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Which Way Wednesday – Can Confidence Return to the Markets?

Now that is one UGLY quarter!  

As you can see from the small image of the Big Chart (click to enlarge) the marekts have been in free-fall for the month of December with the indexes giving up about 20% of their gains (not 20% from the top) in just over 20 days with almost no up days the whole month.

This Government shut-down is different and the conservative, Financial News Media as well as many of the Top 1%-owned Media Outlets tend to ignore the fact that the previous shut-downs (1995 Newt Gingrich, 2013 Obmacare and 2018 Dreamer) were acts by the opposing party house against the President so there was confidence that our LEADER would work to resolve the temper-tantrum the House leaders were having.  

This time is different as it's our "leader" having a temper-tantrum and his party controls both the House and the Senate so how are people going to be confident that this will be resolved when you have an incoming Democratic House in just two more weeks?  400,000 Government employees are already out of work and millions of contractors aren't going to get paid and projects won't get done and things won't get ordered…  The US Government is the largest part of the US economy, spending over $4Tn a year, call it $350Bn/month and that's money the economy can't actually live without – 20% of our entire GDP is Government Spending.

Each month the Government is closed knocks 2% off our GDP and the slowing economy will contract wages and Corporate Profits and, guess what?  That will make the deficit explode as it lowers the rate of tax collections.  That's why the market had such a harsh reaction to this shut-down but it's still been an over-reaction nonetheless and we are certainly now looking for at least a weak-bounce correction, which would be a 4% gain on the indexes from these levels.  Let's call it from the 20% correction lines:

  • Dow 27,000 to 21,600 is 5,400 points so 1,080-point bounces to 22,680 (weak) and 23,760 (strong) 
  • S&P 2,950 to 2,360 is 590 points so 120-point bounces to 2,480 (weak) and 2,600 (strong) 
  • Nasdaq 7,700 to 6,160 is 1,540 points so 300-point bounces to 6,460 (weak) and 6,760 (strong) 
  • NYSE 13,200 to 10,560 is 2,640 points so 528-point bounces to 11,058 (weak) and 11,586 (strong) 
  • Russell 1,750 to 1,400 is 350 points so 70-point bounces to 1,470 (weak) and 1,540 (strong)

These are the lines we need to take back JUST to call the market stable but, as you can see, we're not even holding the -20% lines on the Nasdaq (5,956) or the Russell, which is miles below at 1,276.  So we have to consider what 1,276 is on the Russell and 1,250 is pretty much a 27.5% drop on that index, which would be a strong (2 4% moves) overshoot of the 20% drop.  We can factor in the panic and how deeply Trump's Government Shut-Down will affect small caps vs multinational large caps and consider that maybe the Russell, in this case, isn't a leading indicator but if ANY of the other indexes confirm this move – then we're likely only halfway done correcting!

Think about it, if people aren't willing to buy stocks for 20% less than they were trading at a month ago – what happens when more sellers show up.  The real danger in a sell-off like this is more bad news hitting a tipping point and forcing people to capitulate out of perfectly good positions and, to that end, that's what we have hedges for.  

It's very simple to protect yourself from another 20% move down in the Russell (to 1,050) as that's another 225-point drop from here and we're at 1,275 so that's another 17.5% and a 17.5% move down on the Russell should correspond to a 52.5% gain on the Ultra-Short Russell ETF (TZA), which is currently at $18.50 so our target would be $28.21.

Now that we have our target, we can look at some option spreads that can protect us.  Let's say we're worried about the market through earnings (though I think earnings will save us as they probably aren't that bad) so the Jan spreads are too soon and so are Febs and the next set is April so we look at the April contracts and those contracts only go up to $30 because NOBODY thinks we're going to drop more than 40%.  

With TZA at $18, the $17 contracts and $20 contracts have the most premium, at $4 and $2.80 and the $13s have very little at $6 but we're not looking to lock in gains, we're looking for protection so I'd rather sell the $25s for $2 against the $20s for $2.80 and that's just net 0.80 on the $5 spread so we make $4.20 (525%) on a 20% drop in the Russell.  That means, if we want to mitigate $100,000 worth of damage we might expect to take on a 20% drop (basically, whatever damage you had so far would be doubled) then $20,000 in this hedge would pay back $125,000 – more than you plan to lose!

