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Thursday, March 30, 2023


Pre-Trade Tuesday – Markets Appear Untroubled But Weakening

No one seems worried.

The Volatility Index (VIX) is back around 13 after a brief spike to 17 when we bombed Iran and Iran bombed our bases in Iraq but that was so last week and now no one is worried about anything as we look forward to tomorrow's signing of the Phase 1 China Trade Pact, which accomplishes nothing in particular after two years of waiting.

The deal leaves out the fundamental changes to Chinese economic policy sought by many U.S. leaders and prioritized by President Trump, who has promised further negotiations. Chinese officials, though, feel they have little to gain from a second deal forcing Beijing to ease state control of the economy, and Trump has already said that a phase-two agreement probably wouldn’t conclude until after the November election.

Image result for china trade deal cartoonU.S. Trade Representative Robert Lighthizer defended the deal Monday, saying on Fox Propaganda Network that it would include “a variety of real structural changes.” He then named only one, commitments to refrain from competitive currency devaluation, which Treasury Secretary Steven Mnuchin announced earlier in the day, already  dropping Treasury’s designation of China as a currency manipulator based soley on their thin promise to behave in the Future.

By giving away leverage with a temporary deal…these structural issues will only become more challenging to address in future negotiations,” Senator Schumer wrote. “China pledging to make short-term purchases of American goods will not address the fundamental problems that undermine long-term U.S. economic opportunity, prosperity, and security.”

Image result for i'll remove the cause but not the symptom animated gifTariffs remain in place that will still cover the same $360 billion in Chinese goods that the Administration taxed before the signing. Nearly two-thirds of everything Americans buy from China are still tariffed, compared with less than 1% before Trump began his anti-China campaign, according to calculations by economist Chad Bown of the Peterson Institute for International Economics.  The deal eases — but does not eliminate the trade-related uncertainty that Federal Chair Powell has blamed for weak business investment and a manufacturing slump.

The "Phase One" Trade Deal was announced back on December 12th and, since then the Dow has gained 1,000 points, or about 3.5%, putting a huge cherry on top of what had already been a 21% rally from 24,000 in January of last year.  Of course there were promises of a trade resolution all fall and the Dow rose from 26,000, where it had stagnated all Summer. 

That was up a realistic 8.3% from the start of the year but it's all distorted from last Winter's market collaspse that cost us 22.5%, albeit briefly.  The Dow was actually at 27,000 at the start of 2018, fell to 22,500 at the end of 2019 and now we're back at 29,000 but the key metric to me is we're up from 17,500 at the 2016 elections and that's 65% in 3 years – historically a bit extreme for market growth.

Image result for corporate taxes 2019If we're going to pay 65% more for stocks, they should be earning 65% more money, right?  Forget the fact that most of the earnings boost has come from paying less taxes – silly as that is, it does still drop money to the bottom line so we'll count it like it's real earnings and can't be taken away. 

Still, it took a 70% reduction in Corporate Taxes to boost Corporate Earnings 20% so it's simply not possible for that to be repeated in the next few years but analysts tend to extrapolate earnings growth to continue at the pace it has for the last few years.  And, if corporate profits are up just 20% but we're paying 65% more for those profits – at what point can investors no longer afford those relatively meager profit returns?

We'll see how well profits are holding up as we begin tallying Q4 earnings.  JP Morgan (JPM), Citigroup (C) and First Republic (FRC) all beat this morning but, as we expected, Wells Fargo missed by 120%, putting up an 0.17 loss vs an 0.93 profit expected by clueless analysts.  WFC noted a $1.9Bn Operating Loss that included an impact from litigation accruals totaling $1.5Bn, or 0.33 per share.

