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Thrilling Thursday – Back to Nasdaq 9,000

Almost there!

9,000 on the Nasdaq 100 (/NQ) is so close we can taste it.  Well, not so much taste it as short it as big levels like this are usually excellent spots for corrections.  At 8,500 we pulled back to 8,200 and our first attempt at 8,000 (only 2 months ago) was rejected for 200 points before getting back on the bull train so the odds of getting a pullback here, at 8,995 are certainly worth the risk of stopping out at 9,001 with a $120/per contract loss while even just a 100-point drop back to 8,900 would be a gain of about $2,000 per contract.  

Finding very positive reward/risk scenarios is the key to good Futures trading – something we discussed in yesterday's Live Trading Webinar.  Where we shorted the S&P (/ES) at 3,258 and the Dow (/YM) at 28,740 and both of those had quick stop outs at 3,260 (-$100) and 28,750 (-$50) but our long on Gasoline (/RB) was 2 contracts at $1.646 and we're already at $1.657 for a quick $462 so far (they are good to next week's webinar) and now we can add an /NQ short at 8,990 and another at 8,998 to average 8,994 with a stop at 9,001 for a $140 loss against the potential $4,000 gain at 8,900 – that's a fair way to play, right?

If we're still testing 9,000 at the open, that should be about $20.50 on the Nasdaq Ultra-Short ETF (SQQQ) and we can play for a quick pullback by simply taking the Jan $21 calls at 0.40 so let's say we risk the same $140 by taking 14 of those for $560 and stop out at 0.30 for a $140 loss but hopefully we make well over $1,000 on a nice pullback. 

Apple (AAPL), of course, has been a big contributor to the Nasdaq's recent gains as it's run up 50%, from $200 in August to over $303 at yesterday's close and, since AAPL is 12% of the Nasdaq 100 – it's good for 6% of the run from 7,500 so 450 of the 1,500 points comes from just Apple and, of course, Apple suppliers tack on another 3% as they follow Big Daddy so 675 (45%) out of 1,500 points is pretty much AAPL and Co's contribution to the rally.  

So, if we're going to short the Nadaq, it means we must think Apple is a bit overbought at $303, which is about $1.3Tn and that's about 25x earnings, which is a bit high for AAPL but GOOG and MSFT are trading at 30x earnings and FaceBook trades at 34x earnings and AMZN trades at 84x earnings and NFLX trades at 108x earnings so why not $400 for AAPL, which would be $1.7Tn – or about the same as Aramco?  Why not – because that's RIDICULOUS – that's why!!! 

In fact, those 5 stocks, who lead the Nasdaq 100, are "worth" $4Tn between them already – that's the ENTIRE GDP of Germany, the 4th largest economy in the World with 83M people!  Japan is bigger at $5Tn with 127M people and it's amazing to think that just 445,000 people at 5 companies are "worth" more than they are, isn't it?

Come on people, get a grip!  This is the same idiocy we were doing during the Dot Com bubble – using one silly valuation to justify another one with no regard at all as to whether 3% ROIs (at 30x earnings) is worth the risk of owning stocks.  News flash – IT IS NOT!  Sure if they have great growth or some other great story but, as a rule of thumb – HELL NO!  You can get a 3% dividend in a relatively safe stock like AT&T, which is also stupidly high at $39.37 now but at least that's only 18x earnings and the dividend is $2.08 (5.33%) and we can hedge it as follows:

  • Buy 500 shares of T at $39.37 ($19,685) 
  • Sell 5 T 2022 $33 calls for $7 ($3,500) 
  • Sell 5 T 2022 $33 puts for $2.80 ($1,400) 

That drops your net to $14,785 or $29.57 per share and, if you are assigned 500 more shares at $33, your average cost of 1,000 shares would be $31.285 and, if you get called away at $33, you get $16,500 back for a $1,715 profit plus an anticipated $2,080 in dividends over 2 years is a total profit of $3,795 (25.67%) or 12.8% essentially risk free per year (T just has to hold $33 vs buying Tesla at $500 and hoping it goes to $628 before someone realizes that they'll be lucky to make $5 a share (1/125th of the price of the stock at $628)).  