Image result for hedging cartoonOf course we don't want to over-insure because the market might NOT fall 20% more and, as a rule of thumb, unless we're exremely bearish, we only look to mitigate about half the damage so $10,000 would pay us $62,500, which offsets 2/3 of the loss and, more importantly, if the market were to recover and we lose our $10,000 – it would be in the context of getting much of our $100,000 back from the first 20% drop.  That's how you calculate what kind of hedge we need.

Hedges are insurance policies against portfolio damage and, like any insurance policy, they are money you expect to lose and you don't HOPE your hedges pay off because that would mean something catastrophic happened to your long positions.  Keep that in persepective and consider the hedges a simple cost of doing business in the market and you'll feel much better about them

We're HOPING (not a valid investing strategy) that we at least get to our weak bounce lines by Friday and that we won't have to add more hedges to our portfolios but we're not going to be fooled by false rallies, we need to see a lot more green on our chart before deploying the green that, thankfully, is in our accounts.

Be careful out there,

- Phil

 


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  1. MP (Morning Post) – Halfway done correcting is DOOM.  Margin will be dried up if we freefall, a $10-$15K hedge to cover that would be nice.  I am cashing in my 20 of my March SDS 34/40 now, it is the full position, seems pointless to wait until March to put some coins in my pocket.  I'd like a Feb hedge and if we do go down…. collect and add another one later.  

    I want to see earnings, then decide whether I NEED 


  2. Trump says buy the F-n dip!


  3. Needs

    Good time to roll my puts from 2020's to 2021's;

    Add more cash to cover my margin (This sucks, but I do like many of my positions and FU VIX).   


  4. Phil – GM. Looks like UGA is down again today. Any suggestions on how to salvage the Jan 19 28 long calls? 


  5. Phil / SQQQ – I have the following as a left over leg from a hedge 

    50X Mar '19 $21 (1.00)  I'm not too worried but would up roll this now? or wait or cover with a long June Caller?

    Second – I just cashed out the CMG short callers ( thank you) looking for another short short caller on this one- what would you recommend.   I know it's low in the channel but looking to where price and timeframe you would keep you eye on.  Thank you


  6. Good morning! 

    The President says to buy the dip and when has he ever steered us wrong?

    Margin/Grass – That's what happens when you fall past 20%.  Most funds hedge 20% but they lose their minds if we go past that and then the brokers begin to increase the margin requirements (due to the volatility) and make things worse and then they force liquidations, which make things much worse – and that's how markets crash…

    Of course cash things like SDS March $34/40 as SDS is at $49 and that spread is $15.20/10 for $5 out of a possible $6 but you can take that $5 and buy the June $43 (9)/$50 ($6) bull call spreads for $3 so $2 in pocket and still $7 of downside protection and, even if you stop out at $1.50 (net delta is just .11) that's still $3.50 off the table and you're insured all the way through June. 

    We'll go through the portfolios over the next couple of days and discuss repositioning.  

    UGA/Soma – The Jan $28s are 0.05, it's not really salvage when it gets that low.  Only 23 days left with UGA at $22 so not too likely we get back to $28 though, eventually, it might work out.

    In the STP, we bought 30 Jan $28/31 bull call spreads for $3,600 and we bought back the short calls for $600 on 11/17, which looked smart for a minute but then fell apart fast.  So basically it's a loss of $3,600 and now we have to consider whether UGA is the best place to make $3,600 or not.

    Gasoline has been as low as $1 back in early 2016 and was down around here until Agent Orange came to power so now it's back down here so I wouldn't make a big bet on it jumping back 30% – especially into the spring. 

    By July, however, it would be very strange if we don't recover and UGA July $20 ($3.70)/23 ($2.30) bull call spreads are $1.40 and all in the money so 30 of those for $4,200 will pay back $9,000 for a $5,800 gain at $23, which doesn't seem too hard to accomplish.  The next gain, less the $3,600 loss, would still be $1,200 – not a catastrophe and, if UGA goes lower, I would want to roll out to a more aggressive spread because then we have potential for hurricanes, etc into the fall.  

    So that's how I'd stick with it but, in the context of the $400,000 STP, I just consider it a trade that didn't work and we're just going to move on.

    CHK/Soma – We can certainly expect some value stocks to get bought at this point. 

