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3,000 Thursday – Holding the Line on the S&P 500 While Infections Rise and Rise

This is getting interesting.

We shorted the S&P 500, as noted in yesterday's Live Trading Webinar, right at our 3,135 line on the last cross and this morning we got stopped out after almost testing the 3,000 line and we've been over and under our line since and the next time we test it, we're going to short it again.

Our hedges are doing their job as the Long-Term Portfolio fell from $883,615 on Friday to $836,750 yesterday (down $46,865) while the Short-Term Portfolio rose from $521,687 to $540,485 (up $19,098).  That's exactly what your hedges should be doing – MITIGATING half your damage on the way down.  If your hedges are completely reversing the damage – you are probably over-hedged.

Why is that?  Because if you have $100,000 and you put $85,000 in longs and $15,000 in hedges (our standard ratio), then if the market drops 20% your longs drop $17,000 but the hedges, which we play with 3x ETF and options, gain about $7,000 ideally.  Because we also hedge our hedges, you don't see the full effect right away but mitigating 50% of the damage is close enough.

So now the market has dropped 20% and what do you have?  You have $92,000 – that's only down 8%.  That in itself isn't very exciting but that's where Part 2 of our strategy comes in because, since we are not very damaged by a 20% drop, we are in a great position to go bargain hunting for stocks that over-reacted to the downside (and that is what our Watch List is for) and now we can buy our stocks for a 20% or greater discount and, using our other options strategies and taking advantage of the higher VIX – we can buy stocks closer to a 40% discount with our $92,000 in buying power.

See how simple that plan is?

INX: Why the Market Is Crashing After the Fed Cut Rates to Zero ...We constantly monitor the balance between our long and short positions and, at the moment, we're able to maintain it but, when the market is such that it's no longer easy to hold our balance – then it's time to cash in our portfolios and move our stock back to the sidelines.  No strategy is foolproof and the cost of hedging against a drop greater than 20% makes it difficult to make up for the hedges if the market continues higher.  In other words – in periods of great uncertainty, it is best not to put a lot of money in the market.   See how simple this is?

JP Morgan is right, Capitalism is generally a scam the rich play on the poor.  When times are good, they pump up their stock prices or land prices and they entice the poor to buy them with various schemes to make it "easy", like Robin Hood trading or no money-down mortgages.

That's when JP Morgan and Co. sell you their assets and then the bubble pops and they come back to you with YOUR MONEY and buy the assets back again at a substantial discount.  Keep that in mind as this market bubbles higher – JP Morgan doesn't not sell his stocks because he's worried about the "tax consequences" – there are no tax consequences for the people who hold too long and lose all their profits.


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  1. Good Morning.

  2. I feel for some who missed my comment here it is once more.
    jbiz82 and all.
    I can hear you. Yes we are a trading web site.
    However many and I say many people have not yet understood in what present time we are living. Sitting here in Europe, I am somewhat amazed what assholes are running the government in the US.
    You need to understand WW 2 was bad but you could see the enemy. Today you do not know if the one next standing to you is a carrier of the virus or not.
    I have been a member of this web site for even more than 10 years; lost count actually, through learning here I was able to build up a nice portfolio holding. But regret most of my holdings are in the US and I am not too sure if I still will have a portfolio at the end of this run.
    I do not have the words to comment to this US leader clown.
    Yes as said by Jeffdoc and Phil, you only have to ask and someone will jump in to help you.
    I just wish Phil’s concern would just reach some of these idiots.
    But at the present circumstances it is indeed hard to find some real jams in this mess. Yes there was a PFE play the other day or T is cheap for a new play, I could give you many others, but possible they could be much cheaper tomorrow, too scared to tell.
    Yes there was blood in the street 19th of March, but who had the balls to jump in, or better how much more will we fall?
    I never favored IMAX but how you can set up an IMAX BCS 10/15 and sell a 15 put is one thing I cannot understand. Selling puts has been always a danger point for me but OTM. As of a rule of thumb you keep the put sale even or below the long call but not near or even above the short call of the BCS.  
    Here in Europe they have learned a bit in respect of this virus, but as well getting light headed again, by opening the doors to the new corona feast.
    Until they find a useable vaccine, corona today is the same danger as of the first day we found out about it.
    Isolation, keep distance, ware masks in more crowded places like supermarkets. If you really want to get infected go to one of the clown’s conventions or even demonstrations. Once he himself will get it, life will also change in the US.
    But until that day you have to keep your distance.
    My two cents.

