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Monday Market Movement – Reviewing Last Year’s Top Trade Alerts

Image result for boring stock marketNot much happend over the weekend

That being the case, I'm going to take the time to catch up on our Top Trade Reviews, as we haven't done one since Sept 13th, which closed out 2017's trade ideas at 54 winners and 9 losers for an overall 85.7% winning percentage for the year.  This is why Top Trades is such a successful part of our subscriber base while, in fact, Top Trades only represent a small fraction of the trade ideas we discuss in our Live Member Chat Room – which you can SIGN UP FOR HERE (subtle marketing ploy).  

Of course, one of the reasons we like to do reviews is to look at the losers, as they are often the ones that offer great new entries with a chance to turn around.  As Fundamental Investors, we are more likely to be wrong about our timing than wrong about a position in general so a stock that goes the wrong way after our pick can be a great opportunity to jump in for a better price. 

Top Trade Alerts are sent out from our Live Member Chat room and are usually the trade of the week that I think has the highest likelihood of being successful.  We are developing a platform called "Trade Exchange" that will roll out this year to make our text alerts actionable so the pressure will really be on to perform in this segment.

Our first Top Trade Idea of 2018 came right on Tuesday, Jan 2nd with Chipotle (CMG), which had been crushed on another food poisoning scare but we thought the damage was overdone but, as noted, I didn't expect the kind of rebound we had – we played it conservatively, though we did play it more aggressively later in the year.

MG/Streth – It's tricky as sales are up 10% from 2016 but profits ($187M) not even half of what they were in 2015 ($475M) and they are getting, at $292, $8.2Bn for the company so at POTENTIAL profit, it's a very reasonable 17 p/e but, at actual profit, it's a ridiculous 44 that you could never justify for a full-grown chain.  How long will it take them to get back to $475M in profit but, even if they do, that really only justifies $300 so I would not be aggressive with them at all, but that's not to say I wouldn't play.  You can:

  • Sell 5 CMG 2020 $270 puts for $35 ($17,500) 
  • Buy 10 CMG 2020 $280 calls for $65 ($65,000) 
  • Sell 10 CMG 2020 $310 calls for $51 ($51,000) 

That's a net credit of $3,500 on the $30,000 spread so 10x return on cash and TOS says $12,400 in margin – so nice and efficient.  Also, since I don't expect them to make any rapid recovery, we can sell 4 March $310 calls for $12 ($4,800) and, if we can collect $4,800 a quarter selling calls, that's another $38,400 while we wait to see if we clear $33,500 on the main spread.  

Let's make that the first official trade for the new LTP!  

What's great about this trade is that, even if CMG goes lower, we can recover our money just through the quarterly short call sales.  Makes it hard to lose!

Though we still have a year to go, this trade is over as the short $270 puts are now $3 ($1,500) and the $280 ($275)/310 ($248) bull call spread is $27 ($27,000) so net $25,500 (up $29,000 or 828%) out of a possible $33,500 with a full year left means it's silly to keep it open to get the last 20% – unless you have absolutely no use for the margin or cash that's tied up – in which case 20% isn't that bad…

Tuesday, Jan 16th was our next Alert (if we don't see something we really like, we don't send out an Alert) on Cabot (CBT), who are a specialty chemical maker we like because they are heavy into graphine, which is the material of the future – though not the near-term future, it seems – as CBT fell off a cliff after an October earnings warning.  Fortunatley, we had taken a very light position which was:

Still, that's no reason not to collect $4 for selling 5 of the July $65 puts ($2,000) in the LTP to remind us to keep an eye on them.  

Those puts expired worthless so we made 100% on those ($2,000) and, fortunately, we did not re-up the play but NOW, I certainly do like them as a new play down here so, for our Long-Term Portfolio, let's sell 10 of the July $45 puts for $3.25 ($3,250) and see how it plays out before adding a bull call spread.  See how useful these trade reviews can be?

Also that Tuesday, we sent out another Alert for H&R Block, who we always like to buy into tax season (like now!) and they've had quite a ride since.  Our trade idea was:

They are very reasonably priced at $26.65 and they do pay a 3.6% dividend so I really don't mind owning them long-term. 

