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Which Way Wednesday – Fed Edition

Things are going up, up, up – so why worry?

Things LOOK so good in the market that we've even capitulated on our CASH!!! position and moved some into new portfolios for Short-Term trades, Dividend trades and Earnings trades and our Butterfly Portfolio has always been open – as is our newer Hemp Boca Portfolio.

We wanted to go to CASH at the end of September in the old Long-Term, Short-Term and Options Opportunity Portfolios because they had done very well and we didn't want to risk it all into Earnings, Brexit, China Trade, Mid East Unrest, Impeachment and what looked like a Slowing Economy.  

The market did take a nice dive just after (or maybe because) we cashed out in early October but, since then, Brexit has been delayed, Earnings haven't been too bad, China sort of has a deal with us, the Mid East is a disaster and getting worse – but no one seems to care, Trump is being impeached and no one seems to care and the economy is definitely slowing – and no one seems to care.  

As a Fundamentalist, it's still kind of hard for me to want to take risks in this environment but I also have to go with the flow and the crowd is pouring back into equities so we'll take some quick dips, with as little risk as possible.  Our Short-Term Portfolio has the most risk but also is getting the most reward – up 16.6% for our 2nd month already on just 4 trades so far:

We're using  the STP to teach various options trading techniques to our Members.  The BKNG trade is one of our Extended Butterflies and the MJ trade is an Income Producer as we look to collect $800(ish) every quarter for an additional $6,400 over 8 quarters – it's great the way small amounts can add up.  That way, our $8,200 net cash entry drops to near zero and ANYTHING of value left in the spread becomes our profit – and it's a $45,000 spread if MJ climbs to $30 or more!  

FCX is what we call an artificial buy/write, where we use the bull call spread with the short puts in lieu of owning the stock.  The spread is a net $160 credit and our worst-case scenario is owning 1,000 shares of FCX for $10 ($10,000) less the $160 credit while the upside potential if they simply hold $10 is $5,000 – a 50% gain had we bought the stock now for $10K but we're using just $1,822.50 of ordinary margin to "artificially" own the stock instead.

TSLA is our riskiest trade but a good example of selling risk premium as we sold the $340 calls on Friday, while the stock was flying up and collected $10 and, already, they are down to $3.43 for a 65.8% profit.  We have an unrealized loss on the puts but hopefully TSLA calms down and holds $250 but doesn't get over $340 and we collect the entire $31,000 – though not until 2022, unfortunately.  Our intent is to sell calls many times while we wait for the short puts to expire and, at $5,000 per month – this could be a fun trade indeed! 

So that's how we're passing our time while we're waiting for the Fed to remove that layer of market uncertainty.  Yesterday we reviewed our 5 Trade Ideas to Make $25,000 in 5 Months and that article was from August 29th and I'm happy to report that, after just two months, our 5 trades are already up $26,800 so goaaaaaallllllllllll – though there are still a couple you can play for nice gains in the last 3 months – Merry Christmas!

We have a Live Trading Webinar today at 1pm, EST and we'll review the Fed Rate Decision and Powell's Speech as it happens – you can JOIN US HERE 

 


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  1. Good morning, All!

    Join Phil at 1pm (Eastern) for the weekly webinar! 

    https://attendee.gotowebinar.com/register/5459611096614948364


  2. Good Morning!


  3. Buongiorno from Assisi.



  4. MAT- Trading up 21 per cent in pre-market  !


  5. Good morning.

    Phil, just a reminder from yesterday to have a look at NOK – would be good to get your opinion on this.


  6. Good morning!

    Fed Eyes Third Rate Cut, but Faces Questions Over What Comes Next

    Federal Reserve officials are leaning toward cutting their benchmark interest rate at the conclusion of their two-day meeting on Wednesday. But how do they frame what happens after that?31

    Salve Albo – Nice place to be…  I like Santa Maria – an old Roman Temple made into a church so lots of interesting art there.  Tends to be less crowded too!

    Big Chart – RUT is lagging by a lot, was 1,742 last Aug so almost 200 points below is 13% to gain if they are going to catch up to Dow, Nas and SPX.