    Here is a little success story for you, which even weathered the corona attack. ABMD, a stock with a lively temperament.
    Started May 19 by selling 2x put vertical Jun19 240/250 when the stock was trading  at 266.00. In June I made my first 400 odd $.
    Dec 19 that stock went down to 168 and I bought Jan22 2x 150 call and sold 3x 145 puts. Jan 20 I added another 2x Jan22 170 calls when the stock was trading at 184. Over the time, not to bore you with all the details I kept selling 2x short time calls and even puts against my long holdings. The stock is now trading at 241.00. My combined total gains, by rolling and getting worthless, today I show a gain of 24,335.00 not too bad for a year’s trading by holding only 4 long calls.
    Obviously this stock has always very high premiums and is not good for everyone, but I only want to show you, that you do not need to sell 10, 20 and 40 plays to make some money.  

  3. Good morning, All!

    Webinar replays are up! 



  4. So the IMF is predicting a big GDP contraction this year, a recovery next year but not a complete one so basically we are not getting back to 2019 levels until 2022! I assume that earnings will be affected – can't have GDP contractions and earning growth (not for everybody). So how is that reflected in current valuation – yes, it's forward looking, but we are talking about close to 2 years down the road forward looking! And this assume vaccines or therapeutics. 

  5. Image

  6. Yodi/Phil/IMAX – can you guys educate me a little on your thoughts here? It seems Phil’s naked puts are almost always at or near the short call strike. That’s the trade I copied with smaller amount of contracts.

  7. "naked puts are almost always at or near the short call strike"-

    Generally there are 2 scenarios when the short puts are near the short calls of a bull call spread-

    1).  The BCS is 100% in the money and the short put is ATM

    2).  Phil is super bullish on the stock and believes an ITM short put is worth the risk

    #2 does not happen too often because the goal is to sell as much premium as possible

  8. jbiz82 – I suggest, since you have recently joined, that you paper trade for a few months, or do 1 contract per leg/arm, etc to see how Phil's trades work.  The thing with selling puts is 1. you really like them at that price, or 2. you can roll them.  Just my 2c.

  9. jbiz82

    When did you set up this IMAX trade? Setting up naked puts are on stocks which you really like to obtain at a given price, In my case I now take a look at the Graph where the stock was March 19th 2020 and take it from there. Mostly Phil's naked puts are on top some two years out such as 2022. So take it from there.

  10. T back close to 29, KO at 44 – have been successfully selling weeklies at these strikes (and rolling to next week if necessary).

  11. Emailmike – thanks. Point #2 makes sense and I can see now why I think Phil got out of the trade so quickly. 

    Pharmboy - Great advice. I’ve been in paper money for a few months now and maybe picked the wrong trade and underlying stock to dive in but I’m treating this portfolio similar to Vegas and not risking anything I can’t afford to lose. I’m finding that I’m much more interested when it’s real money for whatever reason.

  12. rn273

    Glade to hear you doing well. Only T is a high div. payer so the premium is not to much. I try to sell the short calls on T some two or three month out, so bit more premium.

  13. yodi – makes ~2% each time. If I can do that 6-8 times a year, I am happy (it is a very small part of the portfolio). Perfectly willing to acquire T and KO at 29 and 44 if necessary

  14. rn273 Sorry selling puts is a different game. If you happy to receive the stock at a given price why not, both are good stocks. As you say always in small doses!!!!