In the OOP:

  • Sell 5 2020 $25 puts for $4 ($2,000) 
  • Buy 10 2019 $22 calls for $6.20 ($6,200)
  • Sell 10 2019 $27 calls for $3.40 ($3,400) 

That's net $800 on the $5,000 spread that's almost entirely in the money already.  If HRB squeaks up from here, we make $4,200 (525%) but we will still have the open short puts for another year but, again, I'm very happy to own HRB at $25.

For the LTP: 

  • Sell 10 2020 $25 puts for $4 ($4,000) 
  • Buy 20 2019 $22 calls for $6.20 ($12,400)
  • Sell 20 2019 $27 calls for $3.40 ($6,800) 

So just doubling the OOP with an $8,400 (525%) upside on $1,600.   Nice boring way to make 5x I think! 

As you can see, they are even more "reasonably" priced now but, thanks to our BRILLIANT strategy of selling more premium than we buy in a typical trade, we have a profit anyway as the 2020 $25 puts have fallen to $2.85 and the $22/27 bull call spreads expired at $25.63 on Jan 18th so net $3.63 which was $3,630-1,425 = $2,205 in the OOP for a profit of $1,405 (175%) and $7,260-$2,850 = $4,410 in the LTP for a profit of $2,810 (175%) and we love something similar as a new trade.

That is a very key takeaway from our trading stragegy – it's much easier to have an 85.7% success rate when you stack the odds so firmly in your favor on every trade.  HRB DROPPED 0.02 over the course of 12 months so ALL of our gains came from premium decay.  We were Being the House – NOT the Gambler in our trade entry and we sold all the risk to other suckers who thought that HRB would be below $25 or over $27 but, as we expected, it went net nowhere for the year so we kept ALL of their money, which more than offset the loss of our own $1.25 of premium that we paid for the $22 calls.  

Friday, Jan 19th, 2018 we added some hedges to our Short-Term Portfolio, which is usually net bearish "In case the market fails to surrender" – our STP was a massive outperformer this year and we tend to forget that, from time to time, we hedge our hedges as well.  Our trade ideas at the time were:

edge #1 is SVXY, which is the Ultra-Short VIX ETF.  This is going to be an actively managed trade:

  • Buy 20 SVXY June $140 puts at $28.50 ($57,000) 
  • Sell 20 SVXY June $110 puts at $17.50 ($35,000) 
  • Sell 6 SVXY Feb $130 puts for $8 ($4,800) 

That's net $17,200 on the $60,000 spread that's almost $10,000 in the money to start.  As long as it doesn't drop too fast, we shouldn't have any trouble rolling the short puts and, if SVXY goes up and the puts go worthless, then we sell $5,000 worth of March puts, etc until we pay for the spread (3 more sales) and then it's free insurance.  

That one paid the full $60,000 as, of course, SVXY never came close to our June $110 calls but also killed us on the Feb 130 puts as they finished on 2/16 at $50.76 for a loss of $42.76 ($25,656) so the net on the trade was $34,344 less the $17,200 we paid was a net loss of $4,744 overall.   

We can do something similar with the Dow for the STP in something we used to call a Mattress Play.  

  • Buy 20 DIA June $280 puts for $21.50 ($43,000) 
  • Sell 20 DIA June $260 puts for $8.20 ($16,400)
  • Sell 10 DIA Feb $257 puts for $2.05 ($2,050) 

At net $24,550 we're buying $40,000 in protection but we anticipate selling March, April and May puts for $6,000 more and this is the kind of spread we roll along all year.  Upside at the moment is $15,550 so not too sexy but these are hedges we work into and, of course, with DIA at $260, the only way we DON'T get paid in full is if the Dow goes higher – which better mean we're making money on our LTP longs.

Again, we had that nice, short time-frame and the Dow never made it to $260 in June so we got the full $40,000 on that spread but Feb 16th the Dow finished at $247.34, so we owed the short $257 putter $9.66 ($9,660) to net a disappointing $30,340 for a profit of just $5,790 (23.5%) thogh, of course, we rolled the short puts along and the eventually expired worthless but, for these purposes, lets' say just the $5,790. Still, simply not losing money on the hedges of your hedges is a good thing!   And we weren't done there as I concluded with:

So here we have about $60,000 in downside protection for our LTP but we also like the STP to make money so, assuming we lose about $20,000 (half of what we're spending), let's find a couple of puts to sell.

