Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Testy Tuesday – Back to 2,850 on the S&P 500 – Again

Well, you can see why we call it our "Must Hold Line."

2,850 on the S&P 500 has been the center of all the action for the past month and that GOOD since, 1/3 into earnings season, it indicates we made the right call with our predicted ranges for the year.  Of course it's also BAD – because those ranges are now a far cry from the market highs we had before…  They are not coming back in the near future, so stop wishing for them (see "Portfolio Repair Workshop Part 4 – Adjusting Our Goals to Reflect Reality").  

This is a huge advantage options traders have over stock traders:  If you own stock in IBM, for example, at $140 and now it's at $120 - you can cross your fingers and pray it gets back to $140 (it will) or you can double down at $120 and lower your basis to $130 and hope it gets back to that and that's about all your options (other than taking the loss).  

With stock options, however, I can cash out my 100 shares of IBM at $120 and IMMEDIATELY get my $20 loss back by selling the 2022 $115 put for $20.  The put contract obligates me to buy IBM for $115 between now and Jan 2022 and the buyer of that contract is willing to pay me $20 to cap loss on IBM at $95 – maybe he bought it for less, maybe he also sold calls – don't know, don't care because I got my $20!

With $20 back in our pocket and $120 from the sale of the stock, we are now even (not that we would have been so foolish as to buy stock in the first place!) and our worst-case scenario is owning IBM again at $115.  Still with $140 back in our pockets we can even get a bit more bullish and we can buy the IBM 2022 $110 calls for $21 and sell the 2022 $130 calls for $12 and that's net $9 on the $20 spread.  

So the upside potential is $11 which is 122% on my $9 and I can only lose the $9, no matter how low IBM goes.  If you bought IBM for $140, hoping it would go to $160 (+$20) and now you are down $20 at $120, imagine how better off you would be if you just bought 2 of the $110/130 bull call spreads for $18, which make $22 at just $130 (in Jan, 2022).  You tie up (and risk) $122 less to make $2 more.  OPTIONS!!!

That tremendous leverage and flexibility is how we are able to navigate these wild market swings but the value of the options can also swing wildly, so it's prudent to hedge.  Though we think the S&P will continue to trade in a range +/- 10% around the 2,850 line on the S&P, we're more worried about being wrong on the downside and seeing it swing much lower – again.  Over the long haul – our longs can take care of themselves.

We lost a fortune on our hedges over the past 10 years as the market went up and up and up but, had we not had those hedges, we would not have had the conviction to hold onto our long positions for as long as we did.  It was only in September of last year, when our longs got so big that they were too expensive to keep hedging (yes, that's a thing!) that we finally cashed out and waited for the next big pullback to start seriously investing again.  

We've had a bit of it so far and HOPEFULLY that 2,500 line will continue to hold but there still aren't many stocks that we sold in September that aren't quite a bit cheaper now – so we're not missing anything by waiting for better data.   Sadly, we're not getting that in Q1 earnings since they only got hit hard by the virus in the past two weeks and most companies reporting earnings have declined to forecast Q2, which means we're going to have to wait for Q2 to get some clarity.  

ImageThe forecast revisions we've had so far have not been very encouraging, now down around the level we had during the last Financial Crisis or after 9/11, neither of which led to speedy recoveries and let's keep in mind that 9/11 was essentially a one-time event in which we changed our habits, especially around flying, and moved forward as a country (into war).  As much as Trump wishes to do so, you can't go to war with a virus – that's not the way we'll get our economic engines running again

We'll see how the states do with their vartious re-opening programs but we're already seeing spiking infection rates in places where they are attempting to re-start the economy and the CDC apparently now has a worst-case scenario (which happens to be the parth the US is on) of 200,000 DAILY infections and 3,000 DAILY deaths by June if we re-open the cities and the virus starts rapidly spreading again.  As I explained in last week's Live Trading Webinar – we would be starting from a much higher base of infections than we had before. 

Moving forward without fully understanding the implications of your actions is as foolish in Government as it is in the stock market.   We'll be taking a very careful look at a our longs (again) and deciding which ones are really worth the risk moving forward.  