  15. rn273 Just checked the 2 July 29 put on T the PM margin is 356.00 on 35.00 not too bad is about 10% in 7 days.

  16. rn273 But just remember you hanging out 2900$, about 1.2% for 7 days!!!

  17. T is getting to a good price – looking at selling some Sept $28 puts for 1.44 …. or the Sept 29 Puts at 1.9

  18. Batman Sept is 12 weeks away. 12x .35 = 4.20!!!!

  19. WFC- covered call trade- buy stock/sell Aug 27.5 call for net $24.75. 13% return with dividend if called away. Otherwise sit back and collect the $.51 Qtrly divdend ( +7% yield). Note- dividends have been paid since 1939.

    Troubled history for WFC now operating under several gov't consent decrees. New management should help. Value is there, IMO- one metric- stock selling at .8X tangible book value. 

    I like this type of trade at this stage in my investment career as I am much more risk averse and but need to step out a bit to get some income. 

  20. Good morning!

    Index trends not looking good but a little bounce off 3,000 yet again.

    Even the Nasdaq is down.

    As Yodi says, I am very close to pulling the plug on this nonsense – I have never seen a more dangerous situation handled more incompetently in my life – and that includes Fukushima, BP's Gulf spill and Exxon Valdez.  And this is all going on WHILE we are ignoring 100-degree temperatures in the arctic – that news doesn't even get play in this mess! 

    A fire burning over a large swath of the Arctic, amid record heat in 2019.

    That is perma-frost releasing 100M years of locked in CO2 into the atmosphere as the ground thaws for the first time.

    I just got an alert that Palm Beach County is back on lockdown and masks are required for all people going outside or even in public spaces.  Not sure how you can eat out now….

    Earnings/StJ – All the free money and low interest helps, less commerce but more profitable POSSIBLY.  That will make it very dangerous to buy companies going forward.  Many zombie corporations will look OK until the Fed pulls the plug – then unsaveable without life support.

    IMAX/JBiz – I think China goes back to the movies and US is total disaster, may as well set fire to it but still plenty of people in China to watch a film.  $11 reflects almost total loss of business.  

  21. Phil,

    If we were to pull the plug on this nonsense, what would be the suggested strategy while we wait for the markets to behave rationally? Sell everything and maybe just hold on to the SDS, SQQQ, TQQQ hedges?

  22. 100 degree heat

    CARR     Carier

    TT           Trane Technologies

    LII            Lennox

  23. Phil / IMAX – they don't carry a lot of debt, Quick ratio (4.2) and current  ratio (4.7) but a portion of their revenues comes from box office receipts…  they get a portion of revenue from box office receipts and a the rest from license / leasing.  They have been on a major expansion trend for several years, so they are in a reasonable position to weather this storm if they can minimize some of the expansion effort, and increase the debt. loa a bit.  My view is that this year revenue will be down between 30 to 50 percent ( that was assuming we were back in theaters in some fashion by end of June…  And next year maybe down 20 to 30 % vs. '19 and back to '19 levels by '22.   So by 2022 ou could squint and get 17 to 20 per share price. So the play that might make sense – assuming you believe the stock will not go broke. is to buy stock and sell at the money calls for the next year.   Buying at 11 and Dec 11 Calls for 2 and redoing this every six months might make sense.  Additionally if they fall far enough they might be a good candidate for PE firm to buy out as they have some good IP, and they are adding significant value to their customers.

  24. Wirecard a stock handled on the DAX from 2018 at 198€, a darling on the DAX, to day went bankrupt with a today's share value of 4€. There is big fraud in the air. CEO arrested. 