    SQQQ/Batman – Just keep in mind how rocket-like these things can get if we have another sharp leg down.  Because of AAPL, I really can't see the Nas too much lower and we are only matching the April highs at the moment – and they fell apart after but now we have TrumpGate to keep us nervous into next year so maybe not so easy to calm things back down.  

    I don't think there's much harm in picking up 50 2020 $15 ($8)/30 ($4.50) bull call spreads for $3.50 as you get paid back $5 UNLESS the Nasdaq goes higher and the short $21s are $3.50 so it's like buying them back but you get another big hedge instead.


  7. Good Morning.


  8. Phil / CMG

    I sold my Jan '19 short callers ( thank you) looking for another short short caller on this one- what would you recommend.   I know it's low in the channel but looking to where price and timeframe you would keep you eye on.  Thank you


  9. SQQQ – Thanks I'm looking at picking the June spread up


  10. Is there a seminar today? Just wondering? Thanks


  11. Going back to your TZA comment, If you want a $20,000 hedge for $100,000 protection, and the spread is $.80, in order to determine the number of contracts you need, do you calculate 20,000/100 or approx 200/.8.  Or about 220 contracts.


  12. STP -  As noted to Batman above, we have the following SQQQ hedge in our STP:

    Long Call 2019 21-JUN 12.00 CALL [SQQQ @ $21.35 $0.00] 180 10/25/2018 (177) $56,160 $3.12 $6.53 $2.29     $9.65 $1.10 $117,540 209.3% $173,700
    Short Call 2019 15-MAR 22.00 CALL [SQQQ @ $21.35 $0.00] -100 11/23/2018 (79) $-14,500 $1.45 $2.35     $3.80 $0.08 $-23,500 -162.1% $-38,000
    Short Call 2019 21-JUN 17.00 CALL [SQQQ @ $21.35 $0.00] -80 11/20/2018 (177) $-28,000 $3.50 $3.20     $6.70 $0.95 $-25,600 -91.4% $-53,600

    So let's cash in our 180 June $12 calls and put $173,000 in cash in pockt and that leaves us with the short March $22s that are all premium and the short June $17s that are 2/3 in the money.

    Our new cover will be 200 of the SQQQ 2020 $15 ($8)/30 ($4.50) bull call spreads at $3.50 so that's $70,000 to buy us $300,000 worth of protection throughout 2019 – that should be helpful and we STILL put $100,000 back in our pockets off the original net $13,660 spread.  This is why the STP is up 270%!  

    We pocketed over $100,00 on TZA long calls too but now we have to pay the piper and cover the short calls.  Our current TZA position is:

    Short Put 2020 17-JAN 10.00 PUT [TZA @ $18.62 $0.00] -40 8/29/2018 (387) $-13,000 $3.25 $-2.61 $-51.96     $0.65 $-0.06 $10,420 80.2% $-2,580
    Short Call 2019 18-APR 11.00 CALL [TZA @ $18.62 $0.00] -100 10/24/2018 (113) $-6,000 $0.60 $7.13     $7.73 - $-71,250 -1,187.5% $-77,250
    Short Call 2020 17-JAN 15.00 CALL [TZA @ $18.62 $0.00] -200 11/30/2018 (387) $-31,000 $1.55 $4.53     $6.08 $0.13 $-90,500 -291.9% $-121,500

    We do think the market will bounce back but, if it doesn't, this is not a bag we went to hold so let's buy 200 of the TZA 2020 $15 ($6)/25 ($3.30) bull call spreads for $2.70 ($54,000) and that's not enough so we're going to roll the 100 April $11 calls ($8 – $80,000) and the 200 2020 $15 calls ($6 – $120,000) to 300 of the April $15 calls at $5 ($150,000) so we're taking $50,000 out of pocket in order to, hopefully, put the short calls into something that will have a better chance of expiring (and is more rollable, if not).  Worst(ish) case is TZA is still up and we buy another round of 2020 spreads and roll the 300 April $15s ($5) to 400 July $19s ($4) and then hopefully that helps.


  13. Citron Research Backing Up the Sleigh on Facebook – 2019 S&P Stock of the Year


  14. CMG/Batman – The reason you are thanking me for the CMG short calls is because I waited PATIENTLY from the October dip to the November high before making that call.  There is no way I would short them down here, this is where we began establishing LONG positions on them!  