    The pace of U.S. economic growth slowed slightly during the third quarter as business investment declined, although solid consumer spending and an improvement in the housing sector kept economic growth on track.37 minutes ago

    GE up 8% on a loss for the Q – good bottom signal.

    General Electric reported a more than $9 billion third-quarter loss, weighed down by accounting charges tied to its restructuring, but the company’s core operations generated cash in the quarter.

    GE's stock soars on heavy volume toward a near 3-month high after earnings beat, raised FCF outlook

    How China Now Manages Money American-Style, in 17 Charts

    China has long been a nation of savers. Now, 40 years into the greatest accumulation of money the world has ever seen, the pattern is reversing. The impact will be felt world-wide, in ways good and bad.8

    ‘Peak Car’ Is Holding Back the Global Economy

    U.S. Housing Market Gaining Modest Strength, Indicators Show

    Juul Marketing Chief Leaves as E-Cigarette Maker Suspends Advertising

    Johnson & Johnson Stock Takes Off in After-Hours Trading After Baby-Powder Tests Show No Asbestos

    Worst Isn’t Over for China Sovereign Bonds as Supply Surge Looms

    Yum China Reports Pizza Hut Growth Falls Short, KFC Stays Strong

    Here’s how stocks tend to perform after the Fed cuts interest rates 3 times in a row

    AMD reports highest revenue in more than a decade, but slightly light forecast makes stock volatile.

    Two more billionaires say the 2020 election could trigger a market plunge.

    The NCAA will allow athletes to profit from their name, image and likeness

    BOJ To Start Lending ETF Shares To Prevent Market Freeze. 


  7. Go MAT!  


  8. Buongiorno Albo! I'm headed to Puglia in a few days.


    • Apple (NASDAQ:AAPL+0.8% is mobilizing its suppliers for the 5G iPhone models expected to arrive next year, according to Nikkei sources.
    • The tech giant will reportedly launch three 5G models carrying a new modem chip designed by Qualcomm. Apple has set "aggressive" sales targets for the devices.
    • In related news, Bloomberg sources say Apple expects iPhone shipments to return to growth next year, driven by the 5G models. Apple hopes to ship more than 200M handsets in 2020 compared to the 170-190M analyst estimates for 2019.
    • The 2020 iPhone releases might also include a 4G model and the low-cost iPhone SE.
    • Upcoming catalyst: Apple reports earnings after the bell today.

  9. Wow, 1.9% growth! Where are the 4-5% we were promised? And where is the wall? 

    Maybe we do need to cut rates if only to help with the debt as revenues will go down and the deficit will increase if we slow down. And of course, we are already over $1T so no margin for stimulus and idiots in Congress will propose budget cuts that will make things worse… 


  10. Good morning!






  11. Phil / KHC,

    What are your thoughts on KHC? They will be reporting their earnings tomorrow and I have sold Jan 22 puts strike $30

    Thank you, 

    Pat 


  12. I wish Jim Rogers would go away…..


  13. Safe travels, Atitlan !


  14. Phil – one of your past dividend faves is taking it on the chin this am: NYCB. Seems like they're approaching the 200 dma. Thought it might be a candidate for the new div. portfolio.


  15. NYCB / Deano – I have them and it looked good yesterday. Hoipefully some support here:

    NYCB New York Community Bancorp, Inc. daily Stock Chart


  16. Batman, Stockbern – Re: your discussion last night.

    FWIW – I'm long a small position in KSHB as a spec.


  17. Chile canceled the conference where Trump was supposed to sign the trade deal with China.  

    https://www.vox.com/world/2019/10/29/20938402/santiago-chile-protests-2019-riots-metro-fare-pinera

    KHC/Pat - 

    Rogers/1020 – I was talking to him in the Village back in 2007 when he moved to China – he said the US was done and China was the Future – China crashed harder than us and he lost a fortune.  Now he's getting cocky again.

