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Saturday, April 20, 2024

Toppy Tuesday – S&P 1,950 Edition

SPX WEEKLYHere we go again!  

As you can see from Dave Fry's S&P chart, we're back in the top of the channel on a Tuesday and I will refer you to April 1st's "Triple Top Tuesday" and December 31st's "Terminal Tuesday" – both of which were points we thought the market was topping out before.  

Actually, in both cases, we did have a mild pullback, but nothing that broke the trend – so far.

Back in that December post, we were playing gold (/YG) bullish at $1,185 to finish the year, based on our premise of MORE FREE MONEY in 2014 keeping the markets afloat.  We also went bullish on SHLD at $40, which is like $30 post-spit.  

In the April post, it was our 3rd try at 1,880 on the S&P and we had just cashed out our Income Portfolio and I we lost $10 betting the Nasdaq would be above 4,200 at April expirations on a TQQQ spread (now 4,350 – so bad timing) but our support held and kept the damage to a minimum.  We also (in the morning post) called for selling the AAPL Jan $450 puts for $5.90 to pay for those spreads and AAPL just split 7:1 so those are now the $64.29 puts at .25.  7 x .25 = $1.75 so up $4.15 (70%) already on that play.  

RUT WEEKLYWe also had bullish trade ideas for HOV, CHL, FCX, ABX and RIG – right in the morning post!  Our best play, however, was shorting the Russell Futures (/TF) at 1,180 in Member Chat at 10:53 – as that was the beginning of an $9,000 per contract pullback on that index – all the way back to 1,090 (where we went long).  

As you can see from Dave's Russell chart, we're just playing a channel with our trades – it's really not that complicated.  Yesterday the Russell hit 1,180 and – guess what – we shorted it again!  Now you are catching on to our "secret" strategy!  

Already this morning the Russell Futures are down to 1,170, which is +$1,000 per contract from 1,180 but our big bet is on TZA (ultra-short Russell), where we pressed the June $17 calls at .10.  It's a gamble, as we only have two weeks for a pullback but, if we get only half the pullback we had in April, it's going to be a very profitable one!  Remember, as I said in yesterday's post, we're only gambling with the profits we made on our long Russell play from last week (TNA) – just playing the channel.  

We didn't have a Buy List yet but I did put up a bullish "Value List" of stocks for our Members that day, saying:

Good time to contemplate our value list and look for who's still on sale:

SHLD, RIG, VLO, F, GE, T, CHL, GLW, SPWR, IBM, BA, BRK.B, COST, DIS, INTC, MCD, PFE, X, CLF, HMY, DBA, XLF, FCX, CAT, BRCM, BTU, NLY, AGNC, FTR, RRD, BAC, JPM, ISRG, CSCO

We played some of those in our Long-Term Portfolio but we just cashed that one out too, which is why I put up a new consolidated Buy List this weekend (Members Only) with some of the same names and, of course, specific trade ideas for each one.  We usually go over these trade ideas on Tuesdays at 1pm, in our Live Trading Webinars (today's Free link is here).  Since some of them have already taken off, I'll give out a couple of free samples (and you won't miss any if you JOIN HERE):

BRCM was an idea we had on 5/20 and the text of the trade idea we sent out to our Members (via text and Email Alerts) was:

BRCM (5/20) is one we like to buy whenever they are not expensive.  They had a nice sell-off last year and we grabbed them at $25 but it doesn't look like that will happen again – now $30.23.  They only pay a .48 dividend (1.5%) so forget that and we can sell the 2016 $30 puts for $4.10 for a net $25.90 entry and leave it at that and, if they weren't already in the LTP (we sold the 2016 $25 puts for $3.10 when it was lower) I'd add it now.

With BRCM already at $38, the $30 puts are already down to $1.90 – up 53% in 45 days!  

KBH was initiated on 5/13 and is the first builder besides HOV we've like all year.  At the time they were trading at $16 and my trade idea for our Members was:

KBH is solid and, because they've taken massive losses in the past 5 years, it will be 5 years before they have to pay any taxes on earnings – that's nice too.  No dividend (.10) means no reason to own the stock and, because they look scary, we can sell the 2016 $13 puts for $1.60 and use that $1.60 to buy the $!5/25 bull call spread for $2.90 for net $1.30.  So we effectively own KBH for $16.30, which is what the stock cost now but, if it drops all the way below $13, we only have a net $14.30 cost if it's put to us.  So $2 of cushion for free and we make 100% of the upside between here and $25.  We can also potentially sell some short calls along the way if they move up a bit more.  

With KBH already at $17.29 as we enter the 2nd month of this trade, the $15/25 bull call spread has barely moved at $3.25 but the short $13 puts are now $1.30 for net $1.95, up 50% in the first 60 days.  Of course, the potential for this trade is to make $8.70 or 669% so 50% in 2 out of 18 months is only "on track" for this particular spread.  

IGT is an example of a classic PSW play from 5/13. We had just analyzed their earnings report and were baffled by the lack of market reaction to what we considered good earnings, so I sent out an Alert to our Members saying:

IGT (5/13) confuses me.  They just had good earnings yet they are being treated like dirt because they are in the midst of restructuring.  We love it when we can take advantage of a situation by simply being more patient than the current investors!  

IGT does pay a .44 dividend and they have expensive options so perfect for a buy/write where we buy the stock for $12.57 and sell the 2016 $10 calls for $3.40 and the $13 puts for $2.80 for net $6.37/9.19 so our WORST case is owning 2x at $9.19, which is 27% off the current price and that makes the .44 dividend 7% while we wait to see if we get called away at $10 for another $3.63 (57%) and, of course, we need to be over $13 to realize the full profit.  

As you can see from the chart, we got a nice pop yesterday, well over our $13 target on a buyout rumor (apparently I'm not the only one who thought they were undervalued) and, if the stock does get bought out over $13, we will realize our full 57% gain well ahead of schedule.  

WFM (5/13) was another of our favorite kind of plays – an over-reaction to an earnings report.  The stock gapped down from $48 to $39 and we decided to go bargain hunting in our Webcast, saying:

WFM  I have not liked for ages but $39.43 finally gets their p/e into the low $20s and they are moving into the UK and, as we've discussed before, they are merely getting squeezed by rising food costs they haven't passed on to customers yet.  

This one is easiest played by just selling puts and you can get $3 for selling the 2016 $33 puts and that gives you a net $30 entry, another 25% down from here.  TOS says net margin is $3.30 so almost 100% return on margin for promising to buy WFM for 25% less than it's trading for now – not too shabby

With WFM back at $41.14 already, those $33 puts are just $2.45 now (up 18%) but we paired them with the 2016 $35/45 bull call spread at $3.65 in our Income Portfolio for a net of just $325 on 5 contracts and now the spread is $4.80 ($2,400 for 5) less $1,225 for the short puts is net $1,175 – up 261% in just two months off our $325 cash entry!  

That's just 4 of our bullish trade ideas out of 29 on our Buy List and, as you can see from our Value List – there's still plenty of bargains to be had – even in this runaway bull market.  So there's no need to chase expensive stocks when we can use options to make the cheap ones even cheaper – which gives us a tremendous downside hedge as well as leveraged profits to the upside!  

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