    TZA/Nom – Well the key point is that you really only want to mitigate about 1/2 the damage.  220 contracts will pay $5 or $110,000 – do you REALLY need that much protection.  Here's the reason why it's fine to simply mitigate damages. 

    • If you have a $100,000 portfolio and you have $95,000 worth of longs and a $5,000 hedge that pays 4x+ on a 20% drop to the downside and your longs pretty much track the index going down:
    • A 10% drop will drop your longs to $86,000 and your hedge will be over $10,000 – essentially no loss and, if you liquidate, you'll have $96,000 but the stocks you previously bought for $100,000 now cost $90,000 – so you are ahead.
    • A 20% drop will take the longs down to $77,000 but the hedge will be $20,000 so again, you have $97,000 if you liquidate but the stock you bought for $100,000 are now $80,000.

    The idea isn't to get ahead on a sell-off, the idea is to set yourself up to have cash to deploy when people are panicking out of stock.

    On the way up, a 20% gain will give you $114,000 and assume you lose the whole $5,000 so net gain of $9,000 – the more you hedge, the less you make on the way up but, of course, that's why we like to leverage our longs a bit.

    Webinar/Pirate – As it's likely to be another crazy day and as we have these adjustments to make – I thought my day would be better spent reviewing our positions so no Webinar today.


  15. Phil what would you roll these to

    5 IBM Jan 17 2020 135 Put

    thanks


  16. Phil.  A question about adjusting spreads.  Is a good rule of thumb on rolling down the longs on spreads "you should roll the long leg down if it can be done for less than 50% of the strike width increase."  Meaning, I have IBM ($106.53) 17Jan20 BCS 115 ($7.40) / 120 ($5.80).  I am looking at rolling down the 115 to 105 and I can do that 10 point strike improvement roll for $4.20 which is less than 50% strike width increase.  Is this the type of roll you would recommend?

     

    One other question, it seems like we could go up 10% or down 10% right now.  Would you wait to do the BCS adjustments? 


  17. Phil- any thoughts on a new BCS for GE?


  18. Phil- I have 15 short Jan ‘20 $13 puts which have little premium. My current commitment is $19,500 if assigned but not sure I want to commit too much more in puts. I could roll to the 2021 $10 puts but wanted some advice amd was thinking of just adding a BCS versus more puts.  Thanks


  19. Back on line after a drive from Provence to my parent's home. Just read that VXX is getting replaced by VXXB. It looks like the same instrument but with an Issuer Call so basically can be shutdown at any time.


  20. Options Opportunity Portfolio Review (OOP) – Part 1:  We lost about 40% ($40,000) since our 12/11 review – how's that for a turnaround?  The OOP is now down for the year so we'll do some triage and see which positions we still believe in.  The good news is we still have $132,050 in cash – it's the negative $38,104 value of our positions that is killing us and those are what we like to call "paper losses" but paper losses become realized losses if you aren't careful!  

    • HMNY – Probably dead money but no reason not to keep it.  
    • SCO – This is one of the things that are killing us as oil went a lot lower than we thought.  The 15 short Jan $20 calls at $12.60 ($18,900) can be rolled to 20 short July $30 calls at $8.80 ($17,600) where we give back a bit of the $5,200 we originally sold them for and I really don't think Oil stays below $45 into July so hopefully we recover a big chunk on this trade.

    • TZA – As with the STP, we're going to roll our 50 short Jan $12 calls at $6.50 ($32,500) to 50 short April $15 calls at $5 ($25,000), which costs us $7,500 of the $4,000 we sold them for so a $3,000 loss charged against the successful exit on the long calls we already too.  Still, we don't want to get burned again so we'll add 50 of the 2020 $15 ($6)/$25 ($3.30) bull call spreads at $2.70 ($13,500) to keep things from getting out of control.
    • AAPL – Our faith has us in a negative $27,788 position at the moment but I have no problem with the 2021 target so no no change.  
    • LB – In this case, since these are 2020 puts, we may as well take advantage of the high VIX and roll the 10 2020 $35 puts at $12 ($12,000) to 15 of the 2021 $30 puts at $9.50 ($14,250) 
    • PLAY – Brand new short put and slightly damaged so far.  
    • JO – May as well buy back the short calls for 0.80 and see what happens.  How does a US Government shut-down affect the price of coffee?  If there's no reason not to trade the channel – trade the channel!  