This is how stock bubbles collapse – under the weight of logic though it takes a while for logic to chip through the emotions of a bubble rally.  While not "risk-free", it's hopefully obvious to you that making 12.8% on T is MUCH safer than trying to make 20% more on Tesla, or even AAPL this year – and that's coming from a huge Apple fan!  

We did put together a Dividend Portfolio for our Members back on October 25th and, so far, we have 11 positions and we're already up over 20% in less than 3 months using the same strategy we discussed on T above.  In fact, T was one of the first stocks we added, back when it was "only" $36.95 but it was about the same net as 1,000 more at $30 would bring the average to $33.47.  Keep that in mind:  This portfolio is up 20% in two months and it's FAR, FAR, FAR less risky than whatever nonsense you are probably in.  Is it really worth the risk?

Be careful out there!  

 


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  1. EVerything is awesome again!


  2. This week's webinar replay is now available!

    https://youtu.be/Ku61ltyMpEI


  3. Winston possible rigt on ABBV more conservative. Up already to 90 already but we see at opening.


  4. sorry the word should be right somehow twisted my fingers


  5. Phil/BBBY

    What happened to it? Too  much reaction?

    regards


  6. /NQ

    That was a quick scream past 9k!


  7. Phil excellent idea on T


  8. Good Morning!


  9. Good morning!

    Big Chart – At this point, we should probably make 10% lines instead of 5%.

    Big spike up but we'll see if it sticks.  If you get stopped out, simply go back in when it crosses back under.  

    /RB back to where we started, at $1.645 and I still like it to average back to $1.67 next week.  

    /CL is a good long if it gets back over $60 – with tight stops below, of course:

    BBBY/Pat – They pulled their forecast, traders hate that.  

    Same as usual, new CEO kitchen sinks the Q so he can look better going forward – good time for us to get back in when the dust settles (this is why I never mind selling stocks – they often come back).  

    Comparable sales missed expectations despite management initiatives which included elevated clearance activity, a new national Black Friday advertising campaign and an increase in the depth and frequency of promotions.

    He expects comparable sales to “remain challenged,” with EBIT margin eroding by as much as 200 basis points, bringing full-year EBIT down to about $200 million and EPS to within a range of 80 to 85 cents versus his prior estimate of $1.60.

    While the third quarter miss reinforces the reality that “turnarounds, particularly retail turnarounds, are rarely (if ever) linear,” the analysts told clients “don’t abandon ship yet.”

    They believe the year forecast withdrawal “de-risks” some of the early part of this turnaround by ensuring expectations are “kept in check,” while the sale-leaseback announcement “clearly indicates that the new leadership is intent on unlocking shareholder value.”

    They rate the stock strong buy, with a price target of $17 per share and believe the potential for additional non-core asset sales, and related capital redeployment, remain positive near-term catalysts.

    Gutman maintained his equal-weight rating given “inexpensive valuation and scope for improvement from here.” He also noted that the balance sheet is “relatively healthy” and the potential for expected asset sales to help “streamline the business and raise funds to be reinvested or returned to shareholders.”

    But Bed Bath & Beyond still faces significant headwinds around its inability to sustain sales growth, its high reliance on coupons/promotions and underinvestments in the business, all at a time when “competition is intensifying and the home furnishings category is migrating online at a fast pace.”

    Back to being a patience play…

    BBBY 2022 $15 puts are $5 for net $10 – gotta love that!  Let's make that the first new play for our $500,000 Long-Term Portfolio, selling 10 to collect $5,000 and happy to sell 10 more if they go lower.  


  10. $5.42 on the BBBY puts!


  11. Hi Phil, Can you give me your thoughts on whether I should adjust the following AAPL position:

    -7 June 270 Calls (basis 17.75)

    -10 2021 $235 Calls (basis 47.30)

    +20 Jan 2022 $200 Calls (Basis 79.93)

    -5 2022 $225 Put (basis 19.50)

    -10 2022 $270 Calls (Basis 38.98)

    It is still looking like I'll be profitable in June if Apple is here or lower, and then I can just roll, but I want to be careful not to underestimate how much 5G mania could move the stock up. After the Tesla debacle, I'm a little gun shy.