  25. Here was the deal with IMAX (newest trade):

    See, once they can quantify the loss, everyone relaxes:

    • Cinemark (NYSE:CNK) is up 2.6%, amid a broader market rally, after investors absorbed the brunt of the company's Q1 earnings, which showed declines and misses (though pandemic closures will weigh more heavily on the current quarter).
    • Revenues fell 24% to $543.6M in a quarter where the company closed all its theaters March 18. (It's heading toward a phased reopening starting June 19.)
    • Attributable net loss was $59.6M, vs. a year-ago profit of $32.7M. EBITDA was $66.2M, down from a year-ago $152.3M.
    • In operating metrics, attendance was 45.8M, average ticket price was up 0.6% (to $6.39) and concession revenues per patron rose 3.2%, to $4.16.
    • Aggregate screen count was 6,145 at quarter-end, and the company had commitments to open five theaters and 48 screens for the rest of 2020, and 17 theaters and 175 screens subsequent to 2020.
    • Revenue breakout: Admissions, $292.5M; Concessions, $190.4M.
    • Press release

    Impact/StJ – It depends on the duration.  China is getting back to work but the rest of the World is shut down so they are off to a slow start for that reason.  The last country to get back to normal (us, for sure) will get back fastest as the rest of the World will be willing to work by then and I've been saying that will be June since January and I still think you'll be sitting in a movie theater in July and you will look around and think back on my words at how amazingly normal things already seem by then.

    IMAX still very cheap at $13.60.  Not one the Watch List because we already owned them.

    For the LTP:

    • Sell 20 IMAX Dec $15 puts for $3.40 ($6,800) 
    • Buy 40 IMAX Dec $10 calls for $4.90 ($19,600) 
    • Sell 40 IMAX Dec $15 calls for $2 ($8,000) 

    That's net $4,800 on the $20,000 spread so $14,200 (295%) of upside potential in less than 200 days is pretty good and we're already $14,000 in the money!   Even though they are aggressive, the ordinary margin on the puts is only $2,232 so a very efficient trade!  

    We had killed the old one as we were back to even and lost confidence and we moved to this one as I thought net $11.60 would hold up (probably will) and the spread is $4,000 in the money at $11 and the puts can be rolled when longer options come out.  The spread is now $2.50/0.70 so $1.80 ($7,200) and the short puts are $4.80 ($9,600) so it's – net $2,400 at the moment for a loss of $6,200 overall.

    But, if IMAX was at $11 in Dec, then the spread would pay $4,000 and the short puts would be $8,000 and the loss would be $4,000 – the rest is premium.

  26. If someone held a gun to my head and forced me to take a position in IMAX it would be:

    Buy 40 IMAX Dec 8 calls for $3.70 $14,800

    Sell 40 IMAX Dec 10 calls for $2.45 $9,800

    Sell 1 AMZN Nov 2000 put for $37.05 $3705

    Net $1295 on an $8000 spread and my downside is owning 100 shares of AMZN at $2012.95 (currently at $2734.09)

  27. Situation / Phil – Right, markets are simply ignoring all the crap going on now. I pulled the plug mostly already. It's just so unreal now. Let's summarize;

    • 26 states are now spiking in the US and places will either go in lockdown again or simply overwhelm their healthcare system in order not to upset our Deal Leader.
    • Brazil Covid situation is out of control – not a small country.
    • Travel restrictions everywhere, trade wars, political tension, autocrats in danger!
    • Zombie companies being held up by the Fed. Heck, bankrupt companies are making share offerings in this frenzy.
    • Permafrost – Keep in mind that also a lot of the Russia oil infrastructure is in danger if the permafrost melts! Not as bad as all the methane being released, but clearly a problem for the economy
    • Unrest in the USA and a risk that our election process might get compromised by bad actors starting with POTUS
    • IMF predicting a slow rebound for most advanced countries
    • Exploding government debts everywhere
    • Unemployment rising big time everywhere. Europe was OK until now because of support from governments, but the bill is coming due now and people are losing their jobs.

    Did I miss anything? Hard to justify new highs even with that free money sloshing around!