    • ABX – Doing well now that everything else has turned to crap.  Of course, that's why we like to diversify.  
    • ALK – What a collapse they had and there's really no good reason for it.  They are doing well and even adding more routes – they are simply getting killed with the sector.  Again, we have to mechanically take advantage of the drop and roll the 9 short 2020 $60 puts at $9 ($8,100) to 10 2021 $50 puts at $6.80 ($6,800) not because we have a lack of faith but because we are ahead on the puts and we can lower our margin commitment ($10,000 for $1,300 less that we don't need.  Now that we're not over-exposed, we can buy back the 5 short 2020 $70 calls for $4.30 ($2,150) and roll our 5 long 2020 $60 calls at 8 ($4,000) to 15 of the 2021 $60 ($10)/$70 ($6.80) bull call spreads at $3.20 ($4,800).  So we've gone from a $5,000 spread to a $15,000 spread for net $4,250.

    • BBBY – Fortunately, we had a very small short put commitment.  The short Jan $20s will expire worthless and we can roll our 20 long 2021 $12.50 calls at $2.30 ($4,600) to the $10 calls at $3 ($6,000) for $1,400 and let's just leave that and see what happens before covering.
    • BHC -  Totally collapsed but back where we came in and we don't think they did anything wrong in particular so let's just do what we're supposed to do on a pullback which would be:  Roll the 5 short 2020 $15 puts at $2.70 ($1,350) to 5 2021 $20 puts at $5.40 ($2,700).  I won't pay $2.75 for the 2020 $22s so we leave those but the 10 2020 $15 calls at $5.80 ($5,800) can be rolled to 20 of the 2021 $20 ($5.20)/30 ($2.80) bull call spreads at $2.40 ($4,800) so net $2,350 in pocket and now we have a $20,000 long spread protecting our 1/2 short call position.  

    • C – Looks like 2008 from $75 in Sept to $50 now.  The June puts are hurting us so we'll roll the 10 June $60 puts at $12.25 ($12,250) to 10 short 2021 $50 puts at $10 ($10,000) and we can close out short June $70s at 0.35 ($700) and roll the 20 June $60 calls at $3.75 ($7,500) to 20 of the 2021 $55 ($6.20)/$70 ($3.20) bull call spreads at $3 ($6,000) so our long spread will be $30,000 in the money before we owe a penny back to the June callers and the whole change is costing us net $1,450 but we sold those June $70s for $7.25 ($14,500) and we'll certainly sell more calls on a bounce to more than make up for that.
    • CDE – Not doing as well as ABX but beginning to recover a bit.
    • CHK – Finally some interest today, let's buy back the 25 short 2020 $5 calls for 0.15 ($375) and we'll leave our long 2020 $3 calls as a lottery ticket and buy 30 of the 2021 $1 ($1.30)/$3.50 (0.50) bull call spreads for 0.80 ($2,400) so we're spending net $2,775 on the $7,500 spread that's $3,000 in the money and we still have our 2020 longs.  

    • FCX – Relatively new but and the short Jan calls will go worthless.  No point in adjusting the rest at the moment.
    • FNSR – Amazingly still on track.
    • FTR – It doesn't cost enough money ($3,000) to not double down on the stock so we'll buy another 1,500 shares for $2 and see how earnings end up.


  21. I had short term QQQ and DIA puts that I'm mostly out of now, but tempting as it is to play a dead cat bounce, I'm not going to day trade it. QQQ is up 2 points from 144 to 146 in an hour.

    In 2019 the market will drop 40% at some point during the year.


  22. IBM/Coulter – Well the 2020 $135 puts are $32ish and the 2021 $125 puts are $30 so you COULD pay $2 to be $10 lower but the 2020 puts are net $103 and IBM is $107 so it's not that much difference, is it?  So mostly I'd either wait or look at the 2021 $110 puts at $20 so you could sell 8 of those ($16,000) to pay to buy back your 5 short $135s and the net assignment obligation goes from $67,500 to $88,000 (less whatever you sold the puts for), which is not too bad for $25 (18.5%) lower strikes.  

    Babies are being thrown out with bathwater…

    IBM/Robert – Yes, that's almost an automatic for me.  The IBM 2020 $115s are $7.50 and the $105s are $11.70 and the $95s are $17.50 so you can roll down $20 for $10 and, if you don't REALLY want to own IBM 2020 $95 calls enough to pay $10 – then what the Hell are you doing in the $115s in the first place?  Also, note that the 2020 $135s are $2.65 so about $5 to roll to your strike which means, even if IBM went way lower, $5 for $20 is the best you can do and you can get $20 for $10 right now – so all you're really risking by pulling the trigger now is $5 if IBM drops another 20%.