  12. BBBY – I put a limit in at 5.50 and got filled at 5.65.


  13. Wow feltok – I wasn't filled on BBBY yet so I raised mine a bit.


  14. GIS – I had a BCS and the short call was exercised.  So I am now short the stock with my call essentially covering it.  I am trying to figure out how to exercise or should I just wait until next Friday when it expires and it will automatically be exercised since it's in the money?


  15. I have F Jan20 $9.87 put for 1.025, currently at $0.66.
    With F trading at 9.23, what's the smartest move ? Roll it to $10 either Jan21/22 ($1.65/$2.10)
    or keep it and possibly be assigned ? I already own 2000 shares at $9.02 and I don't mind adding to the position.

    Thanks


  16. Phil / very appropriate that we have been discussing managing short callers. I'd like your take on a recent AAPL adjustment which could be a great case study:

    AAPL

    Long 12 Jan ’22 $220 Call (65) now 102

    Short 12 Jan ’22 $280 Call (34) now 63

    Short 4 Jan ’21 $230 Call (54) now 87

    Short 4 Jul ’20 $220 Put (5) now 1.7

    That was an adjusted position which you kindly discussed here

    Those pesky short $230 calls are spoiling the party – but there was a plan from your good self:

    You have the 2021 $180s, now $94 and the short $220s, now $61 so more like $33 if you are patient with the exits but why pay the short $220 caller $12 in premium?  There has to be a better way.

    So step one is get your $94 (maybe $95 today) out as you already have a new $220/280 spread (2022 I presume) to cover the 2021 $220s and I would propose adding just 1/2 more 2022 $220s at $70 to help cover the short Jan $220s so you'd be taking $46 (1/2 of $94) + $24 (difference of the roll)/2 = $12 == $58 off the table per 2021 spread and you are left with 1.5x 2022 $220s covered by 1x the 2022 $280s and 1x the 2021 $220s.

    Now, you can 1x the July $220 puts for $5.40 and use that money to roll the 2021 $220 calls up to the $230 calls ($54.50) for a couple of bucks out of pocket and you'll be able to do that at least one more time so $240 is the eventual roll which gives you nice protection on your long spread and the 2021 $240s are $48 and they can be rolled to the 2022 $260s ($47) so the only issue is, if AAPL is over $275 and you get worried (keeping in mind your $220 calls would be $55 in the money) you could buy back 1/3 of the short 2021 $230s (maybe $60 by then) or add 1/3 to the long 2022 $220s (probably $75) but either way that only uses $20-$25 of the $46 you took off the table but your 2022 spread is 50% wider so, even if you spend the rest of the $46 to end up 1/3 over-covered, that would only happen if your 2022 $220/280 spread is totally in the money and you just move on to the next rolling cycle.  If AAPL ever does stop going up – you'll collect a boat-load of money!

    That was a month ago (it seems like only yesterday) and in the blink of an eye AAPL turned into a runaway train. Just wanted to check back before making any adjustment (if any is due – but that would seem to be the case).

    Would you still recommend buying back 1 /3 of the short 2021 $230 (obviously now at much higher prices?) Or add 1/3 long 2022 $220s (obviously now at much higher prices?)

    Or is this advance so fast so soon that one has to look at adjusting the whole position now that the long 2022 BCS is $10 higher than paid for?

    Thanks

     

     





  17. Kohl’s, Penney report holiday sales declines


  18. Occam’s Election


  19. The 25 Best Products of CES 2020





  20. Well, the Trade Deal is being signed on Wednesday so I guess the market is determined to be happy until at least then…

    AAPL/Palotay – Almost $310!   To some extent, the 7 short June $270s are locking in the gains on your primary spread, which is the $200/270 (assuming you roll the short $235s eventually for $140,000 so being down $21,000 on the June $270s needs to be kept in perspective – think of them more like $33,000 worth of protection on your $140,000 spread that's 100% in the money over $270 that you paid net about $60,000 for. 