  • 5 IBM 2020 $140 puts can be sold for $12 ($6,000) 
  • 10 IMAX June $23 puts can be sold for $3.40 ($3,400) 
  • 3 TSLA March $260 calls can be sold for $15 ($4,500) 
  • 10 ABX Jan $15 puts can be sold for $2 ($2,000) 
  • 10 CIM June $18 puts can be sold for $1 ($1,000) 
  • 20 NLY Jan 12 puts can be sold for $1.85 ($3,700)
  • 10 SKT Jan $22.50 puts can be sold for $1.85 ($1,850)

That's $22,450 collected in premium that will mostly expire this year and, if the stock goes south, these are Watch List stocks we'd be happy to turn into long-term positions in the LTP and, don't forget, if they go down – it's probably because we're making $60,000 on our hedges!  

Don't forget, the primary purpose of the STP is to protect the LTP so we look, generally, for opportunities that will make money if the market heads lower.  If the market goes higher, the $500,000 LTP should easily cover any losses in the $100,000 STP.  

  • IBM 2020 $140 puts are now $16 – down $2,000 (33%)
  • IMAX June $23 puts expired at $1.15 – up $2,250 (66%)
  • TSLA March $260 calls expired at $50.55 – down $10,665 (237%)
  • ABX Jan (2019) $15 puts expired at $3.21 – down $1,210 (60%)
  • CIM June $18 puts expired at 0.88 – up $120 (12%)
  • NLY Jan $12 puts expired at $1.77 – up $160 (4.3%)
  • SKT Jan $22.50 puts expired at 0.17 – up $1,680 (91%)

The TSLA short calls turned the set into a net loss but, of course, we rolled those along and eventually took the win.  IBM is now our 2019 Stock of the Year while ABX is now GOLD (merger) and we still love them this low.  

Tuesday, Jan 23rd, we like OIH in our Butterfly Portfolio, where we sell a lot of short-term premium against our long-term positions.  

This will be our first trade for the Butterfly Portfolio!  

OIH is a nice, rangy play that's not likely to go up or down more than 20% but should give us good action in between so it's good for a neutral play where we sell puts and calls. 

Since we think it can move 10% up or down easily we should start small so let's just sell 10 of the March $30 calls for 0.90 ($900) and 10 of the March $29 puts for 0.95 ($950) and we'll just roll the loser.  

The July $26 puts are 0.80 and the $33 calls are 0.90 so those are our roll targets and our "safe" range.  

Of course the key to liking a butterfly is seeing how cheaply we can protect it and we only need to protect the outside of our roll, not the whole thing so we can buy:

  • Buy 15 OIH 2020 $23 puts for $1.60 ($2,400) 
  • Buy 15 OIH 2020 $36 calls for $2.10 ($3,150) 
  • Sell 10 OIH March $29 puts for 0.95 ($950)
  • Sell 10 OIH March $30 calls for 0.90 ($900) 

So we're into the trade for net $3,700 and we have 7 more quarters to sell $1,800 in premium = $12,600, so a lot of potential collections.   We EXPECT to lose on one side, of course and we expect to have to do a 1.5x or 2x roll on the loser so it's a slow grind in the initial set-ups but we can easily double down any leg if we have to and, if we don't have to, we can collect 2-3x in profits.  

The most complicated thing about a Butterfly trade is learning to be patient and letting it play out.  Generally, we only make adjustments once a month, during expiration week and, even then, only on contracts close to expiration or way off track.  Otherwise, this portfolio is the embodiment of Being the House and constantly selling premium.

If you are a Top Trade Member – be aware that we do not send out adjustment notes.  The idea is simply to keep selling short-term puts and calls against the long position and you can follow them in chat as a Trend Watcher or higher Membership.  

OIH finished March at $24.03 so the short puts and calls both expired worthless and we kept the $5,550 we sold for BEING THE HOUSE (see how great that is) and, of course, we sold more puts and calls all year long for a nice income but OIH fell off a cliff as oil prices tumbled and we're now bullish in the Butterfly Portfolio but, for the purposes of this review, the 2020 $36 calls are effectively worthless but the 2020 $23 puts are now $6.10 ($9,150) so that plus the first $5,550 we sold is $14,700 for a profit of $11,000 (297%) on just the first trade.  That's why the Butterfly Portfolio is our most consistent money-maker, year after year.  

