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Testy Tuesday – Are we Hedged Well Enough?

June 29: Tracking COVID-19 Cases, Hospitalizations, and Fatalities ...Nice move up yesterday, this is a good time to take a look at the Short-Term Portfolio (STP).

As you know, I'm a bit skeptical of the rally because over 10.4M people (yes, up 400,000 since Sunday) on the planet now have or had Covid-19 and less than 1/2 of them are "recovered" or "dead" so at a rate of 200,000 infections per day, we'll be at 20M by the end of August and most of those people will be newly infected so going from 5M actively infected to 10M (at least) actively infected means there will be twice as many people spreading the virus in 50 days or less so twice as contagious and growing twice as fast (400,000 per day) and we're already over-running hopsitals in several US states.  

Coronavirus: A visual guide to the economic impact - BBC NewsThe economy is still very much shut-down and yesterday the markets were excited about some production growth in Asia but, when you were down 30%, growing 2% back is not really a reason to put on party hats – certainly not a 500-point rally.  But that brings us to the TREMENDOUS amounts of stimulus in the economy. 

I think the Government/Fed spent the right amount ($6.7Tn) to get us through 6 months but this isn't going to be 6 months and those unemployment bonuses run out at the end of July so either they put another $3Tn to work or Q3 will be a bigger disaster than Q2 and I'm sure we have diminishing returns (and mounting debt) – that pretty much sums up my "concerns" for the Economy at the moment.

Chart: The Coronavirus is Almost Everywhere | StatistaSo, the question is, are we hedged enough or CAN WE BE HEDGED ENOUGH to protect our long positions?  Our Long-Term Portfolio is up 70% at the monet at about $850,000 and our Short-Term Portfolio is up 445% at $545,000 so combined $1.395M is more than a double off our $600,000 combined start so all is well but that's because we got lucky and were bearish into the crash (because we feared the virus early on) and DID NOT have a lot of longs (which dropped almost 50% at the lows) and then we hit the turn on the nose and doubled down on our longs ahead of the stimulus and made great money on the way back up (3x from our 50% down position).

This is not the same thing!  Now we have a VERY LARGE portfolio of longs and yes, a lot more hedges but we've been in neutral for a month out of fear of a crash and I think we would actually do better just getting back to almost all cash and just having some speculative fun while we wait for the Q3 cycle to resolve itself.

You know me, if we have cash on the side I'm going to be grabbing bargains right and left during earnings season but it's going to be very hard to protect $1.4M from another 20% correction – and the next one may not bounce back very fast as this planet may be heading into another depression if there's no vaccine/cure by the winter – when Corona Virus meets Rhinovirus and every single person you see will look like a ticking time bomb of infection.

How Coronavirus Spreads GIF by Cindy046 | GfycatWe all get the flu almost every year, now we're all going to be wondering "Is this it?" for some part of the winter.  Every time someone next to you sneezes it won't be "God Bless You" but "Get away from me!".  No, I don't look forward to this at all and how is that going to make for a happy, friendly economic outlook?  

So, while I may be a bit slow to pull the trigger on cutting our long portfolios – that's because they are up significantly for the year so we could take a 20% hit and still have a good year but, if you are not well-hedged or have not made huge gains – DO NOT RISK YOUR MONEY – as the next crash may not bounce back like the first one did.  

We've made no changes to the STP since our last Review on June 19th, when it was at $521,687 and the S&P was at 3,140.  Now we're down 87 at 3,053 and the Portfolio is up $23,277 at $564,964 so up 4.2% on a 2.5% drop in the S&P means our hedges are functioning well and we're pretty well balanced so, as we begin to unwind our longs, we run the risk of over-hedging in the STP – have to be careful about that too!  

Still, for the moment, we need to risk losing on the short side as I REALLY don't want to give up our long gains before we have a chance to unwind.  Keep in mind I do expect more stimulus so I'd like to catch that boost before cashing in our longs but what if it never comes?   

  • CANE – Went ripping higher early June and I feel good about the bottom call we made.

  • SQQQ – A leftover leg that expired worthless.  I'll do the rest later.
  • AAPL – 46% profit already!  
  • JPM – 66.6%?  Draw your own conclusions as to whether that's a sign or not!  I say take in and run now, no sense waiting 18 months to make $1,418 – even if there is the slightest risk of a problem.  

  • TQQQ – This was more for fun than anything as I wanted to see if it would outperform SQQQ and look – it has!  More money on a 3x ETF means more room for decay and, even though we're out of the money, the combo is still working.  Up $15,500 on our net $50,500 entry (no margin required) is 30.6% in just over a month and the potential to pay back $175,000 in a major correction.

  • CMG – We got more bearish and bought back the short puts last time so now we're just waiting but CMG holding up so far.  As this is now set, the short calls are at the money with 3 weeks to play and our long put spread can pay very bigly if CMG falls below $850 again, even $750 would net back about $60,000 and another $20,000 per $100 below.     

