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Terrific Tuesday – Trump and Kim Make a Deal

Related imageThis is good news. 

We actaully have a deal with North Korea to bring some stability to the region.  The document signed by Trump and Kim early this morning contained four key points:

  • Establishing new US-DPRK relations
  • Building a lasting and stable peace regime on the Korean Peninsula
  • Reaffirming commitments to work toward complete denuclearization
  • Recovering POW/MIA remains.  

It's a long way between this agreement and actually making the lasting peace but this is a great start though it's nothing for the markets to get excited about as I had mentioned last Wednesday that North Korea's entire economy is just $17.4Bn, which is less than Jeff Bezos gained in wealth last month.  Jeff Bezos has rockets and top-notch scientists and doesn't like Donald Trump – make peace with him and THEN I'll be impressed…

Image result for harley quinn crazyMeanwhile, the Amazon (AMZN) and Apple (AAPL) driven Nasdaq is up 30 points (0.42%) since last Wedneday and we're back at our shorting line at 7,200 on the /NQ Futures but tight stops above because there's no end to the crazy in this market.  Things seem to be on hold at the moment, ahead of tomorrow's Fed Meeting but I'm not sure what more good news is going to propel the market even higher.  

The Dow and the S&P were higher in January but the Russell is also making new highs at 1,680 and 1,700 would be up 10% since May 1st (1,550) and again – that's crazy!  What did the markets do in the past 30 days to gain 10% in value?  10% a month is a 120% a year pace and we'll all soon be Billionaires at that rate of return so you can bet it's going to continue – but it's very unlikely to…

Image result for 1999 market bubble chartOf course the market did gain about 140% between April of 1999 and March of 2000 so it's not like it can't possibly happen.  Then it lost 80% over the next 8 months but let's not dwell on the negatives, right?  Like now, the time leading up to April of 1999 had been generally positive and the markets just entered a brand new phase of crazy as we broke over the 2,000 line on the Nasdaq, triggering an epic run.

How do you make money betting on a run like that? Well, you can simply buy something like the Nasdaq ETF (QQQ) 2020 $220 calls for $2 as QQQ is currently $175 so doubling from here is $350 and that would make those calls worth $130 for a 65x gain so, if you think you may be too bearish in a $150,000 portfolio, you can buy $2,000 worth of QQQQ 2020 $220 calls (10) and, if the Nasdaq doubles you'll have about a $130,000 gain.  See – you can more than double your portfolio while risking just $2,000 so it's not like you need to pay 250 times earnings for Netflix (NFLX) at $362 for fear of missing out. 

Speaking of missing out – it's almost time to short Tesla (TSLA) again as Muck cranks up the crazy and engineered a short squeeze on his stock with all sorts of amazing claims including:

SpaceX option package for new Tesla Roadster will include ~10 small rocket thrusters arranged seamlessly around car. These rocket engines dramatically improve acceleration, top speed, braking & cornering. Maybe they will even allow a Tesla to fly …

Almost forgot! Due to recent regulatory/customs rules enacted to inhibit transport of anything called a Flamethrower, we have renamed our product: “Not a Flamethrower”.

In 8 years we've gone from building 500 vehicles per year in California to 100k+ and growing

It's great that they got production to 100,000 and now he's claiming a 200,000 rate for 2019 but that's 9 years to get that far and still nowhere near break-even.  I did the math on Wednesday and Tesla needs to sell 20,000 cars week (1M) before breaking even and that's under the silly assumption that they'll make 20% per car sold (currently they lose 25% per car sold), which is double the industry average.  

So we're excited to get another chance to short TSLA but we have to wait and see how high it can fly as they break up to test $350 and hopefully retest the highs at $380 to give us some juicy entries.  Even now, you can sell the Jan $400 calls for $25 and pair that with the Jan $400 ($90)/350 ($57) bear put spread at $33 for net $8 on the $5 spread and $42 of upside (525%) in 220 days if TSLA is below $350 at Jan expirations.  As I said, we're going to wait to see if we can play at higher strikes but that's what I mean when I say it's very tempting.