Thursday, Feb 1st, there were 4 banks I liked and all 4 got killed in the recent crash so I'm goin to pause here and give them time to recover a bit more before reviewing February.  If they go lower, they'll be good for new trades and, if they go higher – then we're back on track.

So, summing up last January, we had 10 winners and 4 losers for a 71.4% winning percentage and a net gain of $39,196, one year later, in our first month's worth of trade ideas – which was a pretty good way to start off 2018!  

This morning, the markets are down about a point on a poor industrial report out of China backed up by TERRIBLE earnings/guidance from DLNG, VALE, NVDA, GOGL, PCG, CAT and AMD as the effect of the Trade War, Brexit and the US Government shutdown ripple through to the private sector.  This is the biggest earnings week of the quarter with hundreds of companies reporting, including:

There's  no Fed speak this week as they have a meeting and announcement on Wednesday (2pm) and we'll hear from Powell after that so, of course, we'll be going long into this downturn once it finds support UNLESS the 50-day moving averages fail and then our Strong Bounce Lines – in which case it will be every man for himself!  

This is the data schedule for the week but a lot of Government data was delayed and will still be slowed due to the shutdown – so it's hard to count on the calendar at this point:

It's easy to pick winners in a bullish market – the trick is to KEEP your money in a bearish one!  

Be careful out there, 

- Phil

 


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  1. I really hope that Schultz doesn't run in 2020! If it weren't for 3rd party candidates, there would not have been a GOP president in the last 27 years – no war in Iraq, possibly no financial crisis, better healthcare, better global warming solution, no exploded deficits! Who wants to add to the list?

    And if he turns out to be the reason Trump is reelected, the damage to the Starbucks brand in the USA might not be worth it.


  2. Raising the minimum wage has no impact on employment:

    https://www.bloomberg.com/opinion/articles/2019-01-24/u-s-economy-higher-minimum-wages-haven-t-increased-unemployment

    At some point, of course, raising the minimum will reach an equilibrium and further increases could reduce the total job count. But at this point it’s possible that a national $15 minimum hourly wage could be adopted and there would be little or no negative impact on total employment.

    Those who claim that minimum wages are job destroyers have been successful in thwarting an increase in the federal minimum wage for a decade. Yet, the accumulation of data and a shift in the nation’s political currents make it likely that an increase is becoming more acceptable. With the 2020 presidential election already heating up, demands for raising the minimum wage could very well become a defining issue.


  3. Hi Phil,

    What would be a good set up for going  long on AR (Antero Resources) 

    Thanks


  4. Good Morning!


  5. NVDA down hugely!  Lower guidance-chain related. Any interest here Phil?


  6. Good morning!  

    It's all about holding the 50 dmas and our Strong Bounce lines for the week Dow 24,216 (50 dma) would be a 2.5% drop for the day so I'm not too worried but where we we on Thursday?

    Meanwhile, things are weak but not too much damage.  50 dmas are:

    • Dow 24,239, now 24,457 on /YM (was black on Thursday last week)
    • S&P 2,615, now 2,631 on /ES (was red)
    • Nasdaq (100) 6,604, now 6,882 on /NQ (was black)
    • NYSE 11,877, now 11,990, (was red)
    • Russell 1,440, now 1,460 on /RTY (was black)

    So nothing to complain about as we made great progress for the week, now above our 50 dmas on all 5 indexes (though the 50 dmas themselves are a bit lower than they were last Thursday).  There's nothing wrong with rattling around between the DMA's – that's good, healthy consolidation and it could go on until Q2 – so get used to this…

    The bounce lines are, of course, all green too – except the RUT – that's why I've been watching that closely.  S&P and Nas are BARELY over and Dow is "only" 250 above – it can lose that in an hour so consider any cross of /RTY below 1,450 (now 1,461) to be BAD.  

    • 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)

    So watch the Nasdaq as they've lost ground at 6,680 now but the others are pretty much right where we were Thursday morning so nothing to panic about – it just turns out the Thurs/Fri rebound was BS – that's all.

    The Russell was lagging and is now "most improved" and oil is being a huge drag, down 3% to $52 again and /KC is cheap and /NG is cheap again but let's see how things play out before jumping back in.

