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Wild Wednesday – More China Stimulus Brings Back the Highs

Virus, what virus?

75,282 infected, 2,012 dead, 15,030 recovered and last Wednesday we were at 45,204 infected, 1,116 dead, 5,085 recovered and the Wednesday before that it was 24,607 infected, 494 dead and 988 recovered so, in the past two weeks infections jumped 83.7% and 66.5% and deaths jumped 126% and 80% and recoveries surged 414% and 195%.  Overall then, it does look like we're SLOWLY getting things under control but even "just" 33% more infections next week brings us over 100,000 – I would not say we're out of the woods by any means.  

Nonetheless, if more infections is bullish for the markets, we need to learn to play the market that way, right?  So far, the more people are infected, the more stimulus China provides and that's what's lifting stocks this morning as China’s Ministry of Industry and Information Technology said the government would connect factories with technology companies to identify weak links in their supply chains

What does that actually mean?  No one knows but it SOUNDS good and that's all it takes these days to rally the markets.  “There will always be someone to save us’--that is the outlook from investors at the moment,” said Lewis Grant, a portfolio manager at Hermes Investment Management.  That seems to be the typical attitude of people who are managing other people's money – just keep buying!

The Nasdaq (/NQ) Futures are back at 9,680 and 9,687.5 was our high on Monday and, in our Live Member Chat Room yesterday afternoon, I said:

That's why I went flat earlier but time to short 2 /NQ again at 9,638.  We fell from 9,675 on Friday and I'm happy to DD if we test 9,700 to average around 9,660 on 4 short.  But yes, shorting is a fool's game in this market.

As you can see, we're down $1,685 so far (can't win them all) and it's very tempting to double down here at 9,680 but that makes the commitment too heavy ahead of the Fed minutes this afternoon so we'll stick with the plan and patiently wait for 9,700 and we'll see how things are going this afternoon, when we have our Live Trading Webinar at 1pm.  

We'll be reviewing our Member Portfolios this week and we can start right here with our Money Talk Portfolio, which we only update live on BNN's Money Talk show once each quarter so it's a very low-touch portfolio.  We added Imax (IMAX) and Freeport McMorRan (FCX) on the 5th and now our portfolio looks like this:

We're up 11,755 (11.7%) for the year so far and that's nice and up $3,017 since we last reviewed the portfolio on 2/5 and I did a full review in that post for all 5 positions and nothing has changed so I won't get into that again.  Our expected gains for the group is $39,188 over the next 7 quarters and here we are, two weeks later, already gaining $3,017 of that so we remain nicely on track.

I know it seems boring at first but this is how we build our portfolios.  As these positions mature – if they are safely on track then we are free to add another 5 positions that will make another $39,000, etc…

Oddly enough, when I was on Money Talk on the 5th, we were just coming off a day when Tesla (TSLA) went flying up to $950+, allowing us to sell the March $1,000 calls for $120.  This morning, TSLA is back at $920 as yet another analyst raises their target for the stock above $900.  And, of course, that's all investors need to hear because, after all, Potter has been right 50% of the time in his picks – he's as good as a coin flip!  

Here are some of Potter's previous 25 calls on TSLA:

Hey, he's doing a lot better on TSLA than I am, we're still short 3 of the Sept $900 calls we sold for $200, which is net $1,100 and you would think that's safe but this stock is a monster!  I'm actually more worried about our 5 short Jan $550 puts because reality is going to be a total bitch for this stock – one day…

Image result for tesla revenues chartMeanwhile, Forbes is claiming that TSLA's Q4 revenues actually fell 34% after analyzing the companies 10-K Report and indicates that all these upgrades from FOM's (Friends of Musk) and the $2Bn offering were intended to distract investors from what is actually an alarming report.  And, of course, Q1 is going to be a disaster with the Coronavirus impacting parts, sales and deliveries – as well as the opening of TSLA's new plant in Shanghai but that hasn't stopped the stock from leaping back over $900 but hey – the 34% decline in sales is 10% better than Q3's 39% decline in sales – so why shouldn't TSLA traders be exited?  

