't pile into something unless they feel it's going to get away from them like AAPL or RIMM or GOOG.
I don't think MRVL is that. So, they won't have to pile in. They'll just average into it as it falls on a technical correction. But the $11 and $12 days should be over. The only issue like I said is the problem with this cycle high coming in June. As you all know, 80%+ of a stock's move is tied directly to the overall market condition. The cycles are saying we hit a high in June/July and then fall into the the Aug/Sep area and then rally big from then to April 2009 - at which time we have a mother of a cycle high that could lead to a major leg down into 2011ish. That would make sense based on the Presidential cycles and all this inflation problem having to eventually take its toll.
But for now, if MRVL can keep it up, the stock should easily see the $20s by year end. I have total exptectations that MRVL will be in the $20s in the 4th quarter this year. But what makes that even more interesting is the fact that a simple break of $17.50 on a CLOSING basis on volume puts the stock in a new long term uptrend having broken a multi-year downtrend.
I got an email about a year ago from someone who gave me a very detailed Elliotwave chart of MRVL which predicted $10 as a 4th wave low. I said no way. That was when the stock was at $22. Well, I stand corrected. I based on decision on strict fundamentals and fell for the problem that to defy the technicals is suicide. But the 5th wave projection projects actually into the $30s. So, we'll see.
But MRVL is now I think a damn good investment and any stong move over $17.50 makes this a near sure $20 stock.
Fundamentally though the PE is still a bit high. In this market you don't get premiums on multiples like you did before. So, any PE over 40 should be taken seriously. If you take the 11 cents they made (GAAP) and multiply that by 4, that's 44 cents for the year. Let's assume .50 for stronger future quarters. At .50, that's a pretty high PE now. So, I think there is no fear of missing the boat here.
Now that chart above gives you your target. Notice as of this writing that let's call it $17.50 becomes your breakout point. And that is a weekly chart.
So, with all the weekly indicators overbought and the daily having this huge gap up this morning, what you should expect is a pullback next week to correct this overbought condition.
However, a solid close over $17.50 breaks a 2 year downtrend. The key will be volume. The day MRVL closes on over 20 mill shares over $17.50, then you probably have a new long term trend beginning up. That's when you start buying.
All those June $15 call buyers are getting rich today.
Also, you know what's really weird? The upgrades really weren't that great off this. Most price targets just went from $17 to $22. Really nothing more.
I guess on a PE basis right now at $17ish premarket the stock is trading around 40 times. Maybe mid 30s. So, in this market that's kind of high.
But still. You pay a premium for growth like they have. I don't understand.
But keep in mind there is another cycle high coming right about now anyday. That means there's a leg down in the market about to hit us.
Also, someone cut DELL to 'sell' this morning. So, all is not all cheers.
I'm here. I think today's reaction price wise to their report is the first positive upside move after a report in almost 2 years. That says a lot.
Here's how I'm playing it. I'm shorting this gap up. However, once MRVL trades north of $17 on a CLOSING basis, that should signal the stock is most likely headed back into the $20s. That report is very good and is just another continuation of their constant growth.
The BS is now completely behind them and should point to higher prices.
But with that downtrend looming at today's apparent opening price, I think it's a great short term short (daytrade).
But don't take that to mean the stock is trading back to $11. I don't know where the hell they pulled $70 mill out of their hat on a GAAP basis. That was amazing. If they continue that, they're on their way to $30+
There's an old superstition that typically holds true that the market seems to always rise into an election, especially presidential ones. The reason is mainly due to incumbants doing thier magic to stay elected.
But that's not the case this time. No incumbant. Plus the Dems are going to rout the Repubs in congress. So, there's really no reason for anyone of power to 'pull' anything.
So this year I doubt the market gets juiced artificially. It will just do what it ends up doing. That said, the fundamentals are not getting better. Rick Santelli today on CNBC mentioned the data is actuall either getting worse are staying the same - which is bad. So, the idea that this rally has staying power based on the idea that March saw the lows of the year could be quickly turned upside down into an all out fear to not be the last one out the tiny door as they all realize this is a bear trap - which I believe to be the case.
The problem is how high does the market go before then?
