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Tuesday, March 19, 2024

Window Dressing Wednesday – Quarterly Crash Ahead?

We're just waiting for the other shoe to drop.

Yellen testifies before Congress this morning (10) but while she's doing that, both Jay Powell and Jim Bullard will be speaking at a Conference of State Bank Supervisors and, in case that's not enough to whip the market up and down 100 points, we have Durable Goods at 8:30 and Oil Inventories at 10:30, a 7-Year Note Auction at 1pm and the Charlie Evans speaks at 1:30 followed by Loretta Mester at 4:30 and Esther George at 7:15.  I'm sure by then we'll have a very clear picture of what's going on {end sarcasm font}.  

Meanwhile, we were happy to hear yesterday that the Saxo Group has finally (9 months later) caught up to our Trade of the Year idea on Natural Gas (UNG), saying:

Natural gas is being supported by an eroding supply glut and a potential tightening in 2017. Our breakout model has given a buy signal in natural gas today on the continuation chart above $2.998/therm.

Isn't that nice?  I couldn't agree more, our target is $4 in Jan 2018 but, sadly, you missed the easy meal we made for you last December, when, after choosing /NG for our Members, I laid out our long case in the morning post on Dec 8th, while it was still below $2, saying:

Our UNG play is proprietary to our Options Opportunity players but I'm happy to help you play along with Carl and the way I would set up an LNG play is as follows:

  • Buy 10 2017 $30 calls for $14.60 ($14,600) 
  • Sell 10 2017 $50 calls for $6.50 ($6,500) 
  • Sell 5 2017 $45 puts at $11 ($5,500) 

That spread would be net $2,600 or $260 per 100 option contract and, if Cheniere Energy (LNG) hits the $50 mark into Jan, 2017 expirations, the spread would be worth $20,000 for a net gain of $17,400 (669%) and your obligation, if LNG is below $45, would be to buy 500 shares of it ($22,500) plus the $2,600 cash you already put in would be net $25,100 or $50.20 per share.  That doesn't sound great with LNG only at $42.16 but it's an aggressive spread that considers LNG to be way undervalued at $42.  

So there's a spread idea that can win you enough to pay for 4 years of a Live Chat Membership at Philstockworld or you can just play the /NG futures long where one contract at $2 would pay $10,000 if /NG hits $3 down the road.  Unfortunately, for that you need to understand contract lengths and management but, fortunately, we'll be talking about them in today's FREE Live Webinar (1pm, EST)– I hope you are able to join us!

It's not January yet but already the LNG $30 calls are $12.85 ($12,850) and the $50 calls are $1.05 ($1,050) and the $45 puts are $5.25 ($2,625) for net $9,175 for a gain of $6,575 (252%) so far.  Now this is a good opportunity to pick up our Members' scraps because we still like LNG and we can cash our winning calls and put $12,850 in our pocket and leave the short calls to expire and roll the short puts to a new spread, which would be:

  • Buy 10 LNG 2018 $32.50 calls for $13.60 ($13,600) 
  • Sell 10 LNG 2018 $45 calls for $6.80 ($6,800) 
  • Sell 5 LNG 2018 $37.50 puts for $5.25 ($5,250) 

That's net $1,550 on the $12,500 spread that's almost all in the money and we'll still have $11,300 in our pockets and once the short Jan $50 calls expire worthless, then we can relax and enjoy our gains while having the potential to double them up if LNG simply holds $45 into next January – how's that for compounding gains?  

Notice we've lowered our obligation on the short puts too – no need to take risks when we're putting away 252% gains in 9 months, right?  We're having another one of those Live Trading Webinars today at 1pm (EST) and this one we'll open to the public and discuss this trade in detail as well as lots of other fun stuff as we have Fed speak and the Treasury auction to chew over.    

In that December Webinar, we called the long Natural Gas (/NG) Futures trade our trade of the year and we just passed our $3 target, again, as we already took that $10,000 per contract gain and ran in July.  That's right, that's a $10,000 profit for EACH long contract – enough to pay for a full year Membership from just our Trade of the Year.  

In fact, I was so sure about Natural Gas that I made it one of our Secret Santa's Inflation Hedges on Dec 26th, saying:

So, for 2016, let’s make things interesting with my favorite hedge.  If you sign up for a full-year membership between now (12/25/2015) and Jan 2nd, 2016 and the following trade idea does NOT net 100% on the cash outlay by expiration day on Jan 2017 then I will give you a free Membership for 2017!  That’s a 50% discount on two years and your hedge can be going for let’s say $2,500 (1/2 the Basic Membership) on the spread and you either make $2,500 which is 1/2 of the 2015 Membership or you get 2016 for free, which, assuming you lose all $2,500, is 50% off 2015.  No matter what, you get one year of a PSW Membership for 1/2 price.  Not bad right?  You do not have to buy the spread to play – just the Membership, which is non-refundable so don’t get cute!  