The reality is that sales of Tesla’s flagship Model 3 have completely cannibalized sales of the Model S and Model X in the U.S., so Tesla’s revenue per unit is much lower on an annual basis.  Hence a flattish unit sales performance in the U.S. translated to a 14.9% decline in revenues in 2019.  As noted by Forbes:

This is probably too much to ask for Tesla’s analyst community to analyze, but a very simple glance at Tesla’s delivery and revenue numbers would show that the company’s sales are heavily influenced by the following three factors:

Pull-ahead.  In the fourth quarter this was most apparent in the extraordinary burst in sales of Teslas in the Netherlands, as I mentioned in this Forbes article.

Cannibalization.  Deliveries of the Model S and X fell a combined 29% in 4Q2019.  

First-adopter mentality.  Elon Musk is a master at building hype for new models, but that is not —to use his word—sustainable, as shown by Tesla’s poor sales performance in the U.S. in 2019.  I believe the same phenomenon will impact Tesla’s sales in Europe in 2020, as Model 3 early-adopter orders were filled throughout 2019.  

That's why we will once again be looking to sell those March $1,000 calls if they hit $100+ and, thank goodness for us, as PT Barnum used to say: "There's a Tesla bull born every minute…"


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  1. Good morning, All!

    Join Phil for the webinar at 1pm, here:

  2. Good Morning!

  3. Bad news is good news, good news is good news! The story for the last 10 years…

  4. TSLA – Absolutely insane !

  5. I can't decide whether to buy a weekly 1000 call or sell one

  6. Good morning!  

    This is strange as the TSLA March $1,000s are only $29.  I guess we were more like $960 last time but geeze, how much have those guys lost faith after that mega-burn last time?  Not worth it to try again because it was the ridiculous price that made it an attractive short.

    Got our 9,700 on /NQ, let's hope we don't regret it!  4 short now averaging about 9,670.  Below 3,380 is a good line to short /ES again with tight stops over 3,385 

    Watch the NYSE – it's barely up (36) today and that's a weakening chart.  So is the Dow if they turn red today. 

    LOL Coulter – Watch my video above – DON'T CHASE!

  7. TSLA April $1,000s jumped from $50 to $75 so there's still hope.  

    Of course, this is why it's good to track options.  $75 seems like a good price until you realize it was more than double that two weeks ago when the stock was only $50 higher. 

  8. $80…

  9. They came down to the same $20 the March calls did so maybe they'll be a better sell this time too.  

  10. If we buy 3 of the TSLA April $1,000 calls for $80 ($24,000) and sell 4 of the March $1,000 calls for $60 ($24,000) it's a net $0 trade and you are only net 1 short and, if TSLA is below $1,000 in March, you make whatever is left on the April calls.  I doubt you get in much trouble if it goes higher since the Aprils will retain premium value that should give you a $60 cushion, at least.  Let's do that in the STP, just to see how it works out.

  11. Damn, it dropped off too fast – no trade (unless it comes back up).  

  12. Phil / SPCE

    i feel almost embarrassed to ask this as I know where we all stand th fundamentally but I wanted to ask about my position:

    I own 500 shares @ an average of $11                 I just sold my 5 x July $10/$15 bcs                  Im short 2 x July $9 puts ($1.20 credit / down to 0.25 today)

    considering my basis, should I be selling options to maximize my position? 

    thanks as always!

  13. Phil

    What’s the site you use to track option prices?

  14. Speaking of the STP:

    Short-Term Portfolio (STP) Review:  $62,305 is NOT GOOD – especially as the LTP isn't up all that much.  The TSLA position is hitting us for $75,000 at the moment (the negative balance that includes our losses), so there's all of the losses and all the past profits sucked up but it is a good hedge on a market crash.  We got stopped out of 1/2 our short calls too, when they crossed back over $135 yesterday but back to 6 short now as we get back near our $200 entry ($185 at the moment)

    CMG is also annoying us but the point of the STP is to have positions that make money when the market falls and both of those qualify.  The problem is we don't have enough longs in the LTP yet to offset the losses in a bullish market – something we need to fix next week if the market is still holding up.