    Mechanically, the short 2022 $225 puts are $12 and very unlikely to be an issue so you could sell 5 2021 $260 puts for $13 ($6,500) and use that money to roll the 7 June $270s at $47 to the 2021 $300s at $39 and, after that, the worst case is you add more 2022 long spreads to cover and just roll again and again for $60 (20%) or so.  Since it's an easy fix – I wouldn't be in a big hurry to do it.  

    Good job asking for a better price, Fel.

    GIS/Fel – They go ex-dividend (0.49) today, that's why it happened so I'd wait for the stock to pull back and just cover it.  You might want to ditch the long call before it dips if you have the margin.  

    F/Gard – As long as you REALLY want to own more F for net $8.85, why do anything?  F might go higher or it might not and you're just going to roll it either way.  I'd go for the 2022 $10 puts at $2.25 as that's net $7.75 and a lot more upside potential.

    AAPL/Winston – As noted above, the short calls are protecting your long position, which is in the money at $40 out of $60 potential and 3x more than the short calls.  The July $220 puts are about done so I'd buy them back and sell 4 2021 $260 puts for $13 ($5,200) and use that money to roll the 4 short 2021 $230 calls ($35,200) to 6 of the 2021 $280 calls at $51 ($30,600) so net about $0 and all you've done is sold a bit more aggressive puts and added 2 more short calls at $50 higher strikes.  The next move would be to add 8 more longs so you can roll your 6 short calls up to 8 short calls at an even higher strike (if necessary).  

    And again, when it's that easy to fix something, you don't have to be so quick to pull the trigger, do maybe 1/2 if you get good prices and wait a bit on the rest with less pressure.  


  21. phil.I have AAPL in an IRA.I see that the june 2022 options are out.What do you think of me rolling my 20x 2022 220/280 bcs to say the june 2022 20x 280/340 bcs, and taking some cash out(my favorite thing).


  22. phil / NG

    8950s – stay the course?! 


  23. AAPL/Tstep – The 2022 $220/280 spread is net $40 out of $60 and very likely to pay + 50%.  The June 2022 $280/340 spread is net $28 but 10% out of the money AND we think AAPL is a bit stretched.  To me, it's not really enough more money in pocket (net $12) to take on the additional risk unless $24,000 can be put to better use elsewhere where you have high confidence in making 50%.

    The 2022 $220 calls are $102 and you can roll those to the June 2022 $250 calls at $83 and take $19 off the table ($38,000) and I'd roll 10 (1/2) of the Jan 2022 short $280 calls at $62 ($62,000) to 10 of the Jan 2021 $300 calls at $37.50 ($37,500) so, on the whole, you'd be taking $13,500 off the table but setting yourself up for a much bigger win by shoving half the short calls back to all premium.   

    /NG/Potter – Not sure what 8950s are. 


  24. phil - sorry ! /NQ short – 8960s

    i filled at 8990

     

    thanks!


  25. Oh no, Iran did shoot that plane down!


  26. For  some perspective- just read this from a traders newsletter I get:

    In the last four days folks we've moved some 280 points higher or 3.2%.  To show you just how unsustainable this rate of climb is lets just say the markets do absolutely nothing tomorrow or 3.2% in a weeks time. Multiply that by 4 weeks and you get 12.8% per month multiply that by 12 months and you get a +153% at the current rate of climb assuming it continues at the pace it has. People, it ain't happening



  27. Plane/Phil – careful, Phil – everything I'm seeing says "The US thinks……."

    Granted, that's even more reason for worry – false flag, maybe. One hopes Iran does the right thing and apologizes profusely if the story is true.

    In any event, it's shaking the markets, so the truth is not very relevant, so often the case with news.


  28. False flags/Snow – Fog of war, hard to say what's true and, when your President has zero credibility, even your allies won't back you up.  Not sure how this makes America great when people think it's just as likely that we shot down a plane as Iran.  