  28. STJ Yes optimism

  29. KO – That's sad.

    WFC/Pstas – I'd rather go with a safer bank or GS/JPM.

    Oh look, the markets are all fixed again.

    Nonsense/Jij – I would switch to some short speculation but nothing on the scale of what we're using to cover with if we are cashing in the longs they are protecting.  There's a lot of money in play so we could keep going up but my logic is:

    We went from 15 to 2.4M cases (yep, today) in 3 months so let's say in 3 more months we hit just 24M cases and over 1M people dead – will $2.7Tn (actual authorized) be enough to "fix" that or will it take $5Tn and then what?  If no cure by September will we then be heading towards 240M cases (herd immunity!) and 10M dead and will we then spend $10Tn more to keep going?  Will this never, ever matter?  How many restaurants etc will be able to stay open if we are on a 9-month lockdown.

    That is why this was the single worst decision in history.   We could have waited one more month and been in decent shape like Asia but this rush to re-open may have doomed the economy and the citizens.

    The globe's coronavirus recovery could give Trump a pre-election ...

    100 degrees in the arctic/Stock – More like SPCE!  Air conditioning won't save you!  

    IMAX/Batman – Yes, instead of cashing the old trade on the bounce we could have just sold calls but we weren't sure re-opening would be a disaster so it was safer to exit but then we were tempted again and got back in.

    Sad list, StJ.

    LOL Yodi.

  30. Apple re-closing 14 stores in Florida

    Apple (NASDAQ:AAPLwill re-close 14 stores in Florida on Friday as the state's coronavirus cases rise.

    The company has now re-closed 32 stores in the United States, including locations in Arizona, Florida, North Carolina, South Carolina, and Texas.

    Apple statement: "Due to current COVID-19 conditions in some of the communities we serve, we are temporarily closing stores in these areas. We take this step with an abundance of caution as we closely monitor the situation and we look forward to having our teams and customers back as soon as possible."

    During the fiscal Q3 report in April, Apple said the last three weeks of the quarter felt the pressure of retail stores outside of China closing due to the pandemic.





  31. Hi Phil,

    Regarding today's rise in NG inventories that has dropped UNG to an all-time low, are you still in favor of keeping our UNG calls?  Low priced oil drops natural gas production, hurricane season is here, but on the other hand, the coronavirus is out of control and the peril to the global economy and NG demand is increasing.  What is your current thinking? 

    I have the 2022 UNG 11 calls, I can roll them down or take the .80 loss.  I also have 2022 15,16 and 18 UNG puts sold pre-coronavirus that I will attempt to roll down in September when the 2023 leaps come out.  Any other ideas?

  32. Phil / IMAX – I got out the first time you discussed timing – I agreed that Dec was iffy at best.  BTW – Korea, JPN, And CHN all opened theaters and closed them within 2 to 3 weeks of opening – China started re opening but don't know if the others have.   I've been getting emails in CA about new theaters opening.  some in 2nd week of July….  I think given our lack of control in general.  Theaters will close down on their own after cases are traced back to them this may take a bit longer …..   So this may be a long haul on this stock…..

  33. As long as a significant % of us think wearing a mask is some sort of plot against personal freedom we are screwed.

  34. On POTUS instruction, Minutchin must have prioritized sending checks to those dead broke…. 

  35. Optimism / Yodi – Hopefully we'll be optimistic again in November. The other scenario is simply doom for the human race! 

  36. Move along folks, nothing to see here – it's all under control….

    /NG/John – That's the kind of thing you want to buy into but you have to let it settle down.  I don't think it's a very safe bet for Futures but I don't mind rolling the dice on UNG.  Sometime, in the next couple of years, demand will come back and hurricanes will disrupt.

    IMAX/Batman – Certainly a long haul.  We were just worried re-opening would go smoothly so almost an upside hedge against our gloomy forecast.

  37. Poll Shows Trump Dragging Down G.O.P. Senate Candidates