The same goes for all of our shorts – even Nasdaq 7,200 – we can't afford to have conviction betting against an irrationally exuberant market.  We'll just have to go with the flow and see how high we can fly before the sun melts our wings. 

 


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  1. Back in the US, now, but watching the N-S Korean talks on live TV was fascinating. Also, do you suppose NK and the US will exchange diplomats? I have a Peace Corps buddy who's a prime candidate for ambassador…….



  2. Good Morning.


  3. Kim wants a condo in Florida….. :)


  4. TSLA up 12% in pre-market. 

    Elon really has his merry band of Teslarians  fired up !


  5. It's a step in the right direction bu North Korea signed agreements in the past and nothing happened! It's certainly good propaganda for Kim whose state run media will spin all these pictures and video better than Fox can. 

    But I am trying to understand a couple of things. First, Canada who has been one of our best allies gets insulted but Kim who is an enemy, kills people by the thousands can be trusted. And then second, signing a treaty with Iran that has them kill their nuclear program is bad, but signing a document with no timeline or goals is an excellent deal?


  6. Historically speaking, we are due for a recession:

    http://awealthofcommonsense.com/2018/06/is-the-u-s-due-for-a-recession/

    CNBC’s Art Cashin recently stated on that every decade since 1850 in the U.S. has had a recession.

    Since the Great Recession ended in 2009, that obviously means we haven’t had one this decade. Someone who thinks correlation implies causation in these things would assume that means we’re due for a recession in the next couple of years before the new decade hits.

    And with the current fiscal policy, it could be bad since we would need to add deficits on top of deficits. Or as the GOP likes to do, impose austerity during recession because it works so well!


  7. StJ/NK – well what happened to the 2000 agreements (that Pres. Moon helped set up) was that Bush got elected, put Bolton on his staff, and proclaimed NK to be part of the axis of evil. Moon learned a lot from that, and so the SK-NK talks are developing independently of the NK-US talks. Very smart diplomacy.


  8. StJ/NK – and being from the US, I really don't think I can criticize NK much for imprisoning citizens, killing people, building up armaments (assuming all of that is true, and given that a lot of the worst stuff happened under Kim's father).


  9. Not surprising:

    https://wolfstreet.com/2018/06/11/sec-frets-about-share-buybacks-torrent-of-corporate-trading-dominating-todays-market-and-short-term-financial-engineering/

    A study by the SEC of 385 recent share-buyback announcements — this is when companies announce how much money they will spend in the future on buying back their own shares, but before they actually begin buying them — found:

    • Share-buyback announcements led to “abnormal returns” in the share price over the next 30 days.
    • Executives used this share price surge to cash out.

  10. well said Robert Denairo and on behalf of all canadians 

    thank you


  11. NK / Snow – Do you think that we can equate what is going in in NK with what we have in the US? I mean, sure Trump is making a case for horrible policies like the separation of families at the border, but hundreds of thousands of people have died in NK because of the policies of the Kim family. I don't know many people who would dispute these facts. 


  12. And Snow, I can't help but see Bolton next to Trump at the summit. I don't think that his views on NK have changed much.


  13. Dispute – B.S. is the new normal!  :(


  14. Good morning! 

    Welcome back Snow!  I don't know about exchanging diplomats, we were just exchanging hostages a few months ago…  I'd sure hate to be the ambassador to NoKo when Kim changes his mind about US relations!  

    Big Chart – BIGGER!!!

    TSLA/Albo – See above.  I'm going to super-regret not shorting if this morning is the end.

    Understanding/StJ – Don't overthink things, most people just read the headlines anyway. Same goes with the recession, Greenspan said the market was "irrationally exuberant" in Dec of 1996 and it took 3 more years for him to be right.  I feel the same way with our Must Hold lines – I'm willing to bump them up 10% to reflect the tax cuts' impact on earnings and maybe a bit more considering the massive buybacks with all the repatriated funds but, other than those artificial stimulants – my overall economic outlook isn't very different.  That doesn't stop the multiples from climbing, however. 