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. Good Morning.

  2. Phil I like your sample on IBM. BUT yes, if you do not only have the stock at say 145 but sold calls at 140 130 and even 150 against your stock position. What if you already committed yourself to having sold puts at 135 125 and 110. Yes it is easy to sell the stock without any additional obligation, but with a string of options already sold covered by the stock, it is a different cattle of fish.
    Still even holding a stock at 145 or even at 150, as long as IBM does not go bankrupt, you hold only a paper loss, and not to forget IBM still is paying a 5.3% div. at present stock holding.
    Agree some stocks will cut there div, but still, IF the disarranged clown does not run the ship completely against the rocks, we might see still some companies survive.

    Obviously you can sell put always at a dip, but in the end your margin will go through the roof.

  3. P.S. I sold BA 2 puts and holding it with a 21k loss and I am holding CCL stock at a 21K loss, the stock does not hurt me but I do not like the thread of the puts of BA, Sure I still have the option of rolling all out to Jun 22, But CCL has ships ready to cruse has BA ever his fatal plane ready to fly again.?

  4. Good Morning

  5. Americans see toll of the pandemic on shopping malls

  6. If you exclude the NYC metro area, the predictions from the CDC are starting to make sense! The number of cases is not decreasing and as more states open, this could get worse:

  7. In the meantime, we are getting ready to borrow $3T just for this quarter and a lot of it because our leader didn't do his homework – so much winning so far!

    The Congressional Budget Office is forecasting that the government will run a record budget deficit of $3.7 trillion this year. CBO is projecting the overall economy will shrink by a record 40% at an annual rate in the current April-June quarter.

  8. Oil companies are getting a bit scared:

    The coronavirus has sent oil demand plummeting, and it may never return to where it once was. In a stunning admission, Shell CFO Jessica Uhl told investors she sees “major demand destruction that we don’t even know will come back.”

  9. STJ  The US should take a lesson from Europe. Look at the UK Johnston, another clown now looks like a fool with his tail between his legs, but I trust he learned his lesson.

  10. Good morning!

    There's just not enough good news to keep our risky longs.  Here's the list from 4/24, which I regret not executing on 4/29.  I was right that the rally would be our buffer but I was righter that 2,850 was likely to be the top of our range and we're just lucky to be on another rally so I REALLY want to take advantage and cut back our risk:

    April 24th, 2020 at 2:33 pm | (Unlocked) | Permalink 

    Well, to some extent, we're closing well today (so far) so the gains are a bit of a buffer and we do have new hedges but these are the positions I'm strongly considering killing as they are too risky:


    • THC – I'm not sure hospitals are making money as they have to turn the entire place into biohazard wards and they can't do profitable surgical work.  It will come back one day but not sure when.  
    • ALK – Can't see risking an airline stock without more clarity – this one is certainly going.
    • DFS – I'm a bit worried on defaults and such.  Need to do more research.
    • FCX – Infrastructure looks far down the list.  
    • IMAX – If they had longer options maybe, but not worth it with short-term. I'd rather buy more DIS but I'm worried about them too if they lose the summer. 
    • LB – With the deal off the table I think maybe we don't risk it.
    • VALE – Same as FCX, may never be infrastructure.

    Dividend Portfolio:

    • TD – We got out on LTP, need to dump these too.
    • NLY – Might take longer than we want to wait to turn around. 

    Future is Now:

    We made no changes and we're up 7% for the week!

    Money Talk - I'm on Wednesday but taping Monday so:

    • FCX – Same reason 
    • IMAX – Same reason

    Butterfly Portfolio: 

    • DIS – I'm still inclined to stay in but I'll have to recheck a lot of stuff
    • X – Another one I'm not sure the infrastructure will come but so cheap it's hard to ditch.  

    Earnings Portfolio:

    • CLF – Infrastructure again
    • HRB – We're at the money but I'm not comfortable with them.
    • IMAX – Same problem

    Since I'm very close to going totally back to cash, it's very likely I'm going to want to kill all of these on Monday. 