    /CL is very tempting as it's not too likely /BZ won't bounce off $60 so I guess long over $52 with tight stops below does make sense for now and $1.35 on /RB as well.


  7. Just a reminder this is the time to look at your puts to possible roll or set new once, BUT not to sell cherry calls!!!!

    I felt in the Dec month I have sold cherry calls to early, which are some off now ITM, but not to forget the stock in the armchair trade has always gone up by a delta of 1!!!


  8. NVDA here you have a good example as we sold the Feb. 155 and 165 caller which are in exchange a buffer to todays drop. Again Putters should be viewed today.


  9. Yodi / review putters- What is worrying you ( putter checks) ?  Is there something you see in the general market or specific issue?


  10. Batman,

    As you can see the market has a very nervous reaction lately.. So on a market like today you might and only might consider selling puts for certain stocks. NVDA is a typical example, all running to the exit, now you might consider selling a put. Same with MO the drop was overdone I bought stock at 42.90 you could as well have sold Puts. I do like selling puts when everyone is jumping over board.. Hope this helps.


  11. 3rd party/StJ – Ralph Nader clearly cost Gore the election and did more damage to the environment with that idiotic run than all the good he ever did in his career and the entire Green Party should be forever shamed for that whole debacle.  Clearly their "cause" took 2nd place to their egos or they would have backed Gore as the logical choice in a close race, who was already the "greenest" candidate they'd ever had close to a position of power – and they not only blew it but put in a person who was the polar opposite – and now we have no poles!!! 

    Image result for polar bear ice

    Minimum wage/StJ – I wonder why there are no studies looking into whether higher corporate profits destroy employment?  I bet they wouldn't like to publish those results!  

    AR/Pat – Not as good as ARR.  AR has VERY uneven earnings and last year's earnings came from some one-time events as well as taking a $300M tax credit on $490M in earnings so normal taxes would have been $150M and they would have netted $340 (the pace they are on for 2018) and that's 1/10th market cap ($3.25Bn) so not terrible – just not as great as they seem.  Next year, however, they project net losses in the $300M range so do you really think now is the best time to jump in?

    Year End 31st Dec 2012 2013 2014 2015 2016 2017 TTM 2018E 2019E CAGR / Avg
    Revenue $m 444.5 1,313 2,681 3,955 1,647 3,656 4,116 4,431 4,554 +52.4%
    Operating Profit $m 444 298.6 1,279 1,790 -992.8 738.6 304.1     +10.7%
    Net Profit $m -285.1 -18.9 673.6 941.4 -848.8 615.1 210.9 345.3 212.2  
    EPS Reported $ 0.89 -0.092 2.56 3.43 -2.88 3.30 2.02     +30.1%
    EPS Normalised $ 0.17 0.040 2.55 3.67 -2.70 3.68 3.12 1.14 0.54 +84.5%
    EPS Growth % -84.3 -76.5 +6,218 +44.0     -15.1 -69.1 -52.7  
    PE Ratio x           2.83 3.33 9.16 19.4  
    PEG x           n/a n/a n/a n/a
    Profitability

    If you must take a poke at them with low oil prices (I wouldn't), I'd start with just selling the 2021 $10 puts as you can get $2.10 for them so a net $7.90 entry or you make 25% for doing nothing at all – seems like a good deal (if you MUST own the stock).

    NVDA/DC – Well, we never added them as I felt the death of coin mining would hurt them as well as INTC getting better with their own integrated graphics chips (so no need).  Even at $130, that's $82Bn and, even paying no taxes they "only" made $3Bn last year but it should have been $2Bn and that's 40x earnings – even if sales hold up (which they aren't) so doesn't look like a great bargain to me, even here. 

    Submitted on 2018/11/16 at 8:03 am

    NVDA/Ati – That's why I never got caught up in the hype on them, didn't think that demand would last. 