    Dispute/1020 – I don't think that's disputable…


  15. singapore – trump totally surrendered – he got nothing and gave up annual joint exercises.  even called the exercises "provacative' like DPRK propagandists have been calling them for 50 years. More allies (South Korea, Japan, Aus) thrown under the bus…he is a tool


  16. Jared would be a GREAT Ambassador!….. :)


  17. I couldn't take it on TSLA and added some more short calls to my position this morning. Will probably live to regret it! Also out of the /NG longs Phil called out on Fri and it almost looks like time for a reload… $600 or so per contract seemed pretty good for a weekend hold.


  18. Atitlan – I'm sure you've noticed the strong move in MAT over the past couple of weeks.  Will look to cover some with OTM calls at some point.  Still short a bunch of $12 puts.


  19. Also covering some TWTR. 

    Phil sure called it when he said the stock would move up if they expanded the number of allowed characters.  The strength has been very surprising, but welcome.


  20. Yes Albo – MAT has had a good move! I've bought back of all my puts at this point – they were probably shorter-dated than yours and were about worthless. I did have some stock assigned and have completely covered it for now. If we ever get another selloff I'll gladly offer some more puts. 


  21. Surrender/Rexx – Much as I don't like Trump, I think that went very well.  We can certainly afford to make concessions – ESPECIALLY Trump as it would surprise no one if he changes his mind and rips up the contract.  I think Kim is not his father and would like to normalize relations – it doesn't hurt us to give him a chance.

    TSLA/Atitlan – Too dangerous over the top of the channel:

    TWTR/Albo – Even so, this is a surprising move.

    So is MAT:

    PLAY is also flying:

    RH up 30%! 

    All our sleepy picks from last year are going crazy.  

    Forgot to add PLAY to the LTP last month – I meant to!

    PLAY/Palotay – I liked their deal with SHLD to open stores within stores but it doesn't seem to be helping either of them.

    PLAY's numbers are good but not great but, at near $3/share, $38 is a bargain, overall.

    Year End 04th Feb 2013 2014 2015 2016 2017 2018 2019E 2020E CAGR / Avg
    Revenue $m 608.1 635.6 746.8 867 1,005 1,140 1,242 1,364 +13.4%
    Operating Profit $m 43.7 51.0 46.3 103.7 150.5 165.1     +30.4%
    Net Profit $m 8.78 2.17 7.64 59.6 90.8 120.9 106.6 120.1 +69.0%
    EPS Reported $ 0.22 0.055 0.21 1.39 2.10 2.65     +63.8%
    EPS Normalised $ 0.22 0.055 0.70 1.72 2.34 3.09 2.61 2.98 +68.9%
    EPS Growth %   -75.3 +1,160 +145.6 +36.5 +31.9 -15.4 +14.0  
    PE Ratio x           12.3 14.6 12.8  
    PEG x           n/a 1.04 n/a
    Profitability

    There's not a lot of debt either and the market cap is just $1.5Bn and I think VR will be good for them as most people aren't going to have major rigs in their homes – so they'll go to the arcade to play.  You're in for net $39, so I would not worry about it – more like it's time to buy the bull call spread!  I'd rather put money into that and save a possible 2x roll for if there is real trouble (and 2021s might be out by then). 

    Dave & Buster's Offers Compelling Upside After Recent Sell-Off

    Dave & Buster's: The Selloff Is Overdone. Upside In Unit Growth, Buybacks, And Potential Sale

    Dave & Buster's: Short-Term Volatility Provides Attractive Entry Point

    Dave & Buster's: A Value Stock With A Clear Growth Path

    We should add it to the LTP later.


  22. Speaking of up 30%, the LTP just hit $650,000 (up 30%)!  

    I have a lot of review work to do over the next couple of days….


  23. Nasdaq is unreal… WTF?


  24. GNC continues it's strong move on good volume.


  25. Thinking about a TZA spread.  Maybe buying Jan $7 calls selling not sure what.  Of course it is a complete waste of money as obviously the market goes up no matter what.  Feeling a bit under hedged.  Maybe SQQQ spread would be better?  Thoughts?


  26. does anyone like GPRO?