Hmmmmmmm
I was just looking at a bunch of oil related stocks and specifically the July CLM8 oil futures chart and they are ALL making the same pattern - a clear 5th wave move. Oil itself is making a very high volume 5th wave here which I think suggests a washout. Kind of a reverse capitulation.
HAL's chart is similar to oil, but doesn't really make money off of oil like XOM. They just get paid to drill for others. So, oil's rise only benefits HAL if companies and countries think the price of oil will stay this high justifying the expense of paying a HAL to do what they need.
With all these charts hitting the same 5th wave pattern here on declining volume other that oil's chart, I have to assume we're at a near end and all these could reverse dramatically soon.
Today I started to sell 50 share blocks of my HAL position while keeping my long puts. The idea here is to average out of 1/2 position of the stock and re-buy more shares with the larger amount of money created by the high price sales and (hopefully) lower price re-buys.
Also now starting to short the June $50 and $52.50 calls.
This 5th wave move in HAL like I said now could turn at anytime because it has satisfied a 5th wave having made a higher high than the 3rd. But the fibo projections are $50 and then $52 on a 1.50%.
So, the upside is limited.
But 5ths are hard to predict.
I do see a big reversal coming in this entire sector though with all these charts making the same 5th waves.
Interesting setup though as a possible double top. In any case, $50ish should be a big reversal level because HAL is not GOOG.
My trade is now to start selling the June $50 calls. If you have a broker like IB, it's no problem with commissions. I'm beginning to sell 1 a day with a 1000 share position. So, the goal is to end up with 10 short at an average hopefully around $1.50+
I sold 1 today at $1.10.
It's one of the most clearly defined 5 wave patterns out there with this being the 5th wave. The projection is $50ish on a 1.38% fibo.
I don't follow it anymore but be careful with it. It's got a big problem with the Stage6 biz. If that doesn't work out, BAIL.
Hey Steve,
I never sold it in the $10k account. But I did sell it personally. I took the hit due to the risk based on the news. Personally, I'm in the camp that the Semis are just getting a dead cat bounce on this theory that tech is the place to be in a reccession.
Well, not so fast. There could be a new leg down in the market anytime and I don't want to be risking money in that.
The DOW and S&P are possibly making their highs now and if not now sometime in June/July per the cycle moves.
That sets up for another leg down of some magnitude.
If S&P 1450 gets taken out, then this could lead to more upside and the downside was met.
If you see it trade below 1350 and more specifically 1250, then this 'could' be a major major move down that 'could', and I stress 'could', be the setup for a lower low than that of 2002. That means lower than 750 and DOW < 7200. Ouch!
Really, all the signs are there for that to happen. But it doesn't mean it will.
Whatever happens it's not going to be a fun market for years to come. You probably won't see any major move up in a new secular bull market move until probably 2011 to 2012. So, the best you can hope for now is to see a more sideways range in the indexes and not a major move down.
But, who knows.
That's why I say to roll collars like my HAL trade.
HAL making a 5th wave leg up which could set up nicely for a larger selloff in a few weeks whereby we sell $40 deep in the money calls to grab multiple dollars on the decline. Already booked $2 on the cover of the $45 short calls.
Now the trade is risk free with the $55 puts in place and paid for.
Any money from here is money in the bank regardless of what HAL does.
SMKG --->
Like I said, I'm pissed about SIGM. That a-hole analyst sandbagged us on it. But it really isn't about him it's about trading correctly and when it didn't move back up off $20 on the initial fall, that was a sign that something was wrong.
SIGM is a classic example of how full of shit fundamental valuation is. It's so subjective it's just not worth trading on.
What I'm suggesting now because of the chance that that S&P chart above is telegraphing some big downside to come with the 50 crossing the 80 week MAs, you should focus on NOT trading naked and going with my collaring trades. The idea is to make monthly income via shorting calls and using long puts to lock in your position.
So, for example you'd buy 'x' amount of shares of say, ABCD stock at $30. You'd then buy 1 put that is 2 or 3 strikes in the money 7 months out or so for each 100 shares. So, you'd buy 1 Jan 09 $40 put for each 100 shares of ABCD you bought at $30.
Let's assume you pay $11 for the puts.