That's right in-line with the expectations we had in yesterday morning's PSW Report (which you can subscribe to here) and the trade set-up in our Earnings Portfolio ended up looking like this:

WFC Long Put 2020 20-MAR 52.50 PUT [WFC @ $52.11 $0.00] 10 1/13/2020 (66) $2,130 $2.13 $-0.09 $2.13     $2.04 $0.00 $-90 -4.2% $2,040
WFC Short Put 2020 20-MAR 50.00 PUT [WFC @ $52.11 $0.00] -10 1/13/2020 (66) $-1,050 $1.05 $-0.06     $0.99 $0.00 $60 5.7% $-990
WFC Short Call 2020 20-MAR 52.50 CALL [WFC @ $52.11 $0.00] -5 1/13/2020 (66) $-625 $1.25 $0.10     $1.35 $0.00 $-50 -8.0% $-675

So we're well on-track to getting $2,500 back from our net $455 investment in 67 days (March options expiration) and all we have to do is keep taking advantage of lazy analysts and we'll have a very nice earnings season indeed.  

More importantly though, let's keep our eye on the macro-picture and make sure companies are growing into these +65% valuations because, if they are not, we're going to be heading into a correction where nothing is likely to be spared – not even Tesla (TSLA) – which is reaching peak idiocy at $550!  



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SPCE -Thanks Phil. I know it's risky. 

Rightly or wrongly I view them as a possible early stage TSLA.

negative tariff news     what a surprise 

Okay, what the heck happened 10 minutes ago?

Phil, I might have missed your trade on WFC after their earnings were kitchen-sinked by the incoming CEO…. I have 5 contracts of the Jan 21 45P sold for $5.25. Does it make sense to add another Jan 2022 42.5P or 45P? for a total of 10 contracts…..Your help always appreciated! Thank you

WBA/Phil, Potter
Hi Phil,
I'm still very new at this and like to keep things as simple as possible until I understand what I'm doing.

For WBA, what do you think of simply adding a WBA Jan 2021 call spread:
52.50($6.00)/55.00($4.80)? That's $1.20 for $2.50 of strike.


Someone bought 500 TSLA $640 2021 calls @ $61.80???

Sure am glad there is no way to make $ on BYND.  The thing is like a cash machine.


WFC….thanks for your input! Need to cool off with the market at these levels. 


I did a trade similar to the one you did except I originally sold the Feb. $160 calls for $2.14.  This latest bump in price ($162.29) has chewed up all the premium in the sold call.  Other than the upcoming dividend, I don’t see any news that makes me believe this stock will go much higher; certainly not higher than $165. Would you roll the call out to avoid assignment?  The March $160’s would add another $1.95 premium and should get me past the dividend while maintaining appropriate downside protection to the 2022 $135 long calls I hold.  Thanks for the idea. 
original trade:  buy: (2) 2022 $135 long calls ($24.21)/ sell: (1) Feb. $160 call ($2.14) / sell: Feb. $150 put ($2.99)

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TSLA/ Phil     A short squeeze is clear, and a necessary correction also, but something is propelling the price, Elon shacked space industry putting all the tradicional companies in shame, reducing launch prices 10x to start with, perhaps something is coming that can change the 100 years idea around cars and transportation, can you recommend any other long term play that risking low can put us in the game ( I was out of your previous plays).

this is interesting



CBRL see also my comment:

January 14th, 2020 at 10:36 am |  

Any one entered the CBRL PoorMT,  the Jan20 157 caller has to be rolled. I am rolling to Feb 160. The stock is 1/16 ex div and pays 1.30!!!!! I will wait to sell the new putter after 1/16

But you already have the Feb 160 caller. So you just need to look at the premium of the Feb. 160 strike price. The extrinsic value is before opening this morning 1.81. the div. is only 1.30 so no wise man will call on you and pay you 0.51 cent more than the div. Always look at the extrinsic value! The reason why I recomment to roll to Feb. 160 is, the time is shorter than to March and I expext CBRL will still drop a bit after the 1/16. Only if the extrinsic value will be less than 1.30 you should roll to Mar 165. But always check after opening.

P.S Even the Mar. 160 has still an extrinsic value of 3.76 and with the option price of 6$, puts you safe up to 166.00.

advil TSLA have you become a keen gambler?


Thank you!

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