    • Submitted on 2017/08/16 at 3:22 pm
    • NVDA/Pat – Talked about in webinar.  Bump from coin mining may not last and IOT is a ways off.  Assuming they make $2Bn this year, at $165 they are priced at $98Bn so in no way are they cheap so I'd just watch and hope for a pullback.
    • Submitted on 2017/08/17 at 8:02 am
    • NVDA/Newt – The gist of it is they are a nice company with good long-term prospects but not cheap after rising 60% in 3 months (I would think that part is obvious).   Good one for a watch list.
    • NVDA/StJ – And what if the cryptos crash?  How doe they replace that revenue?  I wouldn't chase them.
    • Submitted on 2018/05/14 at 12:41 pm
    • NVDA/Dave – They said they expect a slowdown and $257 is $156Bn for a company with $10Bn in sales and $3Bn in profits so 50x earning is too much for me to swallow.  I'd stay away but you can sell the 2020 $170 puts for $11 if you have faith and that's net $159 so 40% off before you are in trouble.  If you consider that free money, then you can put it towards a spread like the 2020 $230 ($67.50)/$275 ($46) bull call spread at $21.50 so net $10.50 on the $45 spread but, I think it's way to high to play that aggressively. 

    NVDA/Yodi – They have massively benefited from BitCoin, etc. mining in recent years, hard to judge how much of that business won't come back for them.  Makes them a little iffy:

     

    That's 10-20% of their total revenues and it's their very profitable revenues since they are after-market retail upgrades while their core business is selling components to manufacturers at low margins.

     

    NVDA/Batman – I don't know where you're getting 7.2 p/e as $153 is $93.5Bn and they are, at best, projecting $4.5Bn in profits with 2018 in the can for them (Q4 is Q119) so not likely to be any upside surprises.  

    That's my story and I'm sticking to it! 


  12. Take for example DIS. My cherry call expired Friday. Down to 110. do I sell calls today NO. I wait and see.


  13. Yodi – thanks. – I sold some MO putters last week, already have some stoke in this and partially covered calls.  Was I have been selling short callers ( or exiting positions) on run ups.    Also AAPL earnings could be a problem – I'm worried that they will be very conservative on the outlook and take down the semi sector with supply chain ripple effect….   I'm looking to sell some short callers for March and June into earnings.


  14. By the way, /BZ is down from $62 so the weak bounce is 0.40 and should be about the same for /CL so that's our primary target and becomes the stop if we pop over.   


  15. Batman, I will stick to my present positions with AAPL but will not sell calls until after the 29 Jan. Could go in any direction. But a lot of negative is already baked in.


  16. Phil – I am looking at doing a CAT spread given the dip. What would you suggest for a new entry? Thx,


  17. CAT/Deano – I think I'd wait for the downgrade police to have at them first.  They dropped guidance to $11.75 for the year and that is based on expecting China to be resolved so they could still take a big hit from here if it drags on.  In our LTP, we sold the 2021 $100 puts for $10 back on 10/23, when they lowered guidance earlier in the month (and aren't you glad you didn't buy that next day or next week?).  The stock bottomed out at $115 and this was WORSE than was expected then, so why rush to pay more?

    Netting into CAT for $90 is a long-term position I can certainly live with and, currently, those puts are $8.50 so still less than we sold them for but that's what I'd keep an eye on.


  18. Phil – thanks! Looking at INTC as well, same scenario, but one day later. Seems like the chip stocks are down as a group, but INTC still the best.


  19. SVXY – unfortunately, the SVXY trade details are incorrect – the trade was a big loser. You made a typo at the time of sending out the Top Trade by email (you erroneously said to sell Feb $30 puts, but the trade price was for selling the short Feb $130 puts. I pointed it out at the time and you corrected the post later on. Here is my comment at the time (you have corrected the post). You must have looked at the email version when you were compiling today's review.

     

    Winston 
    February 5th, 2018 at 2:30 pm | Permalink | Tweet thisIgnore this user

    I may have missed something, and apologies if this has already been picked up, but there is a bit of snafu in the Top Trades issued on Jan 19, 2018. It was published in that days main post as:

    phil 
    January 19th, 2018 at 2:16 pm | Permalink | Tweet thisIgnore this user

    Speaking of portfolios, what a fantastic time to add hedges to the STP!  

    I'm going to try to have hedges we can make money on along the way – in case the market fails to surrender. 