    GE/Calch – Hanging tough just under $7!  

    As a new GE trade, I'd sell the 2021 $8 puts for $2.50 and buy 2x the 2021 $5 ($3.25)/10 ($1.25) bull call spreads for $2 so net 0.75 per $5 long spread with $4.25 upside at $10 (566%). 

    Mystery puts/Calch – Consider just rolling the loss, not the entire amount.

    VXX/StJ – They love to do that just when the markets are acting up.

    40%/BDC – I certainly hope not.  As I said Monday, these are self-inflicted wounds and easy enough to fix, for the most part.


  23. Thanks Phil.  I like IBM especially here.  Great point you make about the downside of only loosing $5 if IBM drops 20%.



  24. White House tries again to reassure Wall Street







  25. Hi Phil, 

    I don't have a play on CHK. Would you suggest as a new play, the adjustment you made in the above portfolio? What about a buy/write play? Thanks…


  26. Also, you think its too early to nibble on some of your favorites like BRK/B, DIS or WBA? 


  27. Trade:  Buy back the TSLA 28 Jan 350 calls for 0.12.  Not likely TSLA gets to 350 in 2 days but no reason to chance it since we've already made over 95% on this side of the trade in just a few days.  Hold the 270 puts for now.


  28. Options Opportunity Portfolio Review (OOP) – Part 2:  LOL – Already, at 1pm, the OOP is now up 8.1% (prior to our adjustments) as the VIX calms down and we gain 2.5% of our 20% back.  This portfolio is really going to rock and roll if we make 10% back – especially with our changes.  Meanwhile, up $14,000 (14%) in two hours is pretty good!  This image is where we were when I began part one. 

    This is why we try to do as little as possible during a sell-off.  The way we hedge (by selling short calls to cover) and the way we take positions (selling lots of premium) can make our portfolios LOOK very bad during a big sell-off and the best thing to do is wait it out while doing just what I call the "mechanical" moves – the ones that it would be silly not to do given the relatively low cost of improving them.

    • GE – This is our new position and it's kind of holding on so that's good.  Just leaving it for now.
    • GNC – Last time we weren't sure but now I'm sure.  Let's roll our 40 2020 $2.50 calls at 0.90 ($3,600) to 100 2021 $2.50 ($1)/$5 (0.50) bull call spreads at 0.50 ($5,000).  We're spending $1,400 and capping our upside at $25,000 but to make $25,000 on the 40 calls, we'd have to be at about $8.50, not $5!   This is what I mean by mechanical rolls, realistically, we can expect GNC to get back to $3.50 or $4, which would put our $2.50 calls up to $4,000 or $6,000.  Having 100 of them makes the same level $10,000 or $15,000 – for the additional $1,400.  If we don't believe in GNC enough to spend $1,400 for that – why would we be in the trade at all?  

    • HBI – This is essentially the same as LB as far as diversity goes, so we don't want to overdo it.  Let's roll the 5 2020 $18 puts at $6.50 ($3,250) to 10 of the 2021 $13 puts at $3.35 ($3,350) and let's buy back the short 2021 $20 calls, as they have little left to give us and roll the 20 2021 $13 calls at $1.90 ($3,800) to 20 of the 2021 $10 ($3.10)/17 (0.80) bull call spreads at $2.30 ($4,600) so we're spending net $700 for a 25% lower spread that's $4,000 in the money.
    • HRB – We're too close to $25 not to buy the Jan $25 short calls back.  Now we can turn this into a bigger trade by rolling our 10 Jan $22 calls at $2.55 ($2,550) to 20 of the 2020 $20 ($5.35)/27 ($2.05) bull call spreads at $3.30 ($6,600) and let's roll our 5 short 2020 $25 puts at $3.80 ($1,900) to 10 short 2021 $23 puts at $4 ($4,000) so here we're spending $2,500 to move from a $3,000 spread to a $14,000 spread that's 20% lower and $8,500 in the money.