  27. BEV went into another A123-type disaster. Sigh.


  28. Options Opportunity Portfolio Review (OOP):  We didn't make a single trade this month but we're up $2,065 (2%) at $116,948 since our last review (5/16) and that's up just under 17% for the first half of the year, so well on track.  Keep in mind I wanted to CASH!!! out at $114,883 and I still don't like the market but the market sure likes itself.  

    Apparently, we're very well-balanced and, as we know, if our positions stay on track, they stand to make another $140,000 through Jan 2020 so we're not inclined to tinker with the things that are working.  

    • SQQQ – Our poor hedge is being beaten up and we bought back the short calls so now we have to decide if we want to improve what we have left.  Since March 9th, this insurance has cost us about $2,000 per month and we can lose another $7,200 if it goes worthless.  The Jan $10s are in the money at $3.85 so it costs about $2 to roll down $5 but that's $10,000 and I'd hate to spend that.  We could sell the Jan $25s for 0.80 and then we spend just $6,000 to roll $18,000 in the money – that's certainly worth it but it means the $10/25 spread, with a net delta of 0.60, won't be as much protection – so we have to factor that in as well.  I'm going to say yes to this spread so that's rolling the Jan $15s to the Jan $10s and selling the Jan $25s to cover for net $1.20 but we'll need some more aggressive longs to cover.  
    • AAPL – Not at all worried about these.
    • CBI – Now MDR and we have "special" MDR 2020 $15 puts in exchange for these but not reflected yet.
    • CHL – On track.  We've been waiting for a dip to sell some short puts and I don't think we'll do too much better than this so let's pull the trigger and sell 5 Dec $45 puts for $2 ($1,000).  

    • TZA – Our other major hedge is also a bull call spread and in the money so no worries here. 
    • FTR – Had a nasty pullback but on track for our $8 target. 
    • ABX – Right where we started and good for a new trade.
    • ALK – On track.
    • BBBY – Good for a new trade. 
    • CDE – On track.  
    • CG – On track.
    • CHK – On track (finally). 

    • F – On track and paying a nice dividend while we wait.
    • FNSR – Back from the dead and still good for a new trade.

    • GE – Still dead and good for a new trade, if you are a believer.  
    • GNC – Finally coming back but still cheap. 

    • HBI – On track
    • HMNY – This one has been terrible but I'd like to buy 5,000 shares for $1,900 (0.38) as I really think this one is going to pop at some point.  If it does, we can sell the calls and let the stock run until we decide to cover.
    • HRB – Deep in the money now.
    • IMAX – All it takes is one bad film (Solo) and the stock tanks.  It's not like they MADE the film…  It's still over our goal so no worries.  

    • LB – Our sleepy Stock of the Year is back on track.
    • NAK – They have had a wild ride lately.  Let's buy back the short 2020 $1 calls for 0.23 and see if they bounce back.  
    • NLY – I'd like to see at least $11 before selling calls, hopefully $12.  
    • SPWR – On track but way off the $9.50 highs so let's buy back the 20 short 2020 $10 calls at $1.25 as that's up 50% for us and makes us more bullish.

    • THC – Almost double our target but it's an $8,000 spread only netting $3,965 so this spread, which is 180% in the money can still more than double as a new trade.  If we hadn't been in at just $525, I'd want to buy more! 
    • VRX – Also a mile over our target so nothing to do but wait.
    • WPM – Last year's Trade of the Year is still killing it.

    We're so well-balanced there's really not much to do but wait for the money to roll in.  THC is a good example as it's going to double in 18 months – even though it's deep in the money.  This whole portfolio is set up like that – we only have to wait for expirations and we'll do very well.  Between now and then, we just need to protect our gains with hedges and try not to get to burned by the hedges but a $140,000 upside means we can certainly stand to pay the insurance costs along the way…


  29. Unreal/Jabob – You just have to sit back and let it happen at this point.

    Hedges/Knight – See above.  I couldn't sleep without them but the losses are so annoying. 

    GPRO/BDC – I kind of like them as the competition sucks (per my kids' friends) and pro photographers are into their $50,000 rigs.  Sales have been flat and they are getting expenses under control after a failed drone project but I like a company that tries things rather than coming out with version 10 (X) of their current product….  cheeky  Still, they won't make money this year or next so they'll need something to drive sales.  We sold 20 2020 $8 puts in the LTP for $3.75 back in Jan but we haven't been motivated to do more than that.


