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Saturday, December 3, 2022

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$1,000 Friday – Yesterday’s Oil Trade Gives Everyone a Great Weekend!

Congratulations!  

If you read yesterday's post and took action on our trade idea to short Oil Futures (/CL) at the $103 line, then you were able to pocket $1,000 PER CONTRACT in just 3 hours.  In the Morning post (delivered to our Members via Email at 8:35 am), the trade idea was:

"We're still shorting Oil (/CL) Futures at that $103 line and we hit it again this morning and, hopefully, we'll get a nice pullback around 10:30 – after the natural gas report shows a nice build."

That's about on par for our Futures trading as we demonstrated LIVE in Tuesday's Live Trading Webinar $300 of Futures profits in less than an hour (replay available here).  We'll be doing more Futures Webinars for our Members aside from our usual Tuesday Live Trading Webcasts (sign up for your Membership here so you don't miss our trade ideas).  

How to trade the Futures is one of the many things we learn at Philstockworld – another thing is PATIENCE!  Patience has kept us from chasing this rally as we once again top out the market.  On Tuesday we took a nice, speculative bullish trade (but did not officially add it to our Portfolios) – just in case we do have a breakout – but, otherwise, we've been working on our downside protection. 

We are FUNDAMENTAL traders who just so happen to use Options and Futures for leverage and hedging – simply because they are convenient and profitable instruments when used correctly.  What we teach is not all that complicated – but it isn't easy either.  That's why not many people trade Options and Futures – it requires discipline and takes time and practice to master – not really the kind of thing our education system prepares our students for these days….

YOU, however, should not be intimidated away from making money.  Our basic concepts are VERY SIMPLE and the concepts are explained in quick videos like "How To Buy a Stock for a 15-20% Discount" and "The Secret to Consistent 20-40% Annual Returns" – something we are demonstrating this year in the 5 Virtual Portfolios we track for our Members.  

Back on December 7th, for example, we published: "Stock Markets Are Exploding Higher – Here’s How To Participate “Safely" and, with the nice rise in the markets this year, all 5 of our trade ideas from that post are successful but, even if you chose not to play the options and instead just played the stocks, you still would have been pleased with the results:

  • QQQ was $85, now $97 – up 14%
  • DDM was $104, now $123 – up 18%
  • DBA was $24.50, now $26.65 – up 9%
  • AAPL was $79 (split-adjusted), now $97 – up 23%
  • T was $34.50, now $35.50 – up 3%

SPX WEEKLYNot too shabby (average 13.4%) against 8% gained by the S&P over the same 7 months and well on our way to those 20%+ annual gains.  Of course, the option plays we constructed returned an average of 600% on cash but, as I noted above, that takes hard work and dedication to master – certainly not for everyone.

As you can see from Dave Fry's S&P chart, we're on a 150-point run since Jan 1st and it's taken a bit longer than the 150-point run we had since the October before that which, according to our 5% Rule™, means the momentum is slowing and we are NOT very likely to break 2,000 without a pullback of at least 30 points, to 1,970 and, more likely of 60 points to 1,940 – which is why there's really no point in us chasing stocks up here.

Into the weekend, we are pulling our profits on the Oil Futures (/CL) but sticking with bullish trades on SCO ($25.83, ultra-short oil) and shorting XOM ($104.50) – trade ideas we had already added to our Portfolios in previous Member Chat sessions.  

In yesterday's Member Chat, we identified a new hedge using SQQQ ($38.67), the ultra-short on the Nasdaq, to cover a market sell-off through the end of the year.  Our trade idea was buying 20 of the Jan $40/50 bull call spreads for $1.55 and selling 20 TEX 2016 $25 puts for $1.75 for a net .20 credit on the $10 spread, giving us 5,100% of upside if the Nasdaq falls about 10%, which would give us a 30% pop in SQQQ to $50.

See, not complicated.  We tie up no cash (but about $5,200 in margin) on a $20,000 hedge and our worst-case scenario is being assigned 2,000 shares of TEX (now $37.42) at $25 per share – another 33% off the current price.  So our underlying FUNDAMENTAL premise is that TEX is worth more than $25.  If that is true, then for the cost of tying up $5,200 in margin, we have ourselves a free $20,000 hedge on our portfolio for the next 6 months. 

That's how we combine market fundamentals with the flexibility of options contracts to come up with low-cost hedges that leverage our portfolio returns! 

Have a great weekend, 

– Phil

 

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Palotay – Thanks very much for the writeup, very informational!  I use a product called Trading Diary Pro that helps me keep track of the different types of portfolios and the overall pnl of closed positions too.  After work in the morning I'm going to re-read in even more detail what you wrote.

I haven't pulled the trigger on the Strangle Port yet from Peter.  I actually requested it, but right now IB uses a margin calculcation on shorting SPX that is very very very conservative, and when I ran risk scenerios using tools they have, if the SPX went down 15% and vol increased a bunch, it would blow out my margin very quickly.

Ttys. 

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