    • CHL – An offset for our FXP hedge.
    • CMG – We collected $44 for the short March puts and calls so $944 is our danger point, so I'm not really worried and the trade was a net $2,000 entry so, as long as eventually get a win on our short sales (both expire worthless), we'll be fine.  At the moment though, I don't see a reason not to buy back the short Jan $820 puts at $47 (and stop out the others over $1), as it's a 50% gain and, if CMG goes higher, we could sell the $920 puts to another sucker for $85 and then buy the $1,020 puts (now $140), spending net $8 ($1,600) for the roll to $100 higher strikes.  That's worth it!  

    • FXP – Well, this isn't working out with infinite Chinese stimulus but there's still the debt issues in China and the impact on earnings is going to be tremendous so I still like the hedge for now.
    • SQQQ – Worse than FXP!  Not throwing good money after bad but we may as well buy back the short June $20 calls as our next move would be to sell lower calls and roll our long calls to a lower strike. 

    • TLT – I love this as a new trade.  Could get some action on the Fed minutes so let's buy back the short June $140 puts to lock in those gains.  
    • TSLA – As noted above, we're reselling 3 (6 total) of the short Sept $900 calls
    • UNG – Also good for a new trade.  

    • USO – Good for a new trade.  I think this is a good bottom for oil – we were just a bit early with the call.

  15. SPCE/Potter – Don't be embarrassed – I'm short TSLA – THAT's embarrassing!   As I said yesterday, I think SPCE is ridiculously priced and they are up another $3 today and how you don't take $35 (up 200%+) and run is beyond my understanding.  Options go out to 2022 and you can cash out for $16,500 right now and sell 5 2022 $17.50 puts for $6 ($3,000) which, worst case, put you back in the stock at $11.50 ($5,750). 

    Then you have $19,500 in pocket and you can take just $7,000 (half of your profits) to buy 7 of the 2022 $15 ($20)/50 ($10) bull call spreads for $10 and those will pay you $35 ($24,500) if SPCE is over $50 and more than your 500 shares at any other point in between but you are limiting your loss to the $7,000 and, even if you are re-assigned, you'd still have the same 500 shares of SPCE and $6,750 in your pocket as your WORST case.  

    To make $24,500 more on 500 shares, SPCE would have to be about $60 but, if you REALLY believed that was going to happen – you wouldn't be thinking about selling calls, would you?  The same goes for the money – if this isn't fun money for you – why take an unnecessary risk?

    Really, your biggest problem to the upside is SPCE passes $50 and you curse me out and buy some $50/75 bull call spreads with the $12,500 sitting in your pocket (since the worst case would be off the table).  So then SPCE goes to over $75 and you say "Darn that Phil for being cautious!" and you take another $5,000 and buy the $75/100 spreads and, by the time SPCE is passing $100, you would know that I am an idiot while you are cashing in your $15/50 spreads early for over $30,000 and using $10,000 of that to buy $100/125 bull call spreads.  The horror!  

    Tracking/DC – That's on ThinkorSwim.

    $937 - maybe I am an idiot…

  16. Phil – This guy thinks we have the coronavirus all wrong….

  17. Bernie fever – catch it!  

  18. Embarrassed? I sold ETHE at 46.50 and it's at 116.50 today. Granted the amount of ethereum the fund holds is 0.092 units per share, or ~$25, so I thought at nearly 100% premium I was lucky did get out when I did and now it's 350% premium. Now that's embarrassing.

    Pd is at $2600 an ounce, (PALL at 255), CMG is at 930, TSLA is almost 1000 per share (5X December price). The market melts up every time trump insults a new person or pardons a felon he sees on Fox. Half of China isn't actually at work despite the fact they supply half the world's stuff, the market doesn't care. It doesn't care at all.

    No one could predict this would happen. It just is what it is and here we are. Until it ends.

  19. /NQ – speaking of a melt up… Went short at 9720 – how could I go wrong… now passing 9730. The only way to play the market right now is long everything. Crazy!

  20. Butterfly Portfolio Review:  $217,116 is up 117% and up a fantastic $27,452 since our last review on 1/15.  AAPL was killing us last time at $315 and we took the short-term hit to get more bullish and that's paying off so far but I am tempted to cut it back as we certainly can't afford another big adjustment like that.  Yes, I think that would make me feel a lot better.

