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Monday, February 26, 2024

Friday August Finally – Dressing that 2,000 Window

Saved by the bad news!  

August has been a spectacular month in which we ignored the most bad news ever ignored by a species that is still not extinct.  With any luck, an asteriod will head straight for us next month and we can rally the markets another 5% in anticipation of more Fed easing on impact.  The asteriod struck the other side of the Earth this morning as Russia Invaded Ukraine and Euro Zone Inflation plunged to 0.3%, miles below the 2.0% target considered "healthy".  

This is, of course, GREAT NEWS, because it means Super Mario is free to go ahead and do something – like he always says he will do but never does.  That doesn't stop people from believing it because they WANT TO BELIEVE – they want to think someone is going to save them and make all their hardships go away.  11.5% of the people in Europe are still out of work, double the rate in the US.  Over 25% of the people under 25 are out of work, about the same as the US.  These are horrific figures – of course people are eager to hear the words of a potential savior.  

Since it's Friday, we're not going to debate the merits or discuss what a farce it all is – we've done that this week.  Today we'll talk about making money.  

On Tuesday, in the morning post, I suggested the TNA Sept $72.50/76.50 bull call spread at $2, selling the Sept $68 puts for $2.  10 of those would not have cost you a penny (since it netted out to $0), though about $7,500 in margin on the short puts.  Today the spread is $2.50 and the short puts are $1.15 for net $1.35 or +$1,350 in 3 days, which is an 18% gain on the committed margin despite the fact that TNA has essentially gone nowhere.

I don't point this out to brag, we have plenty of trade ideas that have done much better – I point this out because it was a free trade idea, right in the morning post which anyone could have done and it worked because we followed our system of BEING THE HOUSE and selling premium to others, not buying it!  

The only portfolio trade we made that day in our Live Member Chat Room (other than the Futures) was on XRT, as it his our shorting target at $89 again.  Our XRT play in our Short-Term Portfolio was the Oct $93/88 bear put spread at $3.25, which will make 53% if XRT finishes the cycle below that line (49 days).  It's still playable – we did 20 for $6,500 and hope to make $3,500 if we're right.  

What we are doing is very simple, our strategy is very simple, just like fishing is very simple – you just have to know when and where to drop your line – that part takes many years to learn!    

Another Trade Idea we had on Tuesday was a reaction to the news of BKW buying THI:

BKW/Pfeh – $10Bn for THI?  They were  $5Bn last year, what have the done to earn another $5Bn in value?  I guess it's all about the tax inversion for BKW but they will get such backlash for this that I doubt it will go through so I'd lean towards shorting THI initially but BKW popped 20% today as well so, couple that with the overpaying and the fact the deal is likely to fail and that means we can sell 5 BKW Jan $30 calls for $3.25 ($1,625) and buy 4 April $30/34 bull call spreads for $2 ($800) for an $800 credit per set.  BKW is at $32.50 now, up from $27 yesterday so it would take another $5 pop before you get in real trouble on the trade.  

Again, in this trade we're selling more premium than we buy and that puts time on our side.  We're also taking advantage of the fact that most investors can't do simple math and tend to pay completely unrealistic prices for things based solely on news reports or, even worse, analyst reports by people who are absolutely no smarter than you are and may, in fact, be paid to decieve you.

In this case, the April $30/34 bull call spreads are still $2.05 ($820) while the short Jan $30s have dropped to $2.42 ($1,210) and that's net $390 we'd have to pay back off our $800 per set credit for a $410 profit (51%) in 3 days.  That trade, if all goes well, will make another $1,000, so we're not done yet – just a progress report so far! 

This is the same style of trading that has our 5 Virtual Portfolios doing so well this year and, if the market doesn't collapse (as we suspect) in the next 10 days, we have 11 stocks to add to our Buy List (Members Only) that we'll ride out into the Christmas leg of the rally.  Last year, the market added 10% from October to Christmas (after a September swoon) and the year before that, we fell 10% from Sept to November but then made much of it back on QE3.  

Maybe they'll announce QE4 or maybe Draghi will bring out his bazooka or maybe China will build another 10,000 miles of railroads no one will actually use to connect more cities that no one actually lives in.  There is no maybe for Japan – they are already running the printing presses day and night over there.  

Still, we have to have faith to stay bullish in this market – if not, we're staring into a very uncomfortable economic void and it's much more fun to just BELIEVE!  

Have a great weekend,  

– Phil



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