    Shiite Muslims in Karbala, Iraq, protest Saturday the U.S. airstrike that killed Iranian Maj. Gen. Qassem Soleimani. Iran has vowed ‘harsh retaliation’ for the airstrike near Baghdad's airport that killed Tehran's top general and the architect of its interventions across the Middle East.
    Mourners in Karbala surrounded the coffins of Gen. Soleimani and an Iraqi deputy commander.
    Women in Tehran mourned Gen. Soleimani, head of the elite Quds Force.
    Mourners in Najaf, Iraq, carry the coffin of Iraqi paramilitary chief Abu Mahdi al-Mohandes, who was slain alongside Gen. Soleimani.
    Mourners at Felestin Square in Tehran honored Gen. Soleimani.
    Felestin Square in Tehran on Saturday
    Protesters demonstrate in Tehran on Saturday.
    Iranians wept during a demonstration in Tehran over the U.S. airstrike in Iraq that killed Gen. Soleimani.
    Protesters in Tehran Saturday.
     
     

    1 of 9

    Iran-backed militias in Iraq demanded lawmakers attend a session of parliament to vote on the possible expulsion of U.S. troops from the country, after the killing of an Iranian general there put the country at the center of an escalating conflict between its two most important allies.

     

    U.K. government agencies are examining whether a trading outage blamed on a software hiccup at the London Stock Exchange in August may actually have been caused by a cyberattack aimed at disrupting markets, according to people familiar with the matter.2

     

    Data this week on the services sector and December hiring present the first major hurdle for stock markets in 2020.

    A day after President Trump backed away from further military conflict with Iran, a commander of the country’s Islamic Revolutionary Guards Corps declared that Iran would soon take “harsher revenge” on the United States for a drone strike last week that killed a top Iranian general. But another Iranian military leader said his country’s missile attacks targeting Americans in Iraq this week had not been intended to kill anyone.

     


  29. Phil. was filled on the second suggestion for the aapl trade,a few IRA obsticalesand few things to think about. thanks a bunch.


  30. Interesting development on my Poor man's Trade started 12/31 up 2325.00

    ABMD200221C180    21-Feb-20    180    -2    CALL    10.33    17
    ABMD200221P155    21-Feb-20    155    -2    PUT    8.07    5.25
    ABMD220121C150    21-Jan-22    150    2    CALL    54.7    64.6
    ABMD220121P145    21-Jan-22    145    -3    PUT    27.2    23.4


  31. Phil this AAPL vertical I have set on 39.97 but for weeks now does not want to fill.

    Hat to close the single, always get short delt. Any sugestions.

    AAPL200117C170    17-Jan-20    170    56    CALL    0    139.375    0.00%
    AAPL200117C210    17-Jan-20    210    -56    CALL    0    99.4    0.00%


  32. Phil,

    What do you think of orange juice now at 96.9

    Thanks


  33. NLS – Up 25% today !


  34. /NQ/Potter – Sorry missed that.  I think it's going to pay big so I'm still in.

    153%/Pstas – Never say never, that's pretty much what happened in 1999.

    AAPL/Tstep – Hopefully it will calm down a bit.  TSLA dropped $20 today.  

    AAPL/Yodi – Not sure what the question is as it expires soon deep in the money.  It's pretty much done and I would cash the $170s for $784,000 and buy 50 of the June 2022 $270 ($72.50)/$330 ($42.50) bull call spreads at $30 ($150,000) and sell 20 of the June 2022 $260 puts for $27 ($54,000) and roll the 56 Jan $210s at $99 ($554,400) and sell 30 June $300s for $26.50 ($79,500).   That's $213,100 off the table (which you can use to invest in our Thailand project!) which is about what your spread maxes out at and you still have $300,000 worth of longs 60% covered by short $300 calls balanced out with 20 short puts.  If you put a stop on 10 short calls at $30 ($30,000) and 10 more at $40 ($40,000), you should stay out of trouble and the only reason you'd be putting $70K back in is if you are well on the way to being in the money on your next $300,000.