    Hedge #1 is SVXY, which is the Ultra-Short VIX ETF.  This is going to be an actively managed trade:

    Buy 20 SVXY June $140 puts at $28.50 ($57,000) 

    Sell 20 SVXY June $110 puts at $17.50 ($35,000) 

    Sell 6 SVXY Feb $130 puts for $8 ($4,800) 

    However in the email alert sent out as a Top Trade alert as well as on the Top Trade home page, the short puts were listed (which was obviously a typo) as sell the Feb $30 puts (not the $130 puts).

    The SVXY Feb $130 puts are now trading at $38, so unless they have already received some TLC in the way of adjustment they need to be looked.

    Again, apologies if I missed something and this has already been addressed. I would have thought plenty of subscribers would have picked up the fact that the SVXY Feb $30 puts could never have been sold for $8.


  20. MO – part of the weakness in Altria may be due to the decline in the value of its 10% stake in the beer company Anheuser Busch Inbev. AB Inbev's share price declined 40% in 2018 (see today's FT article: subscription required). But encouraging words from the CEO of AB Inbev:

    In an interview, Mr Brito acknowledged that last year’s share price decline of nearly 40 per cent was difficult to stomach both for him and his hard-charging employees, whose bonuses are often linked to share performance. “There has been a change in mood among investors on emerging markets and companies that have high debt,” he said. But the period of volatility would pass, and AB InBev would soon be back on top, he predicted. “We continue to be very confident in our footprint, brands and our people.”

     

    Of course he would say that wouldn't he?


  21. INTC/Deano – Now those guys, at $211Bn ($46.26) are running $4.4Bn, $5Bn and $6.4Bn so far this year though only paying 10% tax so take $5Bn avg for $20Bn and knock off 10% for reasonable taxes and we're at $18Bn so reasonable 12 p/e normalized.  Of course may be up or down cycle – remains to be seen.  

    Over the long haul – do I mind being stuck with INTC – of course not – so I'm more willing to pull the trigger on them. 

    You can sell 5 of the 2021 $40 puts for $4 ($2,000) and I'd consider that free money (because buying INTC for $40 is something I'd like to do) and pair that up with the not at all aggressive 10 2021 $40 ($10)/47 ($6.50) bull call spreads at $3.50 ($3,500) and that's net $1,500 on the $7,000 spread that's $6,220 in the money at the moment.

    For the LTP, let's keep an eye on them and start with the sale of 10 of the INTC 2021 $40 puts at $4 to get a free $4,000.

    SVXY/Winston – Ah, I guess the alert went out wrong without the correction.  As it turns out, we took a $65,640 loss on those puts in the STP and, against the June $140/110 spread (fortunately 20 vs 6) we netted out -$29,840, which was annoying but survivable.  Thanks for correction.


  22. Oops, bad math.  On SVXY it was:

    That one paid the full $60,000 as, of course, SVXY never came close to our June $110 calls but also killed us on the Feb $130 puts as they finished on 2/16 at $50.76 for a loss of $79.24 ($47,544) so the net on the trade was $12,456 less the $17,200 we paid was a net loss of $4,744 overall

    Of course the plan to keep selling puts to make the money back worked but that wasn't part of the Top Trades so I'll just change it to -$4,744.

    Should be all correct now if you refresh the post.


  23. What is up with /NG today??






  24. Polar vortex 2019 to hit Michigan: What you need to know


  25. Phil, why in your spread operations you are not including the margin values?
     

    for example in the SIG that you sent today. You say it will be 3,100% upside. But, in fact, it will be 84.6% because I will have to leave U$10.000,00 in my account.

     

    Considering 84.6% until maturity 2021, then we would have something like 3.53% per month of profitability. I believe it is possible to do the same or greater in shorter time frames. Why are you calculating in this way? Do you find this small profitability enough for the risk assumed?

     

    Thank you for your clarification.


  26. /NG/Willsons – I think it's a scare from the drilling counts and the overall slowdown in industrial activity.  Also, the front-month contract (/NGG19) is rolling over so people are dumping.  /NGN19 is still $2.903, which is higher than our last $2.89 entry and even /NGH19 (March) is holding around $2.89 and should recover pretty quickly towards $3.10 (but /NGN19 is the safer bet, though won't go up as much either). 

    Margins/Marco – Because margins vary by broker and types of account.  I simply state the gains on cash, which is what really matters at the end of the year – how much more CASH!!! do you have than you had last year.   I don't think using $10,000 in margin is the same as using cash and I don't consider 3.5% a month to be small potatoes in any case.  What's your better play?