    KHC/Pat – Horrendous mismanagement is their problem.  Profits will not be more than $3.2Bn this year or next and $28.50 is just under $35Bn so good p/e but no growth means they shouldn't be over 15x anyway.  They only made $400M the last two Qs so they have to put up well over $1Bn in profits just to be worth $28.50 and last year Q3 was $630M but $814 before tax and they have a huge tax credit now.  Still, unless they show me the earnings – I wouldn't risk it. 

    NYCB/Deano – $5.8Bn at $12.50 and good for $400M is a p/e of 14.5 so right-priced for a bank.  Dividend is a lovely 0.68 (5%) so what we have today is a CORRECTION – as in the stock is moving back to it's correct price around $12 based on in-line earnings.  Just because they pay a dividend, doesn't mean they are one of MAYBE 12 stocks I want in a Dividend Portfolio so we just have to evaluate the spread and see if we get good bang for the buck:

    • First of all, you can just sell the 2022 $12 puts for $2 (maybe more, the spread is wide) and net in for $10 and $2 is way more than you'd collect in dividends without the hassle of owning the stock.

    To collect the dividend:

    • Buy 1,000 shares of NYCB for $12.26 ($12,260)
    • Sell 10 2022 $10 calls for $2.75 ($2,750)
    • Sell 10 2022 $10 puts for $1 ($1,000) 

    That's net $8,510 and you get called away at $10,000 with a $1,490 (17.5%) profit and $1,360 in dividends is another 16% so 33.5% over 2 years is in-line as a dividend play but not super-exciting.  

    I'm in no hurry to fill up the portfolio, we have some solid picks and now we can wait for real bargains to present themselves rather than forcing ourselves to find the "best" of whatever happens to be sitting around at the moment.


  18. The Fed’s long game is anyone’s guess





  19. AB is an interesting play.  They are growing AUM nicely and it's costing them a bit now but I think worth it and, at $29.56, they are at $2.8Bn dropping $250M to the bottom line and paying out $2.52 (8.5%) in dividends.  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Revenue $m 185.9 200.9 210.1 239.4 232.4 270.6 251.2 2,836 3,023 +7.8%
    Operating Profit $m 185.9 200.9 210.1 239.4 232.4 270.6 251.2     +7.8%
    Net Profit $m 165.5 178.5 185.8 216.6 207.4 242.4 224.5 232.6 259.8 +7.9%
    EPS Reported $ 1.71 1.82 1.85 2.22 2.45 2.50 2.34     +7.9%
    EPS Normalised $ 1.71 1.82 1.85 2.22 2.45 2.50 2.34 2.45 2.79 +7.9%
    EPS Growth % +238.5 +6.5 +1.4 +20.3 +10.2 +2.1 -15.3 -2.33 +14.2  
    PE Ratio x           11.8 12.6 12.1 10.6  
    PEG x           n/a n/a 0.85 0.68
    Profitability

    Unfortunately, they don't have long-term options but you can sell April $30 calls for $1 and April $30 puts for $2.40 to drop the net per share to $26.16 so if you are diligent and sell again at each expiration, you should be able to pick up 20% a year in options sales plus the dividends for very nice returns.  


  20. on AB, I think you will get a k-1 with them

    KHC,  I can't say why, but I would listen to Phil on this one.  For a food stock I prefer CAG.  Its a much better run company. 


  21. The Top-Earning Dead Celebrities Of 2019



  22. Fitch says WeWork still in danger despite rescue


  23. Phil, I think you missed the reminder on NOK which was the same minute as your morning post.


  24. AB/Stock – Those are annoying.

    NOK/Alter – Well, fortunately they are not moving but it's:

    Webinar time

    So you'll have to remind me again after.  

    Let me know if I missed anything in the Dividend Portfolio:

    Not bad for the first week!  SKT dropped a lot on ex-dividend but we picked up 0.355/share – our first dividend!  Not sure why the drop was $1 though – seems excessive.  