(Probably good time to put in some kind of contest disclaimer that this is just for fun and we guarantee nothing at all and that we can change the rules at any time and that we accept no responsibility for anything under any circumstances whatsoever and that billions may play and nobody might win – how’s that?  You just have to trust us, we’re not in the contest/guarantee business – I just want you to know how good I feel about this trade idea.  Always consult a professional investment advisor (I’m not one) before doing anything!)

Anyway, what’s the trade?  VERY simple on NATURAL GAS!  I just wrote a post on why I love UNG down here (was $7 at the time, already $7.69) and UNG Jan 2017 $5/9 bull call spreads for $2 can be offset with the sale of Jan 2018 $7 puts for $1.60. That will be net .40 on the $4 spread (we are not counting the margin amount, which is about $1 per short contract, just the 0.40 cash outlay) and the payout if ABX reaches expiration at $9 (now $7.69) is $4 – or 900% more than the 0.40 outlay.  

To make 100% on the cash (0.40), the net price of that spread has to be .80 or greater – that’s the "bet."  Obviously, if the spread is even a penny over $7, the $7 puts would expire worthless and will not be an issue and, at $7, the spread returns $2,000 for each $400 invested (10 contracts).  Remember, if it fails to return at least 100% and you have signed up for an Annual Membership in the next 7 days – you will get a free year in 2017.

Now, if you are thinking, after going over these ideas and seeing how a few of our old trades worked out: "Well, that’s too easy, there’s a very good chance of making 100% on that trade."  Well, that’s kind of my point!  Don’t you think you should learn how to trade like that?  This is the whole point to using options and hedging in a balanced virtual portfolio and that is what we teach over at Phil’s Stock World every day.    

That was the same trade that went into our Options Opportunity Portfolio and I'm very sorry to say that, if you played that trade, you did not get a free year's Membership because already the UNG Jan $5 calls are $3.79 and the $9 calls are .79 for net $3 and the short puts are just 0.22 so net $2.78 on the spread is up $238 per $40 contract for a gain of 595% on cash as a consolation prize – not bad as far as consolation prizes go, right?  

As I often say to our Members:  I can only tell you what the market is going to do and how to make money trading it – the rest is up to you!  

Now, not all trades go perfectly, which is why we start off with small amounts.  When you are going to make 500% if a trade goes well – you don't need to gamble a lot of money, right?  We did double down on our Natural Gas trades during the February dip because we are FUNDAMENTAL traders and the Fundamentals had not changed.  In fact, on Feb 10th, I featured the trade idea on Money Talk and in late February, I did a powerpoint presentation at the Traders Expo in NYC and, that Thursday (25th) I reiterated our long call on /NG Futures at $1.79 saying:

Keep in mind this is our 2016 Trade of the Year(UNG, not LNG) and our Institutional Clients and Premium Members are already long on this trade and usually you do not have a chance to get our prices by the time we're into February but, on UNG – it's actually LOWER than where we got in and that's a huge potential opportunity but, of course, consult your financial adviser to make sure it's a good fit for your portfolio.  

I also reiterated our long idea on Apple (AAPL) with the following spread:

Our 2015 Trade was Apple (AAPL) once again and that trade is still in progress as it was:

  • Buy 20 AAPL Jan 2017 $90/120 bull call spreads for $13.50 ($27,000) 
  • Sell 20 AAPL Jan 2017 $85 puts for $9.50 ($19,000)

That one had a net outlay of just $8,000 in cash and, if successful (AAPL over $120 by Jan), it will return $60,000 for a $52,000 profit (650% on cash).  Currently the spread is down at $10.85 ($21,700) but the short puts are now $6.10 ($12,200) so it's net $9,500 and still up $1,500 (18%) even though AAPL has been a real disappointment this year.  It should be noted that we got out of this trade last year, when AAPL hit $130 far ahead of schedule but now that trade is getting interesting again (we already added a 2018 variation for our Members).  

Now that we're closer to January expiration, the AAPL Jan $90 calls are $23.50 ($47,000) and the short $120 calls are $2.75 ($5,500) and the short $85 puts are 0.38 ($760) for net $40,740, up $31,240 (328%) even from that late entry (in case you were not a Member) and it can still make $19,260 more (47% from here) if AAPL is over $120 on January 20th – aren't options fun?  Our scraps make more money for you than other people's best trades!  

Keep in mind, even if you are not an options trader (but you should be!), you would have done very well simply being long on AAPL (below $95 at the time so up 21%) or LNG ($25, now $42 is up 68%) or UNG ($6, now $8.75 is up 45%) because, of course if we like long options we like a stock long too!  We are simply Fundamental investors who use options for leverage and, more importantly, as hedges because we're certainly not right 100% of the time but, when we are – it can be spectacular!  

Don't forget, we're doing a FREE Live Trading Webinar at 1pm, EST – hope to see you there! 

 

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