That means that if ABCD falls, the second it hits $29 you can't lose any more money. The goal here is to sell call options to hopefully have expire worthless each month.
I'm using the HAL trade as my example. So far that trade is working well. The problem with the type of trading for many is that it's SLOW. But very consistent and almost risk free. I didn't have puts on SIGM like I should have.
In this type of trading you're actually making more money as these stocks fall, but are protected in the event they rally because we're long the stock.
It gets a bit complex once your stock starts to move up in a big way because there are a few strategies to take advantage of that happenng like rolling up the puts or short calls. But in this market you probably won't have that problem very much.
With $35k you could probably make $20k this year doing it.
Remember when you trade e-minis, you have to be a strict trend follower, not top or bottom fisher. The leverage in them will kill you if you try to get cute.
If you're long and then it turns on you, you have to learn to just take the hit and go the other way.
But here's a tip -- on FED day, ALWAYS trade counter trend 5 to 10 min after the announcement. It ALWAYS does that. I don't know why, it just does. For some reason whatever the initial move is up or down, within a few minutes it turns.
I am really not sure what to expect because as I posted the other day, on one hand you have the 'election year' cycle that gives you on average an 8% gain for the year in the DOW. But then again, look at that chart above of the weekly S&P and you can clearly see without any doubt that 50 week is about to cross through the 80 which signals long term trends. In this case it's down which could portend S&P 1000 or less again.
Now what's very interesting is the larger elliotwave predictions in terms of grand supercycles that have been predicting DOW 5000 or less on this bear run. I don't know how to agree with that, but what is a fact is that the market as represented by the S&P specifically has been 'juiced' by the overweighting of energy stocks. If you took half of them out, the S&P would have never hit new highs from the 2000 March high.
So, we could be in for this "C" wave down to finally put to bed the bear market that many say we were still in from 2000.
When you look forward into the next few years, it does seem that geopolitically and fundamentally there is every reason to expect a major market selloff of major degree. Unless someone pulls something out their rear end to give a huge boost to the economy as a whole, I think we could be screwed.
But then again, remember the 1990s. The same doom and gloom talk was abound in 1992 all through 1995. What happened then? Remember? I remember this little company AOL started to get people's attention by allowing them to finally use their computer to actually do something more than write letters and do spreadsheets. They now could dial up to a network and actually talk to each other via the 'internet' which was this brand new thing.
Three little years later Long Term Capital cratered in 1998 and it was the same as the subprime crap we have now. But it was short lived because all the money was piling into venture capital and internet start ups.
The point is that you never know where or when these new things are going to come from. But I can assure you that someone out there is right now working on it - whatever 'it' is and probably there exists a company trading publically right now that is probably a tiny penny stock that is going to be the 'it' thing.
Short of that scenario, keep all positions protected with puts. I'm just doing monthly covered calls with puts in place just in case as a rolling collar. It's safe and it's a sure thing. I prefer to be more of a risk taker without the puts in place, but it is what it is.
I got sandbagged on SIGM which is a perfect example of what can happen in this crazy type of market. Not again.
If the FED tomorrow cuts and then says something to the effect they are done, because we're at a major resistance level in the S&P, I tend to think the market falls. Even if it gets a quick boost, it should be a short opportunity. But a week out I think that could be the thing that jams the market up 1000 points. But that should be a major short opportunity because remember 'sell in May and go away'. It works and it works for a reason. Don't fight it. Any big rallies here should be selling opportunities with a long side bias not until Sep through Jan.
But believe me, I'm going to be trading tomorrow's e-minis. Fed day can be very profitable.
Cover those $45s on HAL if it trades to $42. Should bounce there. Let it climb a bit and then re-short the $45s and possibly just roll down to the $42.50s.
I don't think you can really compare HAL to XOM because HAL is more of an engineering firm specializing in just doing the grunt work while XOM is a full service bread and butter oil firm.
I think HAL broke out on the OIH breakout, but that trade could be doomed if rate cuts are done.
I'm really struggling with the S&P looking at that chart. Election years typically see an 8% gain for the S&P and that would kind of go against that chart setup. But then again, it is a weekly chart and the market could ramp up here then fall back hard after the election.
