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Thursday, March 28, 2024

GDPhursday – Fed Thrill Ride Continues

SPY 5 MINUTEWheeeeeee, what a ride!  

We were doing a Live Webinar for our Members during the Fed excitement yesterday and our short positions into the Fed paid off HUGE – and then they reversed but now our new shorts are paying off HUGE this morning – and who knows what will happen after today's GDP Report (8:30)?  

We took advantage of the silly move up into the close to press our index hedges on SQQQ and SDS in both our Short-Term Portfolio and our Option Opportunity Portfolio which is still drifting around the +15% level as we near the end of our 3rd month.  Our best-timed call of the afternoon came at 3:25, when I said to Members in our Live Chat Room:

19,200 is a bridge too far for /NKD – good short as long as the Dollar is under 98. 

See – Futures trading is FUN!  Early this morning (4:03 am, EST) in our Live Chat, I put up a note for the morning shorting lines on our indexes:

We just lost 2,080 on /ES and 1,175 on /TF, so those are fresh bearish horses (tight stops above) and we're lined up with /YM 16,650 and /NQ 4,665 so make sure all are below if you are shorting. 

Already this morning the S&P is back to 2,075 so our stop is 2,075 for a nice $250 per contract gain that pays for our Egg McMuffins – a nice way to start the day.  They Russell is testing the 1,170 line and that one is good for $500 per contract – maybe croissants this morning!  

It's wonderful to be able to take advantage of silly market moves after hours.  Have you ever read something in the paper and wished you could place a trade but the markets are closed?  Futures trading fixes that problem.  Speaking of trading problems, Jim Edwards at Business Insider just published a list from Credit Suisse of "13 psychological biases that explain why we make terrible financial decisions even though they 'feel' right" that every trader should memorize along with "7 ways your brain makes you a terrible investor."

SPX DAILYAs Fundamental investors, we have to look past the fear and greed that drives most of the market and focus on the VALUE of the things we are trading.  As I have noted all year long – the VALUE of the S&P 500 is less than 2,100 and no amount of stimulus is going to change that in any meaningful way.  Or, at least, not more so than it already has!  

2,100 is where we SHORT the S&P, not where we buy into it.  We picked a ton of long positions in late August and late October for our portfolios but we stopped adding longs as we popped back over 2,000 and now we're positioning more to the short side – because the S&P is not worth buying at 2,100.  This is not a complicated premise, folks!  

What the S&P is worth, is about 1,850, which is our "Must Hold" line and 2,100 is 13.5% over that mark.  2,035 we can live with (10% up) but not 2,100 – that's just getting silly!  Understanding the Fundamentals of stocks is how Buffalo Wild Wings (BWLD) became one of just two specific stock short positions in our Short-Term Portfolio.  With the stock at $184.40 into yesterday's close, we have the 2017 $150 puts, which closed at $12 yesterday and should be about $24 (up 100%) this morning.  Actually we bought them for $10.45 on 9/8, so even better for us. 

BWLD/DM – Our STP play is the Jan 2017 $150 puts at $10.45, now $12.20.  I think their 35+ p/e is unsustainable (as is CMG), so we took 5 for $5,225 and the delta is 0.24 so we need a $20 drop to make 50% – that's about my target.

 Submitted on 2015/10/19 at 1:04 pm

I'm at a BWLD watching the Jets game and it's packed (Palisade Plaza).  Making me nervous about the shorts as everyone is eating food and drinking plenty of $8 beers!  

That's how trades go in our chat room.  Chipolte (CMG) was a nice winner too on their earnings disappointment and we're still waiting for Amazon (AMZN) to come back to Earth and in all 3 cases, we have to ride out spikes in the opposite direction while we wait for our drops.  Fundamentals are great but we also have to have a good trading discipline and that's why scaling in and out of positions and position-sizing strategies are just as important as picking the right positions in options trading.  

We'll see how much damage a disappointing GDP report will cause this morning but end-of-month window dressing should keep things from falling apart too fast into tomorrow.  We also still have hopes that China will be rolling out a 5-year plan with plenty of stimulus (but without 28 arrested economic protestors) but I think that too will be disappointing so the real trading begins next week – it's going to be fun!  

 

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