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Thursday Thrust – Markets Drive Back to the Highs

Correction, what correction?

Monday's drop is now completely erased in the Futures for no particular reason this morning and that's great, I guess.  Traders are back to believing in a China deal because Trump said we're close and, if there's one thing we know for sure, it's that President Trump would never lie to the American people, right?

BUT, just in case he is, maybe we should discuss the idea of having hedges as we now find ourselves with long positions we should probably protect from the next "misunderstanding" we have over trade progress.  We now have a handy "map" that shows us which indexes fell by how much on trade rumors and we know how much that would have paid on the Futures:  The Dow (/YM) fell 450 ponts ($2,250), the S&P (/ES) fell 40 points ($2,000), the Nasdaq (/NQ) fell 125 points ($2,500) and the Russell (/RTY) fell 20 points ($1,000) so the best hedge looks like the Nasdaq.

The Nasdaq is mostly Apple (AAPL) and the IPhone will be banned from Russia as of July for not agreeing to pre-install Russian saftware, which is usually something the President of the US would be outraged over and would step in and stop US Companies from being abused but, you know, Trump…  So Apple faces losing the entire Russian market. 

Apple makes about $3Bn of their Global Profit in Russia so about 5% of their total and AAPL trades at $260 so $13 to $247 wouldn't be tragic but it's a catalyst for another Nasdaq drop at some point so it gives us another reason to use the Nasdaq as a hedge.  Of course, time-frame is also an issue and we'd like to have a trade that lets us take advantage of quick dips and I'd say December 15th is a pretty good deadline for action as it's when the next round of tariffs are supposed to kick in (though they may get delayed).

SQQQ is the Ultra-Short ETF for the Nasdaq and it just bounced off the $25 line back to $27 on the recent dip and the Dec (20th) $24 ($2)/26 ($1) bull call spread is net $1 on the $2 spread so it pays 100% if SQQQ stays over $26 and the Nasdaq would have to make a new all-time high for it not to.  If we set a stop at 0.25 on the spread (or roll out the long calls before they fall below $1) then we risk 0.25 to make up to $1 as a hedge – that's a good deal!  

If we want more bang for the buck, we could go with the March $22 ($5)/27 ($2.50) bull call spread at $2.50 and sell March $24 puts for $1.70 and that nets us into the $5 spread for 0.80 with $4.20 (525%) of upside if SQQQ is over $27 in March (20th) and that's up 3% from here which would correspond with a 1% drop in the Nasdaq.  The difference is we won't be able to cash out early so maybe a little of both will be appropriate – we will decide during the day's trading what to add to protect our portfolios. 

There's still a lot of uncertainty in the markets but that doesn't seem to stop them from going higher and higher so, for now, we'll just go with the flow and see where it takes us but, now that we do have long positions to protect – we'll proceed just a bit more cautiously and add some hedges.

 


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  1. Good morning, All! 

    The webinar replay is up, here: 

    https://youtu.be/d6iiRIP7NIs


  2. Watching our premium melt again! Gotta love these big swings up and down.


  3. There are no small savings:

    https://www.npr.org/2019/12/04/784732180/nearly-700-000-snap-recipients-could-lose-benefits-under-new-trump-rule

    There were nearly 4 million such adults receiving food stamps in 2016, about three-quarters of whom did not work, according to the U.S. Department of Agriculture. Some estimates say the changes could save nearly $5 billion over five years.

    And I am sure fraud is rampant with food stamps. People might even use them to buy food! This saves $1B per year and even if it's 100% fraud (it's not), we just gave $1.5T to the top 1% over 10 years in tax cuts and we know, there is no fraud there. Sickening.


  4. Maybe too much early exhuberance:


  5. Why people might be more in cash than they should:

    https://theirrelevantinvestor.com/2019/12/04/the-portfolio-gap/

    Quote – "Another factor is that we’ve sometimes received lumpy influxes of cash (bonuses, and so on) that we’ve been slow in putting to work. In part because of the rapidly rising market that we’ve enjoyed over the past decade, it never seemed like a great time to do so."

    The reason that Morgan has a higher cash allocation than might be recommended is because it helps him sleep at night. That feeling cannot be quantified and trumps anything the numbers might show. Knowing your actual risk tolerance is the first thing an investor needs to figure out, and unfortunately you only know where your line is after you crossed it.

    The portfolio gap is real, and that’s okay, because investing is not about maximizing returns, but about maximizing returns that you can reasonably be expected to achieve.

    Totally understandable!


  6. Good Morning!


  7. SIG

    Signet Jewelers beats by $0.33, beats on revs; guides Q4 EPS in-line, revs below consensus; guides FY20 EPS above consensus, revs in-line.

     

    This one has been fun to trde.