All I know is that the most likely scenario is that the market has some major downside in the future, whether that be this year or next.
This is really a weird time because if you just go by what you see in that chart, you have to come to the only conclusion that it's in fact about to cross and that means a pretty substantial downside even if there's a small continuation in the rally to about 1450.
But then again, this is an election year and many factors lead to the idea that this actually could end up being a good % gain year in the indicies.
So, what to do? Well, trade what you see and not what you feel. That means roll collars and always be protected.
Hey Alero, I think HAL is going to trade by itself for awhile because it's in a momentum mode. I think the Fed has no choice but to end rate cuts. That should have a big effect as you said on commodities and especially gold. Gold is toast because there is really no supply/demand issue with it. It's a pure gamble trade on weak dollar.
But HAL at most will fall back into the $30s. It's a good stock and company.
I only play inverse ETFs when the opportunity sets up.
Do you understand what the goal is here with the HAL trade? I think ADP is also a great stock for this. You see, what we like to do is trade where the odds are in our favor. Where is that? Obviously where time works for us. And that is simply by selling options, right?
Sounds easy. Ah! But as we know, not everything is as easy as it sounds.
RVBD is a classic example of where these things go wrong. SIGM too.
SIGM for example falls from $73 to $21 in a month. Looking then at the numbers it appears that SIGM is an extremely undervalued stock. So, we buy the thing at $22, sell the $20 calls and even the $22.50 calls for nice premiums. But then what happens? Nothing. It doesn't go anywhere for days. But if it's so undervalued, why no correction? Something was up. And sure enough, word gets out that SIGM is losing major biz to BRCM and it falls to the high teens in one day.
Ah! Short $22.50 calls sounded so good and so sure, but then the bottom fell out. RVBD basically the same story.
So, how do you take advantage of such a great way of trading (selling calls) but limit your risk AND still be able to actively trade?
Well, it's actuall pretty easy and it does allow you to sleep at night. It's what I did with MRVL and never really thought it completely through in terms of trading it as an active trading plan.
You first have to look at these trades compltelely different. Our goal is to set up a trade whereby we are able to have an asset as collateral to use to sell calls against. That's our entire purpose here. Selling naked calls is extremely dangerous for obvious reasons. You're short a $50 call and the stock jumps to $80 you're screwed. But if you own a call option long or even the stock underneath, then you have no problems. Then it just becomes an issue of math. I'll explain later.
So, let's take first our HAL trade. We buy it at $47 let's say, then buy a Jan 09 $55 put for $9.80, then the stock can do whatever it wants to. If it goes to $10, no problem. We lose $37 a share on the stock, but we gain on the put. How much? Well, $55 strike - $10 = $45 value. We paid $9.80, so we make (45 - 9.80 = $35.20). So, we lose $37 on the stock but make $35.20 on the put making our max loss potential $1.80. Another way of looking at this is to just take the put strike of $55, subtract the cost of $9.80 giving you $45.20 and then subtracting that from your basis in the stock of $47. So, $47 - $45.20 = $1.80 as your total max loss risk.
That means you enter the trade upside down $1.80. Now if HAL trades north of the PUT strike of $55 by Jan 09, once you get $1.80 over that $55, it's all profit! If you bought GOOG for example at $200, then bought a long term put options say $20 in the money, once you get over that risk amount, most likely around $10, you're just swiming in money with no risk.
Nice!
So, here's now how we play this. We do this one of two ways and both are gonna cost you to do it. It's why most don't trade this way because most don't have enough money. But you can easily do 20% a year and most likely nearly double your money if you're on top of this trade monthly.
As I said, you're risk going into it is $1.80. That means we need to make first that $1.80 back and the way is to sell calls. Based on that HAL chart it appears it's ripe for a pullback. I think low $40s. Sell then the May $45 calls which are in the money. I said to do it at about $3. Now they're $2.65. The power of time decay.
Most likley these will be 0 by May op-ex. That's $3 in your bank account offsetting the $1.80. Now it's all profit even if HAL goes to ZERO. The goal now will be to do this for June. And then July etc. $3 a month is actually pretty easy rolling this back and forth as the stock trades in its ranges. $50k gets you 1000 shares and 10 puts. (with a little margin) That's $3k a month. Sometimes more when it appears the stock will fall even more.