  30. TEVA   another FU stock up 5% today


  31. Phil; first I wanted to thank you for the help last week with my AMZN position.  Your guidance was one of those "aha" moments and really brought clarity on how to deal with positions that go in the right direction but overshoot it.  My question this week is with ATI.  A position we had in the OOP last year before you cashed out.  I have the 20/27.5 2020 BCS and the 17.5 Puts.  The $15,000 spread is 100% in the money with $6000 to make.  Would you suggest closing, adjusting or leaving as is.  TIA  


  32. Oh yes, things are going so great, doubling up all the time:

    • Tesla (NASDAQ:TSLA) plans to cut about 9% of all the jobs at the company, according to a CNBC report. Further details on the cost-cutting move are expected shortly.
    • Shares of Tesla are up 4.06% on the day.
    • May Consumer Price Index: +0.2% vs. +0.2% consensus, +0.2% prior.
    • Core CPI +0.2% in-line with consensus, +0.1% prior.
    • Core CPI +2.8% Y/Y vs. +2.2% expected, +2.1% prior.
    • The German economic sentiment worsened in June to -16.4 in June from -8.2 in May, compared to the consensus of -14.6.
    • The economy’s current conditions fell to 80.6 from 87.4 last month, compared with the consensus forecast of 85.0.
    • The ZEW’s index of euro zone economic sentiment decreased to -12.6 in June from 2.4 in May, compared to the consensus of 0.1.
    • Source: Investing.com

     

    • U.S. airline fares fell 1.9% M/M in May to mark the second consecutive month of a sharp drop.
    • The average fare during the month was 6.6% lower than the level from a year ago on an unadjusted basis.
    • The airline fare price index can be influenced significantly by increased competition in just a few key markets.
    • The drop in fares from a year ago coincides with higher labor costs and fuel costs for most carriers.

    • Frontier Communications (FTR +1.9%) and Granite Telecommunications have a deal to enhance delivery of Next Generation Ethernet to Granite's big multi-location customers.
    • That will give Granite expanded access to Frontier's 29-state territory and LIT buildings, the two say — particularly in providing Ethernet to locations of federal agencies under the new Enterprise Infrastructure Solutions contract.
    • “This enhanced relationship with Frontier expands, and further solidifies, Granite’s ability to serve multi-location businesses and federal agencies,” says Granite's Sam Kline.

  33. ATI/Options – You're welcome, glad I could help.  In ATI's case, you have a position that's in the money and your $9,000 will make $6,000 (66%) in 18 months if ATI just stays over $27.50.   These are what they call "First World Problems" and, in this case "PSW Problems" as most stock sites would consider a 66% gain to be phenomenal but, you are bored as you already made so much.  I still like ATI and the real question is can you do better with $9,000 than make $6,000 just as safely.  

    I think the best thing to do with 20 of the spreads is to sell 7 (1/3) of the July $27.50 calls for $2.05 ($1,435) as they can be rolled to the Oct $30s ($2.05) or the Jan ($32.50s ($2) if ATI breaks higher but, if not, you have 10 sales like that for $14,000 while you wait for your $6,000.  See, now it's exciting!  


  34. From BBC America:

    Chinese Foreign Ministry announced that Trump would  suspend US war games with South Korea before Trump announced it himself at the press briefing. That suggests Kim’s people were on the phone to Beijing straight after the meeting cos they recognized how big a concession it was.

    And South Korea was taken by surprise! Wow… China is playing us with Kim's help.


  35. Well, we had a little dip but recovering into the close.  Just an unshortable market at the moment.

    We'll just have to see what happens on the Fed and yes, there will be a webinar tomorrow into that meeting.


  36. NK/StJ – SK was surprised Trump yielded on the war games, but it was in the Panmujum declaration in May, that SK would pursue stopping those, so they were pushing for it. Those "exercises" were almost entirely sabre rattling, threatening NK, so they should be stopped, but still, surprising that it happened. You never can tell with Trump.


