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phil
December 31st, 2013 at 7:30 am

Summary of today's Webcast (replay available here):  

We had another great session with our small, holiday group.  Right at the beginning of the session, we were discussing time-frames for trades and, as a bonus trade, we discussed Lion's Gate Films (LGF) and our long-term trade idea there, which was: 

Selling LGF 2016 $28 puts (now $5.20) for a net $22.80 entry.  



This was a second chance to pick up the same entry we had selected for Philstockworld's Income Portfolio back on 11/25, in the Member Chat Room.  Our entry at the time was $5.40 and, as you can see, LGF went exactly to our $28 target line and held it since.  

We also added the first (AAPL) of our favorite trade ideas for 2014 from the special Webcast of our "5 Top Macro Trade Ideas for 2014" – very good New Year's viewing! 

CASH is still our preferred position and we are only about 20% invested in our long and short-term virtual portfolios, patiently waiting for opportunities as we roll into January earnings reports.  As noted last week, we called it wrong (we were hoping for a sell-off) but that doesn't mean we are going to flip-flop bullish and chase what we missed. Even being COMPLETELY wrong about what would happen after the Fed (so far) because we have BALANCE, our Short-Term Portfolio is down $2,135 while our Long-Term Portfolio is up $3,080 for a net gain of $945 in 30 days.  

Why are we able to make money, even when we were COMPLETELY wrong about market direction?  Because we were BEING THE HOUSE – Not the Gambler, and we sold the risk on both sides to other people.  We leaned our risks bearish and we were wrong, but since we SOLD the risks, we had a wide enough margin of error that it didn't burn us.  Imagine what will happen if we get it right!  

As I said last week, we're only interested in adding longs if we see the major indexes OVER their breakout support lines of Dow 16,000, S&P 1,800, Nasdaq 4,000, NYSE 10,000 and RUT 1,100, and now they are so we will want to get aggressively bullish after New Year's (assuming they are holding).     

We're still well-protected in our model portfolios since we initiated the set with our TZA hedges, and we took a few long plays to balance out (since we elected not to get to get back to cash), which left us free to speculate on a couple of shorts, adding AAPL as the long offset.  As I noted last week (when we could have quit while we were ahead on the Short-Term Portfolo), for the purposes of education, we're keeping the positions open to see how they handle the stress of the next couple of weeks.

In the Short-Term Portfolio, we added:

• 3 WYNN Jan 2015 $165 puts at $10.45 – The lesson we are shooting for here is that you don't need a short time-frame to make a short-term trade.  The Delta (rate of change in the option per dollar of stock price) on the $165 puts is .26 so every $4 move in WYNN (2%) is +/- 10% on our option – that's a 5:1 leverage!  BUT, because we UNDERSTAND options and how they work, we KNOW that the Delta DECREASES as the option contract moves out of the money and INCREASES as it gets closer to the stock price.  That means, in simple terms, we will make a lot more money if WYNN goes down than we'll lose if it goes up.   Our logic is that we're close enough to $200 ($193) to use that line as a stop – so we won't lose too much if we're wrong while a 10% drop in WYNN ($19), back to $174 (and the 50 dma is $170 with the 200 dma at $145), should give us a 100% gain.  We'll be very happy with a quick 40%, of course.
• 3 GOOG March $1,000 puts at $9.80 – Our logic here is the same as WYNN.  It's not that we don't like GOOG – it's simply that we don't feel they are worth $1,120.  Expectations are high going into earnings and, of course, if the whole market tanks, Google is likely to go lower as well, so a couple of ways to win on this one.  

In the Long-Term Portfolio, we added:  

• 2 AAPL Jan 2016 $500/650 bull call spreads at net $56.10, selling 2 AAPL Jan 2016 $450 puts for $46.40 for net $9.70 – AAPL is at $554 so this trade is $54 in the money to start and would be up 450% on the $9.70 cash if it closed today.  All AAPL has to do is not go lower and this trade does tremendously well, up to a maximum profit of $28,060 (up 1,446%) if AAPL closes out Jan 2016 at $650 or above.  That's the bet, very simple, very leveraged – but keep in mind you are obligated to OWN AAPL if they end up below $450 and you can be assigned it at that price any time during the length of the contract.  If you don't REALLY want to own 200 shares of AAPL for $450 – this is not a trade you should consider!

Keep an eye out for Alerts and read our Macro Market Overview for other trade ideas during the week and follow us on Twitter for special PSW features like this months "Stock Markets Are Exploding Higher – Here's How to Participate 'Safely'", where we featured an earlier play on ABX that is already up 25x (from net .05 to $1.25) and an SSO trade idea that's already up 72%, as well as 5 older trades that made additional progress.  

We don't track every trade but we do have plenty of great trade ideas all week and we have in-depth discussion of our strategies during the Weekly Webinars, which are always available for review at your leisure.  Also, you may want to follow me on Twitter, as we sometimes have important market action and trade ideas there as well.   

Should we have any adjustments to our Portfolios, you can expect an Email like this one but, hopefully, we'll make plenty of money by just leaving them alone because we are – BEING THE HOUSE, Not the Gambler!  

Have a very Happy New Year!

– Phil