    IBM/Yodi – In this kind of market, I'd rather limit my risk and here I'm not talking about doing buy/writes for dividends and, even if you do – you should never have an amount (AFTER being assigned the short put) that you would not be THRILLED to doubled down on when the stock is down 20-40% from your net entry.  This ship may well be headed straight for the rocks.  I'm not seeing enough evidence telling me that the re-opening is a good idea and, if it proves not to be – then we are worse off than before with another 3 months of lockdown ahead.  How many companies are going to be able to survive that?

    Margin isn't an issue if you only sell puts in companies you can afford to buy if assigned.  Promising to buy things you can't actually afford is foolish – no matter what the context.  

    Speaking of which, no discount at Stevens for Jackie – $75,000 a year and they can't even promise there will actually be classes or that the dorms will be open.  I told her she might want to consider a gap year but what's the point if you can't travel?

    Hertz finally going BK – I can't believe that industry lasted this long post-Uber.  

    BA/Yodi – I worry about BA because their customers are going BK – that's not something they can control and bankrupt airlines sell planes cheaply to other airlines, who then don't need new planes from BA.  Combine that with AT LEAST a 33% reduction in travel through next Spring (maybe back to normal next summer if the virus doesn't re-surface) and you can see why Buffett sold ALL of his airline holdings.  

    Big Chart – Bouncing off those 50 dmas.

    NYC/StJ – Good point.  And NYC is on serious lock-down – that's why cases are in decline.

    Oil I'm not so bearish on.  It will normalize if we can ever work off this glut.

    We survived the last two trips below $40 so not an unrealistic bet to say things improve by Summer. 

    Those are our 2 bets plus ET (pipeline):

  11. Yodi – The UK is indeed a good example of a place who reacted too late and are getting the appropriate results now! But BoJo is now taking it slow because he almost crossed the pearly gates himself.

  12. The Bug/StJean – interesting comparison. I'll do a little digging to see if I can find where the increase is. I don't see it in California, which would be my first guess with the population.

  13. Phil well said but on the puts you might have enough money to cover the first sale but commit double and double again is a different story, you might run out of cash to cover!
    BA worrying thought I am selling naked monthly calls to cover a bit. Funny no extra margin being charged.

  14. TSLA stock is way too GDamn high!! I got a bad feeling about this market, something just doesnt seem right. Ive been watching BWA, ugly chart, looks like mid/low 30s are in the cards if it doesnt make a bullish move higher.


  15. So you are cutting all those positions?  Or just thinking about it again?

  16. WBA not BWA

  17. Short calls/Yodi – If you sold short puts, they balance out for margin.  Also, of course I mean you have to have the intention of making that 4x purchase before you sell 1x the short puts!

    Positions/Jeff – After just watching Trump speak to the press on the way to his helicopter, I'm certainly killing the above positions and I'm tempted to cash everything now.  He must have lied 20 times in 5 minutes and these lies – unlike his other 17,000 "fun" lies since he's been elected – are going to directly lead to thousands of people dying and possibly a global Depression if this re-opening backfires.  He keeps repeating "America has to get back to work" and he tossed out that "more than 2 million could have died if we hadn't acted", which is very interesting since, so far, we only have 70,000 deaths yet 2M is about the CDC's worst-case scenario or, as Trump likes to call it:  "Our action plan"!

    Coronavirus cartoons: Trump's ratings jump amid big job losses

  18. Meat shortage, never tried BYND meat, wonder if its any good. I just read that 1 out of 5 WEN is out of meat. Plenty of veg though.

  19. BYND / Kustomz – I like it but I guess it's not for everybody. If you don't overcook it, you can get an almost burger experience!

  20. Bug / Snow – If cases are declining in California as well, then new cases in the rest of the USA is actually climbing faster than the chart indicates.

  21. that's the second time LABU has worked out, I'm loving this ETF

  22. Phil I do not want to labor the puts but for example I hold 11x 160 Jan 15 AAPL short puts that means I would have to hold 1100x 160 x4 = 704K in cash to cover???? Thank God I show a 13.5K credit.

    But here your comment is very seriously taken in to consideration.