  8. Good morning!  

    Early spike is fading a bit – would be very bad to go red after such a good start but Dow still up 72 at the moment.  

    Pelosi officially calls for articles of impeachment to be drafted.  

    Food/StJ – They act like these people coast their whole lives on free food but the program only assists people for who fall into poverty for 3 months – that's hardly time to get a job!  The point of giving people food when hardship hits them is it gives them time to recover.  If you can't eat or you are homeless – it makes it tough to focus on your job interviews.  Just another way the rich have an advantage over the poor as rich people just coast along between jobs and have no idea what it's like in the real world.

    James D. Weill, president of the nonprofit Food Research & Action Center, said in a statement that the change would take food off the tables of thousands of Americans, many of whom live in areas with few available jobs.

    "The final rule would cause serious harm to individuals, communities, and the nation while doing nothing to improve the health and employment of those impacted by the rule," Weill said. "In addition, the rule would harm the economy, grocery retailers, agricultural producers, and communities by reducing the amount of SNAP dollars available to spur local economic activity."

    Craig Gundersen, a professor of agriculture and consumer economics at the University of Illinois, told NPR in April that there is no evidence that receiving food stamps discourages work.

    "The idea that people are ripping off the system of something, that's just not true," he said.

    Image result for trump food stamps cartoon"

    MJ/StJ – The real problem is they jumped into all those ridiculous IPOs and they fell apart hard and fast.  I thought at least SOMEONE would make money but none of them are very impressive so far.

    SIG/Albo – What a fun stock, overall a good report.

    Signet Jewelers Ltd. shares rose more than 8% in premarket trade Thursday, after the owner of jewelry chains including Kay, Zales and Jared posted a smaller-than-expected loss for its fiscal third quarter and sales that topped estimates. The retailer said it had a net loss of $43.7 million, or 84 cents a share, in the quarter to Nov. 2, after a loss of $38.1 million, or 74 cents a share, in the year-earlier period. The company's adjusted per-share loss came to 76 cents, below the $1.04 FactSet consensus. Revenue fell to $1.187.7 billion from $1.191.7 billion, ahead of the $1.144 billion FactSet consensus. Same-store sales rose 2.1%, ahead of the FactSet consensus for a decline of 1.5%. The company is now expecting fiscal 2020 same-store sales to be down 1.7% to down 1.0%. It expects adjusted EPS of $3.11 to $3.29 and sales of $6.01 billion to $6.05 billion. The FactSet consensus is for same-store sales to fall 1.5%, EPS of $2.91 and sales of $6.02 billion. Shares have fallen 48% in 2019, while the S&P 500 has gained 24%.


  9. As someone who has helped establish a local food bank and has been volunteering since inception I can tell you that a small portion of our clients are getting Snap benefits. The only ones with any government assistance are family's with children. The majority are retiree's who are widows or widowers which would make sense because good luck finding any jobs especially since many have disabilities to deal with and high RX and medical expenses. This is such an affront to our fine citizens who have worked hard their whole life's and fought for this country. We have a 94 year old gentleman, World  War !! veteran, widower who comes in with his walker and oxygen. I can tell you everyone deserves respect, a decent life and the ability to be free from worry about their bare necessities. That this bozo is doing this is truly the cherry on top of the sundae-what a sorry piece of garbage that man is!! In fact I'm working this PM @ food bank. A little help goes a long way. 


  10. The bozo of course is the POTUS, the orange menace!


  11. pirateinvestor

     

    Here Here  !


  12. Thanks, Pirate.  :)


  13. I receive so much back from what I try to do with donating my time, money, flour, sugar or anything we run out of which I consider a necessity for people that it is worth bringing smiles to our clients. Many feel diminished by coming like they are taking charity. I had one lady say she used to contribute, but she lost 1/2 her income when her husband died. She had tears in her eyes so I gave her a hug. I told her everyone life's can change quickly because of circumstances & to always come back for help. We have guidelines but never turn anyone away. It keeps you in touch to what is really important in life.


  14. Phil/bull call spreads

    What’s the rule for saving/rolling a spread that is falling?

    Roll the longs when the price of the longs falls below the net of the spread ?

    So, if the spread is a $50 spread that you paid $20 for, and the long was $30, the short $10, then roll the longs when they are down to a value of $20?

    Phil, is the above correct?


  15. Phil – If Trump were to be impeached what effect do you think it will have on the market? If you think we drop what hedge would be better – puts on an index or something like more GOLD spreads? Thanks


  16. Phil/anyone on the board/aapl

    I cannot post pictures or charts, but if you get a chance, could you or anyone on the board opine what the daily and weekly charts are telling us?