Actually, some months you'll get double whammies because you'll short the calls, net out $1 or $2 on the decay of the fall, then cover and ride it up again just long the puts and stock, then re-sell the same calls again and get the same $2 or more. It happens.
With this way of trading, you can care less about what the market does or what GOOG did yesterday or what some high flyer did becuase you're focus is on the intricacies of your one stock.
If you want to milk it even more, you trade the stock, too. For example, you bought it at $47, right. You see it's clearly going down on day and then you sell the stock at say $46.40, and then re-buy a few minutes later for $46.10. What just happened? Sure you lost on the original buy of $47 when you sold at $46.40. But you re-bought it at $46.10. That just took out $.30 out of your basis. So, you actually MADE money on the totality of the trade.
Another way to do this is to buy a straddle. But the Jan 2010 max put (furthest in the money) and call. I think that would be the $20 call and $70 put. 10 would cost you I think about $48k. Why so deep in the money? Because it gets your spread a tight as possible. The deeper in the money the less time value each has. That trade would make your risk $2. That means you have to sell calls netting you more than $2 to make it risk free and then start generating income.
But I prefer the stock because you can trade it better. Just a preference.
Look up ADP's options and you can see for yourself how this works.
The market can go down 50% and you probably will do better becuase you make most of your money on the downside or flat. Look at that S&P chart above and you can see the setup and it ain't looking good.
Before you all get too kiddy, you better look at this chart of the S&P
yeah, the reversal is coming. Back to the low $40s. If you look at this 30 min chart, $46 becomes the fall apart level. A close under $46 should generate a quick selloff to the $44 level with the $45 calls we're short expiring worthless. Great news for us!
Yeah, the biggest joke in Wall Street is the 'Money Manager'. It's actually nothing more than who's the best at attracting the most money.
Basically it works like this -- if you understand the market, you most likely can come close to matching the S&P's returns, if not even beating it by a tad. But the key is to do it with less risk, or less 'beta'. If you can show high 'alpha' with less 'beta', then you get the biggest peice of the pie.
But like I said, just match or so what the market does. Then you go out, collect tons of money to manage and just make 2% a year on all that money. Most of these guys just watch CNBC all day and do what the crowd is doing.
You make $1 mill a year if you can grab $50mill to manage. And today that's not that much if you can build up a couple thousand accounts.
It's probably harder to do that than actually manage the accounts!
Back to HAL -- looks like today is a reversal day which 'should' see it start to retrace back to the low $40s. Our $45s I think for sure expire worthless but I think the play here is to cover them as soon as we get under $1. Book the $2 profit ($1.85) and then see where the stock is going. If it trades all the way down to the breakout point at $39 to $40, then that would be a great place to sell the puts also for profit for an expected bounce that could get us back into them for $2 to $3 less.
The goal for me is to always grab at least $3 a month out of these trades. These are income trades.
I'm going to put this out in the email today sometime because I'm getting a lot of requests to get back into options.
I gotta tell you, the most money I've made CONSISTENTLY - and THAT is the key - has always been with these rolling collars. You simply buy the stock at whatever price - the higher the better - and then short calls and hold puts as your protection. The real way to look at the put price is to divide the amount you pay by the amount of months still open. So, we have about 8 months until expiration on our puts that we paid $9.80 for.
$9.80 / 8 = $1.22 a month in insurance. Not much to protect a $50k investment (on 1000 shares)
HAL looks today like it's beginning it's pullback. The best price target I've seen is $60 with most in the low $50s. So that's a good thing because it lets you know that selling calls will be very profitable on this going forward and that the stock won't run away from you if you're short calls.
The key to making the most off this trade is to time the sale of the short calls that are 1 or two strikes IN the money when you feel it's about to fall back.
I think these short $45s will expire worthless with the stock under $45 next month. Rallies like this usually end with a drawn out basemaking pattern near the breakout. HAL like I said is not GOOG. So, the risk of it taking off are nil.
That means we keep the $2.85 for the calls allowing us to then sell month after month at or just in the money calls with the hopes many times of them calling us out but not really caring if they do.