    This is meant to be a low-stress portfolio and, while it's nice to make $27,000 in 30 days – it means we can also lose that much if things turn sour – so why risk it? 

    • AAPL – I'm very happy with the $240/310 spread but let's cut them back to 30 and let's buy back 25 of the short $260 puts and let's buy back all 40 of the short $300 calls and just sell 20 of the April $320 calls for $14 ($28,000) and get back to making quarterly money on our remaining AAPL position.  That still leaves us with a $140,000 upside (in addition to income from sales) if AAPL holds $310 into 2022 – plenty of gains for the whole portfolio!  
    • DIS – Right on track again.  We bought back 15 of our short April $145 calls for $6.50 because we were worried about earnings and we were right, but then we were wrong but it still wasn't worth the risk since we had sold them for $12.50.  Now they are $2.62 so let's buy back the rest in hopes the virus subsides and Disney is able to open in China again.  Also, more movies are coming out!  Either way, $2.62 isn't much to make between now and April so we'd want to sell something beefier anyway.  

    • MDLZ – They blasted higher so our short calls are in trouble but not worth fixing yet as they are Junes and we should see if they get rejected at $60 first.  

    • MJ – Amazingly on track for a change.   We corrected our mistake of last year where we tried to guess the direction and now we JUST SELL PREMIUM!
    • WHR – If they go lower, we'll sell puts but otherwise no worries.  

    • X – Now that we reduced our AAPL position, we can go for it on X as I think $9 is a good bottom, finally.  So let's double down on our 2022 $10 calls at $2.35 and we'll hold off on selling for now and give them a chance through April earnings (last week) and see if we can get a good bounce to sell into.  Of course China will kill them this Q, but I think that's now baked in.  One of their blast furnaces was off-line this Q for renovations and it actually turned out to be perfect timing since demand was down anyway. 


  21. ETHE/BDC – That's amazing, isn't it?  

    TSLA $935.  March $1,000s now $69, April $1,000s at $97.  

    /NQ/Dawg – Down $4,240 so far at 9,730 and another $300 on the /ES at 3,390 – MADNESS!

    /YM about to test 29,400 and /RTY at 1,695 – also tempting shorts but I think I have enough pain at the moment…

  22. Dividend Portfolio Review:  This one is easy as we've closed it and decided not to touch it at all for 2 years and see how it works out (unless something drastic happens, of course).  At the moment, we're at $120,634, which is up 20.6% and that's down $5,599 since our 2/20 review and mostly it's SKT, which I would double down on so all good, I think.

    Keep in mind the portfolio was only supposed to make about 60% in 2 years so it was outperforming by a wide margin last month – it's not like we can end up 80% because everything is fully covered so the gains are pre-defined and we're either on track or off track and up 20% since Oct 25th is right on track.  

  23. Phil,

    I have x10 SKT Jan21 Put $15 at $2.19.
    At what point should you roll this ?

    Would you roll to Jan22 $13 or Jan22 $15 or something different ?


  24. Gardling  SKT the put still has 1.33 premium. Why would you give that money away. Be patiened and do nothing!

  25. Yodi,

    at what point should I consider rolling ?

  26. 2021 480 and 550 short puts I have as hedges against my TSLA short calls barely moved today

  27. Phil/ ENPH  had a 40%  increment that seems not sustainable, perhaps playing a short term downturn makes sense, what do you think?

  28. TSLA,

    May not mean a lot for the share price, but sales/production numbers for Q1 during the first couple of days in April and there are suggestions that Model 3 volumes have dropped off sharply in both US and the 3 largest European markets.  China factory output may also be lower than initially expected for Q1.

  29. Gardling I do hold the 13 put and I will look at it closer to Jan21 and not now. There will be still much more water down the river until then.

  30. SKT/Gard – As Yodi says, they still have a ton of premium with SKT at $12.74 and the Jan $15 puts at $3.60 (net $11.40).  As a rule of thumb, you want to roll while you still have 25% premium in the put, you have about 35% but also it depends on if you mind being assigned at that price or if you think a recovery is likely or if you like your rolling target.  The 2022 $13 puts are $3.20 so for 0.40 you can roll there and still that's net $1.80 you sold them for so net $10.20 is you're new assignment price.  I'd just keep an eye on those and don't let the net of the roll cross $10.50 but, otherwise, there's no urgency to act.  