    I do think most of us do not think that way when they sell one or two puts, never mind 5 or 10 of.

  23. St, they have earnings this afternoon. They've sparked my interest, unfortunately when they are at highs lol.
    They get some of their ingredients from China, so they may have had a tough Q.

  24. The Bug/ STJean – I'm going to dig through this site ( & see if anything pops out. This is, as far as I know, the best site for US data.

  25. As Phil mentioned, this quarter won't tell us much! I am more worried about Q2 now where it looks like 1.5 months of revenues will be affected for most companies.

  26. Phil – As discussed yesterday, savings are up, but look like debts is also up. Not going to help for a fast recovery:

    American households added $155 billion of debt in the first quarter and overall debt levels rose to a new record at $14.30 trillion, the Federal Reserve Bank of New York said on Tuesday in a report that provides a snapshot of where household balance sheets stood before the coronavirus pandemic brought much of the economy to a halt.

    Mortgage balances rose by $156 billion from the fourth quarter to $9.71 trillion. But access to credit overall tightened slightly in the first quarter and other types of debt declined.

  27. As a long time user of BYND just be aware that the daily swings are anywhere from 5-10 bucks. I have made money playing both ways HOWEVER you have to stay on top of these trades and really watch it. They have expanded their products to strips and ground and I actually found some at the large store in Duluth, but it is increasingly getting difficult to find. Usually in the frozen food case so they seem to be keeping up somewhat.

  28. always look on the bright side of life.   Trump could be forcing doctors to work corona positive and throwing them out of windows when they tell anyone or refuse like his buddy putin. Donald must be so jealous.

  29. Well I did it. I cashed in my entire long options portfolio.  I reduced last week (and closed shorts) and am thrilled to have another bounce to sell into today. It was only around 100k exposure all told, so not on the scale of the big boys here but I wasn't sleeping.  "The stock market makes no sense/just does what it wants" was not enough of a reason to stay long for me.  I'd rather be right in principle (thanks Phil + others) and miss out on a 10% nonsense rally that enforces more bad habits (I have too many) 

  30. When they lift the moratorium on foreclosures and evictions, things are going to get ugly because the people that are still working are the ones accounting for the increase in savings and the ones who aren't working are running up debt and not paying their mortgages. The government can't keep putting the economic cost of this debacle on the back of the mortgage lending industry without causing it to fold, so at some point the chips are going to fall. Same with car loans. The auto lending industry was already a house of cards even before coronavirus IMO, I don't see how the subprime part of that industry is going to get out of this with their hide intact. and no one is going to support bailing out car loan sharks. 

    Potter – I'm right there with you closing things out today. Don't know if I'll get to 100% cash but trying to get to 60% or better in an orderly fashion without giving things away. 

  31. Meat/Kustomz – It's amazing how fast the meat industry collapsed.  

    LABU/BDC – What a ride.

    AAPL/Yodi – Well you don't HAVE to.  We take prudent risks but, when the stock goes down, you have to reassess that risk long before you get hit with margin calls.  For me, with AAPL, my attitude is that I'd be happy to liquidate other positions in order to own AAPL for net $160 – though I'd still probably roll lower first. 

    Debts/StJ – And they were climbing before the crisis.  Last Christmas was very much paid for with credit cards. 

    Very wise Potter.  If it's bothering you – cash out!  There's always going to be something on sale to get back in with, like SKT!

    Tanger Factory Outlet Centers

    The riskiest of the three investments to watch this month is a real estate investment trust (REIT) that operates strip malls. You're not going to get a lot of love for retailing landlords these days, which explains why Tanger has shed roughly half of its value in 2020. 

    Physical retail is largely collecting cobwebs at this point, and many of Tanger's tenants aren't likely to be around by the time the coast is clear for in-store shopping. The impressive 97% occupancy rate that Tanger had at the beginning of this year is going to be toast. The beefy distributions that Tanger has increased every year since 1993 will also be history. 

    These are scary times to be buying into any shopping center operator, but Tanger's stores will be popular at the other end of this pandemic. Traditional retailers will need to dump full-priced inventory that isn't selling, and consumers are going to gravitate to a place where they can score several different merchants offering closeouts and clearance items. 