If the stock falls into the $30s, no prob because we got the puts. Ideally, if the stock really falls into the mid $30s let's say for some reason, we just then sell the puts for profit and hold the stock long naked with maybe a covered call. Let the stock ride up again a bit and re-buy the puts for less. That also takes out $$$ for us.
If you sell the put for $12, then re-buy for $11, you just made $1.
See, there's all kinds of ways to play this and it's actually more active than it seems. And because it's so safe, you literally can do this as an 'all in' trade. All your money can be in one trade because you have such little risk.
I have to add that there will be times when it makes sense to allow the trades to get called out and then the following month re-buy and re-short. Over time, constantly resetting a covered call - as long as you're always protected by a put - will make you more money.
Well, there's two scenarios then. Because we bought it at $46.87 and sold the $45 call for $2.85, there's a .98 spread there in our favor ($45 strike + $2.85 = $47.85 - $46.87 cost). So, we can play it as a covered call and just let it expire and get called out for the $.98 profit. But that leaves us with a loss on the puts.
Let's say it moves to $50 with no signs of letting up. What I would probably do then is 'roll up' the call. That means covering for a loss on the short call - which would be probably around $2.40 or so assuming the call would be around $5.20, then re-short a $50 strike. That would offset the loss a bit.
Now, we're playing the odds of that not happening here. That's why you have to be on top of charting. HAL is not GOOG. So the likelyhood of that happening are slim. But since all these oil stocks are now the bubble stocks of our time, anything is possible. Would I would do at $50 is probably turn it into a bear call spread.
Cover the $45 for a loss and add that loss to our net investment. Re-short the $50s and then buy a couple of $55s for protection if the trend looks strong. Actually, if the chart looked right as it does now, I'd probably short the $47.50s and buy the $52.50s as a bear call spread using the net credit to cover the loss on the short $45s we had to cover.
But all these things are decisions you make when the time comes. The point is there's a way out of any scenario.
It's also the reason I picked HAL over many others because it's not a momo stock. I think it wants to make that $48 trade to complete that inverse H&S pattern. $48 also is the 1.38% fibo extension target. So, you have two resistance points right at $48. Once this oil momentum trade breaks, it should break hard and fast and all these stocks will fall back to earth. And funny thing is we actually make more money when they go down since we short the calls and are long the puts.
I'll keep the trades up to date and you'll all know what I do and when and why. These types of trades allow you to sleep at night because you're not on edge all the time. You're always covered in both directions.
Here's what I think is going to happen based on the cycle stuff I read --
We get a pullback here because of the run to resistance (S&P).
BUY around 1350ish. Then, we run through 1400 with a target of the 200 day MA around 1430 to 1450.
Now this is where it gets interesting. A solid move north of 1450 could mean this entire correction is over. Believe that? That could mean new highs if you can stand it.
But I don't think so. That actually could be the area to short the sh!t out of. 1450 is your eventual major decision point.
Nasdaq looks like 2500 to 2600.
However, 2009 should be a very bad year in the market with the eventual resumption starting late 2009 early 2010.
Yeah, it works. But you have to be very carefull rolling this that way because you're basically stuck selling calls that are outside your cost + basis on the LEAPS. Otherwise if the thing moves on you, you're screwed.
It just gets a bit too risky and requires alot of attention to stay on top of it if you're doing it with LEAPS rather than the stock. The stock is just easier. It's almost a 'set it and forget it' trade.
The way it works is this --
Because the market right now is so unpredictable and possibly could go either way - both with justification - the way to play it is to 'roll' a collar. This is how I first got into MRVL because I wasn't sure about the stock price and saw the head and shoulders pattern setting up. But at the same time I liked the story and potential of it.
So, what do you do? The best way to play something like this is to first get into a stock when it's hitting highs. Why? Because you actually want it to fall! But you are covered no matter what. And, it's also better to do this on a stock that pays dividens because you're actually going to want to hold the stock for a long time as you trade around it.
You see, the goal here is to use just one or two stocks to play with. Becuase you're protected, you never have a fear of getting into trouble. But you do go into the trade upside down with your immediate goal in trying to cancel out that number and then any subsequent trades pure profit.