  17. Oops, all red already.

    Food bank/Pirate – God bless you for volunteering.  It always broke my heart in NYC meeting those people and understanding how they came to be there – needing our help.   What really pisses me off is that it's "just" $1Bn – Trump spent $4Bn on a new Air Force one (after campaigning saying $3Bn was too much) and he bumped up military spending by $107Bn in 3 years but $1Bn to feed 1M needy people people ($1,000 per person) is too much?  It's just cruel for the sake of being cruel…

    Here's an idea – instead of MCD only paying $1.8Bn (23%) in taxes on $7.7Bn in profits, we bump it up to 33% ($2.5Bn) and have them use that other $700M to feed some people?  That's a pretty simply plan! 

    To be honest with you, that's why I stopped working with the Food Bank, I was hoping to help more people by pushing for Social Change and I thought we were making progress when we traded in Bush for Obama but now we're going completely in the wrong direction again…

    Failing/Maya – Well really you NEED to adjust a bull call spread when the price of the long call hits the net price you paid for the spread.  At that point, you still have premium and can usually roll to a reasonable spread.  Of course it's best if you are able to leave the original short calls hanging (with sensible stops).  So yes, you are correct in that example.

    Impeachment/Willsons – Well it would certainly make me have a more positive view of the Future!  As I said above, I think SQQQ is a good way to go with a hedge and GOLD is our Trade of the Year – so that too.  

    AAPL/Maya – $250 should have been a consolidation point but AAPL blow over that – even though it was behaving normally at $225, where $220 was the 10% line.  We went from $100 ($700 pre split) to $150, paused there and on to $200 and overshot by 20% (+$20) before pulling back to $150 – all pretty normal and then $150 to $220 again and a pullback to $200 (normal) but then blasting from $200 to $250 and right through that to $270 is a bit much – especially when each $25 move in AAPL is $100Bn!

    AAPL trades about $7Bn per day (25M shares) so a $100Bn move should take about 14 sessions (3 weeks) to legitimately fill.  When you see it moving faster than that – its very likely they are going to pull back at some point. 


  18. Phil/aapl

    Thanks. My thoughts too, but not as mathematical as yours.


  19. Phil,

    Any idea/news as to why CSCO has been heading south this week?

    Thanks


  20. So SQQQ going net nowhere and let's see what we need to protect:

    Money Talk – Can't change

    Hemp Boca – Can't change 

    Dividend Portfolio – Wanted to leave it alone for 2 years. 

    Butterfly Portfolio – Should be self-hedging.

    Earnings Portfolio – This is really for protection and not a bet so:

    • Buy 20 SQQQ March $22 calls for $5 ($10,000) 
    • Sell 20 SQQQ March $27 calls for $3 ($6,000) 
    • Sell 10 SQQQ March $25 puts for $2.40 ($2,400) 

    That's net $1,600 on the $10,000 spread that's $8,000 in the money to start.  

    For the Short-Term Portfolio (STP), let's do both:

    • Buy 20 SQQQ March $22 calls for $5 ($10,000) 
    • Sell 20 SQQQ March $27 calls for $3 ($6,000) 
    • Sell 10 SQQQ March $25 puts for $2.40 ($2,400) 

    That's net $1,600 on the $10,000 spread that's $8,000 in the money to start.

    • Buy 20 SQQQ Dec $24 calls for $2.40 ($4,800) 
    • Sell 20 SQQQ Dec $26 calls for $1.20 ($2,400) 
    • Sell 5 CSCO 2022 $37.50 puts for $4 ($2,000) 

    That's net $400 on the $4,000 spread and we'll make a very fast $1,600 if all goes well on the bull call spread and then we'll decide if we want to keep carrying CSCO for the other $2,000 of upside potential.


  21. Phil/SQQQ calls

    You mean sell the March $27 calls for $3


  22. SQQQ/Maya – At least someone is paying attention!  Thanks, yes, it's sell the March $27 calls in the Earnings Portfolio and the STP.


  23. Wow, someone tried to scam Maddie.  She answered an ad to be a personal assistant and they guy said he was going hire her on a trial basis and he sent her a check for $2,400 and told her to take out $700 for her first week's salary and the rest she would use for miscellaneous tasks he needed doing.  

    She got suspicious because he told her to put the money in her account, which she thought would get messy so she went to open a new account for that specific check and, SURPRISE, the check didn't clear and the account is a scam.  Seems like they were somehow counting on Maddie not to understand that her bank would have paid her $700 out of her own funds and that she'd spend he own money on his tasks until the bank told her the check bounced and reversed the deposit.  

    What a crazy world we live in these days – it's very dangerous when hiring and such is so impersonal.  She was "interviewed" and went back and forth with Emails and such with these guys for weeks and she was so excited to have gotten the job…

    CSCO/8800:

    December 5th, 2019 at 7:37 am | (Unlocked) | Permalink 

    CSCO/8800 – Back on the 14th, they gave weak guidance and, since then, have gotten a lot of downgrades.  I like them down here (another cyclical that people simply have no patience for) and have been waiting for a good bottom to jump in – this could be it.