    There may never be a retailer that is truly recession-resistant, but you can help your odds as an investor by buying into retailer stocks that can hold up better than the competition. Five Below, Walmart, and Tanger Factory Outlet Centers are built for today's calamity and tomorrow's hazy recovery. 


  32. Bug / Snow – The cases in CA and NY are flat / down….. if you look at that data it definitely says the rest of the US is increasing at a higher rate …..  In addition, I think NY is testing at 60 to 80 K per day (can't find the website that tracks it) and CA is testing at about 45K per day…. with these other areas ( GA, TX, FL, AL ) testing at a lower rates the increase is in these areas – and worst we are not going to see they numbers.  Will only see the overflow of cases at hospitals.  

  33. Washington Post does a data tracker. Looks like Fla, Georgia and Colo are surging and they don't report much data but the total confirmed positives are definately up. Same with Tex and Mich. The testing is abysmal.

  34. Phil / VIAC – DEBT - When I look at the debt on this I struggle with how they can stay ahead of this, pay the dividend – I know they just closed the acquisition, and just started the dividend, but the world has changed.  Would love to understand how you are looking at this.  Thanks,

  35. FYI – In South Florida you can get test with no symptoms and no appointment at several locations – just have to be 18.  Apparently they are running out of 'sick' people to test (???)  I would think that this is a good sign for down here but it probably depends on what side of the fence you are on…

  36. That's not in all areas. Where the cases are very low, there is basically no tests unless your hospitalized. Here in the 3 most northern counties we have had only 1 or no deaths per county. We probably don't get a test even after dying! 

  37. So Phil, you final conclusion is keep AAPL, oil and pipelines and sell everything else??? and keep SDS SQQQ fo hedges/bearish bets???

  38. What about Barrick GOLD and WPM?? Precious metals in a depression??

  39. More data points:

    Not close to getting over the hump! More like racing toward another catastrophe when rural hospitals are overwhelmed! And far from the rosy scenario being pushed by the WH.

  40. Stjean – Thanks! That graph of USA cases minus NY, NJ, & CT, clarifies what's going on and what's important. Thanks.

  41. I don't know why everyone acts like virus data is hard to find – it's everywhere!  It may be interpreted in lots of ways but, if you ignore the spin and look at the raw data – you can pretty easily see what's happening.

    VIAC/Batman – I don't know that they keep paying $1/share dividend as that costs them over $500M a year but, for the past 3 quarters, they've been burning about $120M per quarter in cash-flow and they were sitting on $632M as of 12/31 so it depends on how affected they are by the virus but they probably have a year to cut costs before they need any cash but $9.7Bn in valuation at $15.50 for a company with $27Bn in sales and $3.3Bn in income last year gives them a price to book valuation of about 0.75 with a p/e of 3.  NFLX is trading at $188Bn and acquiring VIAC would more than double their total content – do you think NFLX would worry about $20Bn in debt?  NFLX only makes $1.8Bn and carries $10Bn in debt – they could service their debt and VIAC's with VIAC's profits alone.  Same goes for AMZN or AAPL, who could buy VIAC and pay the debt for petty cash.  Debt is not a big deal – unless you can't make the payments.

    Testing/Jeff – That's good.  Unfortunately, leaving it up to the states means some states have plenty of tests and others don't have near enough.  Florida has done mobile lab testing and that's been very helpful though the quality/accuracy of the tests has been questioned.

    That's the scary thing, Governors like DeSantis WANT to open their states and they may consider tests that produce a lot of false negatives to be a feature, not a problem.  Keep in mind that Florida is the home of unreliable drug testing due to kickbacks as well.  

    Conclusion/Millard – Given today's move up, there's no need to do anything but again, we need to take the money and run as soon as the direction changes but not EVERYTHING – it's tempting to do so but FOMO.

    Oops, didn't realize how late it is!