    Go up top to our strategy section and we discuss there using the account from cash and margin perspectives.  I'm not a fan of using a lot of margin, like the 5x margin you get from some brokers but I assume almost anyone has 2x margin available and that's generally how we try to run our portfolios – keeping 1/2 of our buying power available at all times.  From a cash perspective, the way we trade – we use maybe 20-25% of our cash and half our margins typically.  It keeps us flexible and, as noted, if you make "just" 300% on 20% of your cash, that's 60% more cash than you started with so you end up up 60% for the year and, when you close those positions, you are using no margin and you get to do it again, but now with 160% of where you started.  


  27. Phil, great explanation on margins / returns.


  28. Grrrr, holding some REIT stocks (NLY, NRZ, …) for the dividends and making sure to hold them for the 60 days around the ex-dividend date to get taxed as qualified (lower rate) dividends and just found out REIT stock dividends never count as qualified.


  29. REIT/tangled  you may already know, the new tax legislation did have a benefit for REIT investors       

    "The tax plan’s deduction for pass-through businesses includes the income that flows to REIT investors through dividends. It allows investors to deduct 20% of the income, with the remainder of the income taxed at the filer’s marginal rate."

    https://www.barrons.com/articles/tax-plan-is-good-news-for-reit-investors-1513893827


  30. Qualified/Tangled – You should look into trading through a company/family fund if you don't qualify for trader status.  Those things treat your trading like a business so you just have P&L at the end of they year less expenses you incur for trading like Internet, Computer, Office Stuff, Subscriptions….


  31. Basically we're still just consolidating over the strong bounce line (2,600):

    Over is good – especially over the 50 DMA, which is now down to 2,612 but it's all noise other than that – especially with this low volume:

    Date Open High Low Close* Adj Close** Volume
    Jan 28, 2019 263.3900 263.7500 261.7900 263.4500 263.4500 64,567,178
    Jan 25, 2019 265.6100 266.7000 263.6600 265.7800 265.7800 96,032,800
    Jan 24, 2019 263.2100 264.2000 262.0800 263.5500 263.5500 59,204,100
    Jan 23, 2019 264.0100 264.7900 260.6600 263.4100 263.4100 86,030,300
    Jan 22, 2019 264.8200 265.0600 261.0600 262.8600 262.8600 115,531,200
    Jan 18, 2019 264.9800 266.9800 263.0000 266.4600 266.4600 127,900,300
    Jan 17, 2019 260.0100 263.9200 259.9600 262.9600 262.9600 96,118,400
    Jan 16, 2019 260.8300 261.9700 260.6000 260.9800 260.9800 77,636,700
    Jan 15, 2019 257.8200 260.7000 257.8100 260.3500 260.3500 85,208,300
    Jan 14, 2019 256.8600 258.3000 256.4100 257.4000 257.4000 70,908,200
    Jan 11, 2019 257.6800 259.0100 257.0300 258.9800 258.9800 73,858,100
    Jan 10, 2019 256.2600 259.1600 255.5000 258.8800 258.8800 96,823,900
    Jan 09, 2019 257.5600 258.9100 256.1900 257.9700 257.9700 95,006,600
    Jan 08, 2019 256.8200 257.3100 254.0000 256.7700 256.7700 102,512,600
    Jan 07, 2019 252.6900 255.9500 251.6900 254.3800 254.3800 103,139,100
    Jan 04, 2019 247.5900 253.1100 247.1700 252.3900 252.3900 142,628,800
    Jan 03, 2019 248.2300 248.5700 243.6700 244.2100 244.2100 144,140,700
    Jan 02, 2019 245.9800 251.2100 245.9500 250.1800 250.1800 126,925,200

    The volume on the way up was in the 100s so drifting along at 60M is meaningless.  We're actually holding up pretty well considering oil is down 3% and those morning earnings sucked – as did the Chinese data…


  32. This is how bad CAT was:

    Was their biggest miss since 2009.

    But how about this:

    Earnings Brief (By CS) : 25.7% of the S&P 500's market cap has reported 4Q. Earnings are beating by 2.4%, with 69% of companies exceeding their bottom-line estimates.This compares to 4.9% and 70% over the past 3 years.



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