    Short puts/Coulter – I'm sure plenty of people are bidding on TSLA puts and keeping the price high to meet the demand.

    ENPH/Advill – Too scary to bet against, I think.  If it were just them, that would be one thing but so many stocks are skyrocketing – it's just that kind of 1999 market.  

    TSLA/Lotter – Don't confuse us with facts!  

    Webinar time!

  31. So does the $767 offering set a floor or a ceiling? Does it make sense to roll short puts up to 750?

  32. if there's no longer any metric used to measure a stock's true price, I mean seriously, look at ETHE, they literally hold a cash instrument and the market values it at 4x cash, then TSLA could be at 2500 during this run. The chart shows it looks like an inflection point has been reached (6 month chart). 

  33. Big nothing from the Fed Minutes, generally bullish as "most" of the members do not want to touch rates for fear of upsetting the markets.  With the virus looming at the time (1/29) they had good reason not to raise rates but they clearly know they are causing an asset bubble – they simply don't want to deal with it and this is a great excuse but, on the whole, that's simply bullish for the US Equities. 

    MDR/1020 – So glad we got out.

    TSLA/Coulter – I'm a lot more worried about TSLA triggering our short $550 puts than our short $1,000 calls.  That's enough risk for me (unless we can sell $1,000 puts for $100+ again).  

    ETHE/BDC – Good point but, as usual, please don't confuse us with facts and certainly don't try to use logic on this market – those are contrary indicators these days.  

  34. On the other hand:

    Image result for northern dynasty salmon cartoon

    Image result for northern dynasty salmon cartoon

    Image result for pebble salmon cartoon

    Image result for pebble salmon cartoon

    Image result for pebble salmon cartoon

    For Alaska, that's a big turnout.  

    Image result for pebble salmon cartoon

    It's interesting all the cross-currents that get stirred up in these projects.  

  35. At what gain does it make sense to close the short call SKT position because most of the gain has been made and there may be a chance to reload on a price rise?

  36. Why do you say this "As a rule of thumb, you want to roll while you still have 25% premium in the put" ?  Why not wait until nearly expired?

  37. Phil are the battery and solar segments part of TSLA? I though I remember you saying the solar was not part of TSLA?

  38. SKT/Tangled – Well, it's in the Dividend Portfolio, which we decided not to touch but, if that's the position you are referring to, the short calls are up 73% and they are 2022 so no point in leaving them open if you want to play for the bounce.  You can only make $800 more and we sold them for $2,950 so you're better off paying the $800 (up $2,150) and just waiting to see if you can get $1,500 at some point if they rally back.  If no rally back then you can sell 20 2022 $10s (now $3) for $6,000 and you've got $8,150 towards buying 1,000 more shares at $12.70 ($12,700) so net $4,550 to DD and you paid $17,150 for the first 1,000 so average is $10.85 less $3.20 on the puts is $7.65 if called away at $10 would be a $4,700 profit and then if re-assigned from the short $15 puts, your net entry is $10.30 on 1,000.  Or, if you still hold the 2,000 at $7.65, your average on 3,000 is $8.53, so no real risk as long as you don't mind owning 3,000 at $8.53 (33% off the current price).  

    Rule/Coulter – Because it's going against you, not for you and, by the time the premium of your put dips below 25%, there won't be enough premium in the longer puts you want to roll to to make it attractive.  If the put you sold is too far in the money, you are not likely to be able to improve them much on the roll (just check out any option chain to see what I mean). 

    TSLA/Coulter – Space X is it's own thing (still private), not part of TSLA.  

    Woops, a little selling into the close but not too harmful.

  39. Good oil report?

  40. Certainly it was good for Gasoline! 

  41. Looks like TSLA share offering is now complete:

    Tesla Inc. TSLA, -0.78% netted $2.31 billion in its recent stock offering, the company said in a filing late Wednesday. The company sold 2.65 million shares and the deal's underwriters exercised in full the option to buy another 397,500 shares, Tesla said.

  42. Toxic Superfund cleanups decline to more than 30-year low