    OJ/Kgab – The weather got very nice, no polar vortexes this year so the price fell back down.  We picked OJ on Sept 25th, figuring there were lots of ways weather could spike OJ and now it's back down again but I don't see a good catalyst that makes me want to play it (we never do, usually).  

    NLS/Albo – There's a company I forgot existed.  

    I think they have a bike to compete with Peloton and NLS is $83M while PTON is $7.8Bn so worth a toss (at $1.75, not $2.75) to some people.  Despite being in business for 35 years, NLS was unable to make money last year.  

    Year End 31st Dec 2013 2014 2015 2016 2017 2018 TTM 2019E 2020E CAGR / Avg
    Total Revenue
    $m

    219 274 336 406 406 397 320 305 298 12.6%
    Operating Profit
    $m

    15.7 30.2 40.3 53.4 36.3 20.8 -101     5.72%
    Net Profit
    $m

    48.0 18.8 26.6 34.2 26.3 14.7 -96.8 -105 -15.1 -21.1%
    EPS Reported
    $

    1.53 0.643 0.848 1.12 0.710 0.478 -3.27     -20.8%
    EPS Normalised
    $

    1.53 0.643 0.848 1.12 0.885 0.483 -1.69 -1.07 -0.538 -20.6%
    EPS Growth
    %

    +345 -58.0 +31.9 +32.2 -21.1 -45.5        
    PE Ratio
    x

              4.52        
    PEG
     

                       
     

  35. Phil Thanks AAPL but do not know what you mean with roll these ae the short calls of the Jan 20 170 long call ????? Need to liquidate this!


  36. Sorry your remark "and roll the 56 Jan $210s at $99 ($554,400)" This is the other part of the 56 long  170 calls!


  37. Someone on the board mentioned PRTO months back – they've had a good couple of weeks. Still in penny stock territory though.


  38. AAPL/Yodi – I take it you have 56 of the Jan $170/210 spreads, right?  So I'm saying cash the $170s, set up 50 June 2022 $270/330 bull call spreads, sell 20 June 2022 $260 puts and roll the 56 remaining Jan $210 calls to 30 June $300s – all accounted for but you are losing 26 of the original covers (paying with your cash).    That's the box you have to get out of, you don't need to keep replicating the amounts as you roll.

    PRTO/Ati – Too small for me.

    Wow, another day in paradise. 

    No one is worried:


  39. Thanks Phil, That's what I thought you mend.
    Jun 300, however is already 9 ITM wonder when they ever stop going up.
    Pot: I have already various very small plays in it, all losers, even MO burned their fingers. Possible I got too old for that. Don’t bet the farm on it!!!!


  40. Phil / thanks for the AAPL adjustment advice and perspective.


  41. Hi Winston, good morning, you are in England?? The rainy Island! Soon they will be fighting on their own, is this not an other clown idea?

    Looks like every one is underestimating AAPL


  42. Hi Yodi, yes – in England. We're both old enough to remember the 1966 World Cup final so please don't be unkind about our weather :)

    I would exchange Boris for Mutti any time. But what will Germany be without her?

    We knew never to short AAPL – that was rule number one. But some of us could still not resist when AAPL got to $200. It seemed the right thing to do at $250. At $275 it was an obvious short, and at $300 only a fool would go long AAPL – so short it!!!!

    We live and learn, but somehow we are reminded of our weaknesses.

    But you made some nice money on your AAPL trade – congrats. 


  43. Thanks Winston, but not sure to roll the dice that high again. Have still lots of other positions. Not a fan of selling put in stock on top of the ladder.
    I did like Phil's T trade idea at the Jan 22 33 straddle, the caller still has 1$ premium against a quarter div. of 0.52. This position might hold water for a couple of month, to collect the extra div.
    Unfortunately I hold in one port the Jan 22 33 caller long, so I even was eyeing at the Jan21 35 straddle same premium, just shorter run, possible will set it up in another acc. Waited till the stock drop, after 1/9 but not much, I will see today.