    • MJ – Let's buy back all the short calls ($6,950) but the short puts are fine and I don't see any reason not to roll our 20 2021 $25 calls at $5.30 ($10,600) down to 40 of the 2021 $20 calls at $8 ($32,000) and that means we need $21,400 so we can now sell 20 of the 2021 $30 calls for $3.70 ($7,400) as a start.  So far then, we've invested another $20,950 but we had a net $18,500 credit in the last set (we already cashed out bullish winners) so now net $2,450 on the $40,000 spread that's only 1/2 covered.  

    • MU – Fortunately, we were fully covered but still hurts.  No sense in leaving the short 2020 calls open as they are down to 0.80 so we'll buy them back and wait for a bounce.  The 10 2020 $30 puts are $6.60 ($6,600) and we can roll them to 15 short 2021 $25 puts at $4.75 ($7,125) for a small credit.

    • NAK – Made a brief run to 0.80 but back to 0.50 with the market.  In a bigger portfolio I'd double down but this is plenty large for a speculative position.  No 2021s to roll the short puts to yet.
    • OIH – Wow, what destruction!  The short 2021 $22 calls don't have enough left to give us, so we'll buy those back for 0.80 and the $10 calls are $4.70, which is +$2.40 for the roll but, on the whole, I'd rather Double Down to 40 of the 2021 $15 calls at $2.25 so let's do that and see what happens
    • SPWR – 100 years from now, will we be using fossil fuels?  No way.  Maybe Fusion but definitely solar and the World uses about $10Tn a year worth of energy and solar, at the moment is 2% of it ($200Bn) and is the fastest-growing segment in renewables.  That doesn't mean SPWR will be the company to make a profit but I love the sector and I do like SPWR and there is PLENTY of room to grow, even if it's only adding 1% ($100Bn a year for the next 100 years).  Let's roll out 20 short 2020 $7 puts at $3.15 $6,300) to 30 2021 $5 puts at $2.08 ($6,240) and let's roll our 30 2020 $5 calls at $1 ($3,000) to 50 of the 2021 $3 ($2.20)/7 ($1) bull call spreads at $1.20 ($6,000) so we're spending net $3,060 to move into a better-positioned $20,000 spread.  

    • SQQQ – Damn, wish I got to this sooner.  The 75 June $12s were $9 this morning and now $7.50 but let's cash them at $7.50 ($56,250) and buy 50 2020 $15 ($6.80)/25 ($4.20) bull call spreads for $2.60 ($13,000) so we pocket $40,250 and we're still double-covering the short calls.  
    • WBA – Another one we have to take up on their offer.  Let's just close what we have as it was leftovers from a spread we already took profits on – so this is essentially a new spread:  Let's sell 10 WBA 2021 $55 puts for $5.45 ($5,450) and buy 20 of the 2021 $60 ($13.80)/$72.50 ($8) bull call spreads at $5.80 ($11,600) so net $6,150 on the $25,000 spread that's $13,000 in the money to start.  

    • WPM – Nice pop but only on the way to better things, I think.  Still, let's behave and sell 15 of the 2021 (yes, we'll have to roll our longs out one day) $22.50 calls for $2.65 ($3,975) and also sell 10 of the March $20 calls for $1 ($1,000) so that knocks $4,975 off our net cost.  


  29. Make that up 10% now on the OOP.  Could have just left it alone I guess since it's close to making 20% on the day…

    CHK/Sun – Well the 2021 $1/3.50 spread at 0.80 is the first part.  I don't see the point of buying the stock for $2.07 when you can buy 4 of the spreads for $2.40 and $3.50 would pay you $10 back for a 300% profit vs getting to $3.50 from $2.07 would make you $1.43 (69%).  There's no commission so no reason to own the stock although buying the stock for $2.07 and selling the 2021 $2 calls for $1 and the $2 puts for 0.70 nets you in for 0.37 on the $2 spread but you do have the put obligation, which you don't even need with that bull spread.  If you are inclined to buy the stock though, I'd certainly do that with the short calls as, even if you are assigned another round at $2, that's just net $2.37 so you overpaid by 0.30 as your worst, worst case while the upside at $2 is $1.63 (440%) and the target's much lower, of course.

    Nibbles/Sun – Well we just talked about WBA and we own DIS and BRK short puts so not too early to me.  I'm not, at the moment, spending money on new things, just using as little as possible to reposition what we already have to goose the profits if we bounce and, if we don't, there will be another round of repositioning.