  42. TAP close to its March low…interesting

  43. Phil what are you thinking about SKT vs SPG, or are they roughly equivalent?


  44. GOLD/Millard – We don't have WPM at the moment, we missed our chance in March.  GOLD is our Stock of the Year, not letting them go.  As I said in the last review – was good for a new trade on the dip.

    I've been looking over our positions all day – a lot of great values in there so very hard to let go of if we don't know for sure that re-opening is going to backfire.  As I have been saying, we won't KNOW it's not working until the week of the 18th and just because the virus re-surges doesn't mean the re-opening will stop because the Administration clearly thinks 2M dead is an acceptable trade-off for 10% better GDP.

    That makes sense because maybe $1.1M per life (we worked that out last week) is $2.2Tn and that's the same as 10% of our GDP, which is why that's Trump's number – it's the data he's basing his choice on and why would you be surprised that he chose profits over life?

    Pragmatically, it's not an illogical choice since the deaths tend to hit the less productive members of society (so not really worth $1.1M as consumers or laborers) and we MIGHT find some way to mitigate the deaths and spread of the disease (Operation Warp Speed) but we will DEFINITELY lose at least 10% of the GDP and maybe more and there's no guarantee we can quarantine the virus away anyway.  So – Phuket!  

    And what StJ said!  

    LOL Tangled.  

    TAP/Kustomz – Troubled Q, earnings off 32.7% from last year but better than estimated.  Keg returns is what killed them.  They allow returns as it lowers the risk to the restaurant/bar but they all had to close in March so TAP got flooded with returns that cost them $50M (annual profits only $800M).  They withdrew guidance for all of 2020 but said Q2 would significantly be impacted. 

    Molson Coors results were not only hurt by coronavirus, but the aftermath of a shooting at its brewery

    Edited Transcript of TAP earnings conference call or presentation 30-Apr-20 3:00pm GMT

    SPG/Wing – Similar situation with fear driving investors out but I think SKT is a better case as they are not as endangered by anchor stores going bust on them.  This headline has been killing that sector this week:

    Warren Buffett: Demand for office and retail space may drop 'fairly significantly'

    SPG shut down on 3/18 and are just starting to re-open so 2 months I don't think they can charge rent for and then the concern is whether the tenants can pay when they re-open.  Let's say 25% can't so that's 15% of the rents forgiven and 12.5% (6 months) of no pay while they look to re-fill space in a tough environment so concessions means they permanently get 5% (20% of 25%) less moving forward.  

    So it's a 27.5% loss of 2020 revenue ($1.5Bn out of $6Bn) and only generating $5.7Bn going forward.  SPG made $2.1Bn in 2019 on $5.75Bn in revenues and $2.4Bn in 2018 so, even if they only make $1.5Bn going forward after taking a $1.5Bn one-time hit in 2020 – that's still $15Bn in profits to look forward to in the next 10 years.   So, would I buy them for $18.5Bn at $60/share?  Yes.

  45. SDS / AAPL

    bought some more SDS today….  lightened up a bit on AAPL – took some profit on a spread. still my largest position.  Hopefully can reload on a pullback. 

  46. Virus / Phil – There is of course the scenario where 2M people die AND we lose 10% of the GDP because people simply panic, stay home, don't go to work, don't spend, and so on…

    Whoever thinks that they can predict reliably what's going to happen when going out means a 1% chance of dying is simply lying.

  47. DIS – earnings tonight 

  48. And I meant on top of the usual 1% chance of dying anyway – so 2% now! These odds don't look so bad but for someone my age, based on the actuary tables, my chances of kicking the bucket are 0.8%. So 2 to 3x higher chancing it with the virus. Not crazy about that dice roll honestly.

  49. Vaccine Expert Alleges HHS Resisted Coronavirus Warnings

  50. Remdesivir Pricing

  51. ‘Freedom Fighters’ Led by American Tried Invading Venezuela

  52. Pelosi pushes new virus package as McConnell hits ‘pause’

  53. With New Hot Spots Emerging, No Sign of a Respite

  54. Heathrow airport will trial thermal imaging cameras

  55. ICE chief tangles with White House over political appointees

  56. Coronavirus Symptoms: 11 People on How It Actually Feels