  37. Yeh tomorrow it will change YAWNNNN!


  38. We are going to get some very good fake news soon:

    https://gizmodo.com/deepfake-videos-are-getting-impossibly-good-1826759848

    It's incredible what they can do – they could show a video of  the pope endorsing Trump and you could not tell it's fake. It's going to be a nightmare…


  39. My Chinese name for trump is "Tsump Pump" :P


  40. Stipulating that my future stock price prognostication is as worthless as anyone else's (glass half full translation: as good as any one else's), I'll tell you where Im at right now.

    The Jan 26th peak and collapse needs about 6 months to shake out before another big leg down. Given summer market laziness I'd say September/October is better than late July so no benefit in being too strict on the timing here. Then a sudden, big leg down let's you know it's time for business, followed by 6-12 months of mostly-near declines, including some big whoppers where puts and shorts clean up like Christmas. Begin to consider nibbling on longs by March '19, but be prepared for a longer time frame.


  41. Pharmboy / TNXP – Any thoughts on this one?  I'm not blown away, but not sure of the science on it.

    I took a look at TNXP based on input from some folks close to the military - it's a bio pharm,  focused on treating PTSD and  fibromyalgia (FM) it looks to be in the stage II / III   in the FM space and stage II in the PTSD.
    With market cap of $37.8M and shares outstanding of 8.5M it’s firmly in the micro cap space.   Companies in this space have ( bio pharm micro) a hard time getting 
    Meds to market because they have no marketing or sales force, and that is very expensive to set up, even if you go with a contracted route.   However this being targeted at military,
    This may be easier, I don’t know.  It’s always good to look at free cash flow on these companies   In this case free cash flow has been negative from ’15 to’17;  -$43, -$37, -$19 million each year. They have about $25M of cash left on the books, and debt of 0,  So they may need to raise cash soon either by issuing new shares or taking on debt.  I would think it would be more shares.

    It just presented at the American Society of Psycopharmacology with some results, but no breakthrough.   B. Riley FBR just set a target of 8/sh on 6/6,  so maybe they said something interesting there, or maybe FBR is going to help them issue more shares. 

    Morningstar has a Fair value of 4.88 on them.












  42. HRB takes a dive of 5$$$$$$$$$$$$$ pre market


  43. https://www.nytimes.com/2018/06/12/technology/seattle-tax-amazon.html      It seems homelessness isn't something Bezos wants to spend money on


  44. I see someone else is awake. Hi Mike!
    Not sure if anyone else besides Phil reads my afterhours comments. But here I will give some further pre Market thoughts on HRB. As you can see all rats are jumping over board. Now again this is no concern in respect of my Jul armchair trades. Bought the stock at 26 and sold the Jul 25/26 strangle for 3.95.
    Now after all the rats have drowned this morning, this will be a good buying opportunity. Just for good luck, I put in an order to buy back the put for .20 cents, in the hope someone has left open still an order on the put. I know in advance the put will shoot up to some 3$ or more, but no harm in trying.
    After the opening one can fish to close the 26 caller now still 3.85 for next to nothing.
    The above moves are just some sideline entertainment to my armchair trade, as if you want to do nothing in the above situation you just carry on sleeping in your armchair, and I am sure the Jul putter will be OTM again by July and you might have the 26 caller possible in the money again. Best both will turn out worthless. You might ask me what about the 26$ stock now down to 24$ and possible still be lower, well by the end of the day I even might buy more stock!!!! It is sometimes hard for me to understand, why people sell stock at the cheapest price.


  45. I read them Yodi…


  46. Avill Hi well you are on the same timezone.


  47. I am sure people are selling HRB to have cash to buy TSLA at 347. Surely a bargain!!!!


  48. Yodi  I am also a fan of your suggestions.


  49. As am I


  50. Glade someone is away, this is the early bird special!!!


  51. Yodi, I do read them as well, but it seems Phil went straight to Wednesday with post starting around 8:30am


  52. Looks like the man is sleeping in now!!!!!


  53. Yodi, tell me something with TSLA,  looks quite difficult to maintain actual price,  I¨thinking in selling Aug calls ( OMG!!..)  

    Usually, I never sell naked calls but here it seems obvious.