  24. I am surprised that personal assistant scam is worth playing.  How many people applying for personal assistant jobs have $2400 in the bank?


  25. SCAM- cannot be too careful nowadays. I had someone send me a "cashiers check" for items I had for sale on Craigslist. I thought the deal was suspicious from the getgo and then I get a check drawn on a bank somewhere in Missouri. Called the bank and they confirmed it was bogus. 


  26. Phil

     I am going to Asia next week till first week of Jan

    I will use the SQQQ hedge

     

    With the time change I will have some access to trading

     

    Is there any other Hedges I may want to add for the time I am traveling

    You thought are appreciated

     Thank you for the help over the years



  27. These are the top 20 scientific discoveries of the decade




  28. Scam/Tangled – Well she's a college kid, they have money, I suppose.  

    Craigslist/Pstas – It's such a shame people abuse these things.  That's the nice thing about Ebay, they insure the transactions.

    Asia/QC – Where to?  I might have to be in Thailand for New Year's.   I think that's a good hedge – hedges haven't really worked for more than a couple of weeks for over a year now, so I wouldn't overdo it.   The Dec 15th trade deadline is the wild card.

    Opinion: Trump perfectly orchestrates the stock market’s rise whenever momentum wanes


  29. QUIK – Up 40% today on ten times normal volume !

    Of course, you get them cheap enough and a few pennies represents a very large percentage move.

    Supposedly George Gilder recommended it as a spec in his Moonshot service.

    Company still projects a large revenue increase next quarter, but they've been expecting that for some

    time and it keeps getting moved forward.  Also a reverse split seems very likely.


  30. Scams – I may have mentioned, my son is a fraud investigator for a Very Large Bank. He doesn't do those sorts of check schemes much anymore; he did money laundering investigations for a while but is now part of a gang investigation team – gangs in the sense of groups of people who usually share some sort of identity and work schemes together, with bust-out being the most common (https://www.investopedia.com/bust-out-definition-4684002). Maddie's scam was a little odd, amateurish – first, they took a long time at it, and second, why pull Maddie into it when it's easier just to have their own crew do the bank work. That said, though, these sorts of scams are common on college campuses, often advertised in the school newspaper or recruited through word of mouth – "make a few bucks" kind of thing.


  31. Wow, huge defeat for Aramco being painted as a victory.  Originally they were going to sell 10% for $200Bn and now they are selling just 1.5% for $25.6Bn – and those are mostly favors!  I can't believe how un-critical the Financial Press is about this deal:

    Saudi Aramco confirms pricing shares at top of range

    • Saudi Aramco (ARMCO) says it has priced its IPO at 32 riyals per share ($8.53), the top of its indicative range, but the $1.7T valuation is below the $2T Crown Prince Mohammed bin Salman initially targeted.
    • The price puts Aramco on track to raise $25.6B, marking the IPO the largest in history, and the company could wind up hauling in $29.4B if it exercises its 15% greenshoe option.
    • Aramco has relied on domestic and regional investors to sell a 1.5% stake after lukewarm interest from abroad, even at the reduced valuation.

    Image result for aramco ipo"

    But it used to be:

    Image result for aramco ipo"

    And, before that:

    Image result for aramco ipo $200 billion"

    And, before that it was $3Tn!  

    Image result for aramco ipo"

    Image result for aramco ipo"

    Shows you what utter BS IPO valuations are -even for the World's biggest company followed by thousands of analysts – total nonsense! 

    Ruh Ro!  

    Treasury Secretary Steven Mnuchin tells reporters that US/China trade talks are "on track" but there is no deadline; two sides had a phone call last night, according to Reuters

    President Trump tells reporters that "something could happen" with the December 15 tariffs, but that is "not being discussed" at this point; still believes China trade talks are going well

    WSJ updates story on trade talks from this morning; says US and China remain separated over value of farm good purchases

    China reiterates tariffs must be reduced for interim trade deal with US

    All that just came across the wire. 


  32. Phil:   During the Webinar you asked to be reminded to post the current portfolios to the Virtual Portfolios tab.  So here is the reminder.  Thanks.


  33.  

    Phil

     Korea for a day then

    Bohol province in  the Philippines near Cebu

    Thailand is a nice country I been there more the year two weeks at the time when I was working


  34. Phil,

    Thanks for the thoughts on CSCO.


  35. Portfolios/John – I will try to get to them tonight, thanks.

    Thailand/QC – Not for fun, for work.  They don't like signing contracts remotely so 2 days in a plane just to put my name on paper (and also a few meetings).  

    You're welcome 8800.

    So it looks like we'll end up a bit green after all.  

    Dollar down 0.25% so not at all impressive.