  25. Long on /RB at $1.615 with very tight stops below.  $1.62 is a better long line or $1.60 if it gets lower (/RBZ19).


  26. Talked ourselves into owning M in the Dividend Portfolio:

    • Buy 2,000 shares of M at $15 ($30,000) 
    • Sell 20 2022 $15 calls for $3.25 ($6,500) 
    • Sell 20 2022 $13 puts for $3.75 ($7,500) 

    That's net $16,000 on the $30,000 spread if called away at $15 (flat) for a $14,000 (87.5%) profit and dividends are $1.51 for $3,020/yr or $6,040 in 2 years (37.75%) – very nice returns and only net $10.50/share if assigned so 30% downside cushion too!


  27. $1.615 did not work out on /RBZ19 so our next play is either over $1.62 or the $1.60 line with more conviction.

    Powell got a nice reaction from the indexes but, on the whole, the Fed is indicating they are pretty much done raising rates so I don't see what the excitement is about.

    Image

    No one thinks it should be lower and two people objected to this reduction.  Also, taking out "will act as appropriate to sustain the expansion, with a strong labor market and inflation near" and changing it to "as it assesses the appropriate path of the target range for the Federal Funds Rate" is a BIG change in policy – they are not going to buy a rally!

    This is TFF:

    Image

    Image

    Image

    Trump thinks we are all idiots and, according to the polls – he's 50% right!

    Dollar indecisive – boosting the indexes with a 0.30 power dive:


  28. NOK/Alter – They just transferred 2.3M shares into a settlement but it's out of 5.6Bn so nothing people should be freaking out about.  What's killing them is their 2020 outlook has gone down and down and down some more – every time they update it.  I don't think it benefited them to be early to market with 5G as they are coming to market with the oldest, most expensive components (which were state of the art 24 months ago) and, as usual, AAPL wins as they have now locked up all the 5nm chip production for their 5G phones.  5 NanoMeters – that's only 5 above not existing!  

    Huawei is killing them in the International Markets and causing margin compression for what they do sell and they are almost certain to have to cut dividends going forward (like FTR!) and that will FORCE funds to dump them – regardless of the value in the stock.  They have to upgrade their 5G before they even roll out what they have so more cash demands there so $3.62 is a fair price on 0.27 projected earnings:

    They are not going BK though, just a setback in a division that doesn't make much money anyway.  55.7% of their money comes from Networks and 44.3% from licensing leaving pretty much nothing from hardware sales and people WILL use their Networks – they just won't gain the market share they thought they would by being first.

    You can sell the 2022 $4 puts for 0.95 to net in at $3.05 and that's not very exciting but I don't even see the point of selling the $3 puts for 0.40.  $2.60 may be better than $3.05 but if you don't believe in $3.05 – why the Hell would you be playing this thing?

    The 2022 $3 calls are $1.15 and the $4 calls are 0.65 so net 0.50 means I think the best way to play is:

    • Sell 25 NOK 2022 $4 puts for 0.95 ($2,375)
    • Buy 50 NOK 2022 $3 calls for $1.15 ($5,750) 
    • Sell 50 NOK 2022 $4 calls for 0.65 ($3,250) 

    So it's net $1,025 on the $5,000 spread that's $3,250 in the money and the upside potential is $3,975 (387%), which is respectable and the worst-case is owning 2,500 shares of NOK at about $4.25 (the loss of the initial cash too) but the break-even is about $3.25 so below $3 means you're in 5,000 shares for avg of $3.63, which is where we are now and then you could sell more calls to knock 25% off that so call it $3 or less ($15,000) for the long term.

    I like it but don't love it as there are certainly easier ways to make $3,975 in two years – like selling 10 AAPL 2022 $140 puts for $4 ($4,000), which requires $14,000 in margin so no worse than what you'd be assigned on NOK yet AAPL would have to drop almost 50% for this one to hurt you.


  29. Actually with AAPL, I'd sell the March $180 puts for $1.50 as you can always roll them lower and you're using just 142 days instead of 814 so 6 sales of $1.50 is $9 vs $4 if you just sell the 2022 puts and the margin isn't much different so worth the extra effort to make 125% more money.  


  30. Some of Trump's tweet just don't age well… Sometimes it takes years and sometimes like an open can of beer, it takes only days.


  31. SKT beats on earnings :)




  32. Reading Scores on National Exam Decline in Half the States







  33. Rats – SKT looked great all night, hitting $16 now.