I'm using HAL right now mainly because it trades pretty much in a range between the $30s and now probably high $40s or even $50ish tops.
So you know your limits. Great! It's such a profitable and widely held stock that you never have to worry about it becoming 'dead' money like MRVL has become where it trades now between $10 and $11. That makes it very hard to profit on. You need a stock with staying power and ranges. HAL is perfect.
First, take a look at the chart ---
Now, you can clearly see the stock is waaaay overbought. So, why buy it now? Well, when you do this, it really doesn't matter where your entry is.
Let' say you buy the stock right now at $45.15. We are then going to buy 1 put contract per 100 shares. In this case, the further in the money we buy, the better our protection and the lower our overall risk. But we don't want to go too far out into the money because it starts to defeat the purpose.
So, since we need time for our insurance, we're going to go out at least to Jan 2009. That gives us 7 months. So, let's go with the Jan 2009 $50 puts. I see they are $7.40 ask. So, because we are paying for that, that actually becomes part of our entire investment.
So,
100 shares HAL stock $45.13
1 Jan 2009 $50 put $ 7.40
Total investment $52.53
Now, that is what our total investment is into this trade. But, since we own the $50 put, that gives us the right, should we ever decide to use it, to short 100 shares of HAL at a basis of $50. So, because the least amount we could ever sell the stock for is at $50, the put strike, our total risk is actually only the difference between our total investment and the put strike, or $2.53.
Now, with that trade entered, we are technically trapped into a $2.53 loss up front. If for some reason we had to get to that money and had to close out the position, we'd have to take that $2.53 loss, the absolute MAX loss we could have.
But notice something? There's no max on how much we could make if the stock shoots up. Once the stock breaks north of $52.53, our total investment, the put becomes worthless but our stock keeps going up forever. So, you have limited downside and unlimited upside.
Now technically it's the exact same thing as just buying a call option. Your risk is limited to the cost of the option with unlimited upside.
But the difference is that our trade with the protective put is that we have no time risk, other than the put expiration in which if we never did anything, we'd just add to our cost basis by buying another one.
Now that you understand that, what makes it a collar is when we start shorting calls against it. The goal being to erase that $2.53. You see what happens? If you erase that $2.53 you actually have a trade in which you can never lose money!
But our goal is to make money. The way to do it is to short calls against the stock always having the put to offset any downside. That means we actually make MORE money when the stock goes down.
Now, looking at that chart of HAL above, I think it's making a rising wedge that when breaks, could fall back to to inverse H&S level of $40. I'm convinced it's going to retest that level in the near future.
So, by feeling that way, you'd want to short the May $40 calls here to try and recoup that $2.53 as fast as possible. How? Shorting the $40 calls rather than the $45s or $50s. Why? Because if you think it's falling that much that fast, you'll get easily $4+ out of that when it does fall. And it should happen within the next few weeks which means you'd short the May's because you want time decay ASAP.
The May $40 calls are $5.50 bid. So, you'd look like this:
HAL stock $45.15
Put option $7.40
Short May calls $<5.50>
Now ideally HAL falls back below $40 and you keep the entire $5.50 call premium. Then you're already up over $2.50.
If you want to play it safe, just short the $45s or $50s and do that slowly month after month.
Eventually HAL could rise north of $50. What then? Simple. You roll up the put. What happens? Well, at $50 the put premium is all time value because it's no longer in the money, right? So, you'd want to sell it immediately to get as much back as possible. You'd then sell just 1 strike north of that. What happens? You're protection goes up and you actually get PAID to do it! That's also another way to play that.
What I do is everyday I trade the stock in and out. I try to capture at least $.20. So, by buying it at $45.15, tomorrow I'll try to sell it for a $.20 profit or if it just goes down, sell it for a loss, but buy it back .20 less. If it trades down for example I'd sell it for $44.90 and then buy it back for $44.70. Even if it kept going down I'd just keep doing that. It's really that simple.
Sounds easier than it is. But once you get in sync with the stock you can get pretty good at it. Soon you're up $10k, $20k etc and are always protected from any downside risk.
because he doesn't want death threats. He attempts to cover his ass by giving a high price target still.