    TSLA/Iflan – More than 2 days, Jan calls expire on the 18th unless you sold weeklies.  Our short TSLA calls are $420s in the STP – not going to give them even 0.38 for those!  


  30. Oil up 7.2% at $45.60.  How silly! 


  31. Money Talk Portfolio keeping it real at 63.9%, hasn't been touched since Sept and down about 20% since then.  Given the restrictions that I only make changes quarterly on the show, this is our most-balanced portfolio but I'd love to get more bullish now.


  32. TSLA:  Phil, I was referring to a 28 Dec 350/270 spread I sold last week.  I believe I posted this on Friday. 


  33. Thanks Phil….


  34. Hi Phil,

    I'm thinking of rolling out down my HBI spread (it's different than what's in the portfolio) to take a tax loss before the end of the year. Currently I am holding:

    10 HBI – Jan 2020  Calls Strike Price $13 (Avg $5.67, now at $1.33)
    -10 HBI – Jan 2020 Calls Strike Price $20 (Avg $1.53, now at $.25)
    -5 HBI – Jan 2020 Puts Strike Price $15 (Avg $1.62, now at $4.02)

    Would a good strategy be to:
    1) Take profits on the 2020 calls in the new year (up 85% now, probably good to take profits?) 
    2) Take the loss on the Jan 2020 calls, and turn that into a new spread
    3) Roll down the short puts to $12 strike price

    Or should I keep things simple…close things out there, and roll it out to the 2021 spread you just posted? 

    Thanks,

    Martin



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  38. Wow, making that whole 4% weak bounce today!   Another 4% tomorrow and we can flip more bullish.

    HBI/Martin – If you are doing it for tax reasons, then talk to your accountant about wash rules, etc. before establishing a new position.  You could flip to LB, an entirely different stock but your big losses are on the short calls and short puts, both of which you could miss a nice pop on if you move to the sidelines and wait for tax to clear.  If you trade full-time, you can elect Trader Status, then you don't have to deal with this nonsense…  

    The proper thing to do is what we did in the OOP above, not sure if the tax man considers 2021 to be a new position or the same though.  

    Let's keep some perspective, though:

    Oil is up almost 10% and you still haven't missed the bottom! 

    Europe has a lot of catching up to do tomorrow.  

    EWG is interesting:

    EWG Jan $24 (0.90)/25 (0.60) bull call spread is just 0.30 – fun way to play a rally tomorrow.  


  39. Another big opportunity on /KC:


  40. Wow, up 800.  The stock market is such BS! 


  41. Well that is what I call jumping on a running train!!!


  42. wow powering into close…. wonder if someone knows about the gov. re-opening?  


  43. That's why we do the mechanics on the way down – you never know when you're going to be whipsawed. 

    Apparently, that's the best day since 2009, Dow up 1,086, Nas up 7%!  Crazy! 


  44. Guys, don’t forget that the largest, most convincing rallies come in bear markets. Looks like this could be at least a several day rally though.


  45. I'm sure today's gains are the result of a certain someone flying to Iraq unannounced to greet the troops telling a certain someone that we better have the best market day ever while this certain someone is away(solely to give the impression had had nothing to do with it because the economy is fantastic and there's been no collusion…) or he's FIRED!!!  :)


  46. go Trump!!! ;-)


  47. Last week's posted trades:  TSLA:  The call side of a  28Dec  350/270 short strangle bought back today for .12 cents.  Let tomorrow's put side expire worthless on Friday.  Or, if you need to get your margin back early, buy the 270s (for another pittance), but TSLA certainly won't get to 270 by Friday.  So on that trade we keep essentially 87% of the  .98 credit we sold the strangle for.  AAPL:  This was a 28Dec 150/145 bull put spread sold for .60 last week.  It seems likely that this will expire worthless on Friday, for a 100% extraction of the credit.  I won't post on either of these again unless perchance the market moves against one or the other (not very likely).  Happy Trading!








  48. Reclaiming some lines!


  49. But it looks like we might give back some of these gains today!



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  52. @albo – well said – the best rallies (short term) happen in bear markets!   Look at today – yesterday's direction reversed already.  


  53. Phil// what do think of this story?  Any material impact on Apple based on this?

    https://iphone.appleinsider.com/articles/18/12/24/apple-boycott-by-chinese-firms-in-support-of-huawei-is-escalating