  • SDS – Our newest hedge.  Already in the green despite the S&P 500 stubbornly staying over 3,000 so far.  This is a big one and the short July calls are at the money but lots of room to run on the Jan $15s and we can roll those short July calls higher when they lose their premium (all premium now).  It's a potential $400,000 (ish) spread (hard to tell on the rolls) currently at net $113,850 and we only paid $85,900 for it so – great hedge!  

 

  • SQQQ – If AAPL ever stops going up, the Nasdaq is DOOMED!  Maybe that will never happen but if AAPL ever corrects, no force on Earth, not even the Fed can save the Nasdaq.  This hedge has a $200,000 potential and is currently net $28,650 so obviously great for a new hedge as it's $60,000 in the money!  Aren't options amazing? 

  • TSLA – Ouch so far!  We were originally down $29,000 and now we rolled the long calls up and lost another $2,125 so far.  If TSLA stays up here next week, we have to roll to short Sept $950 calls (now $166) but the short July $900s at $166 have $60 in premium so no reason not to let that burn off first.

  • UNG – We doubled down on the longs and got a nice pop yesterday but a long way to go on what now is massive upside potential into hurricane season (it's also a hedge of our hedges for an economic recovery).

So great hedges but not if we unwind a lot of longs and don't need them – then they become bearish bets and that's a bit scary with stimulus pending so still a bit on the fence but, remember, that's because we could lose $400,000 and be at net $1M in the LTP/STP and that's still up $400,000 for the year (while the market would be tanking) so THAT is the only reason we haven't cashed out yet – there is still $400,000 very much at risk from a 10% sudden correction followed by a bad week that takes us down 20% – that would be too fast to get away from.  

Anything else and we'll be fine!  

 


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  1. Good morning!

    What a recovery – I lost my post when I saved it and redid all that in just over an hour.  

    I've still got it!  

    Now, where is everyone?


  2. Good morning!


  3. good morning 


  4. Wise words from Yodi not to be missed:

    I know the subject has been already discussed to death but here once more my two cents.

    Corona exists and is here like the first day it appeared. So NO change in respect to the virus. I know lots of Americans think the world ends at the ocean borders, but there are still other countries in existing as well.

    I see Phil is already pulling his few hairs out and some new members wonder what type of site we have.

    Just to confirm it is a financial site, possible one of the best in respect of advice.

    Regret it seems to me that in the US they did fail to look over the border  (Europe) what other countries doing to combat the invisible enemy.

    In business the first I like to know what the completion is doing.

    There are simply some few roles to observe. Masks, distance to your next person especially in public places. If there are more than 50 infections in a week in certain areas complete close down.

    Believe me they learned it in Europe, and by loosening restrictions they only run in to the danger, the invisible enemy will return and attack again.

    Regret to see that many younger people think they are untouchable. That leads back to their brain which is not yet fully developed as with older people.

    Finally they virus will be with us until we have found a workable vaccine to boost the defense system.


  5. we're here becos we agree with Phil's methodology and we watch anderson chris don every morning in sydney!!


  6. US companies file for bankruptcy at fastest pace since 2013

    https://www.ft.com/content/1591221c-d5c5-45bd-a0bc-e7cbed2144df


  7. And that's a lagging indicator.  Think of how many are teetering on the brink even with all the support and low interest.  


  8. Good Morning!


  9. Interesting companies going bankrupt after taking millions in stimulus payments and then filing. A company in Wisc MARCUS that owns hotel throughout state is laying off 405 employees after taking 30? million in money that WILL NOT be paid back. No help for homeowners like that is there. I'm sure that is why the package was signed by the Senate in the first place only to bail out their buddies with free millions.


  10. Ahh Socialism…. 

    :)


  11. 1020 So right corporate socialism.


  12. Both tsla and amzn are up over almost 40 today!! Wow! Anyone got trades on ETSY or EBAY?


  13. Hey, so glad to see the govt is bailing out mom and pop operations like Apple and Microsoft.

    The Fed is buying some of the biggest companies' bonds, raising questions over why


  14. Why = Safety


  15. Phil

    I could not find the UNG trade from yesterday

    Would you please re post

    Thank You


  16. Bailoust/Pirate – The bailout cash was an incentive to go BK.  Going BK with no money in the bank and debts you personally guaranteed isn't fun but use magic money (that was supposed to be for employees) to get out of personal debts and maybe stick something away by having your relatives invoice you, etc – well then it's time to go BK and let other people clean up the mess – just like our President does!

    It's funny with Trump, over and over again he took a property or business, pumped it up with BS, got investors to buy in, cashed out and dumped it as a train wreck and now we're surprised that's what he did with the country we gave him to run?  

    GOP LUNATICS |

    Yeah, those damned Liberals and their stupid memes.  What did they know, right?  And they even forgot his University and fake Charity (or maybe there just wasn't enough room).  Those were also known at the time.

    Oops, steaks, menswear (not sure how Ivanka is doing with her clothing), water… WOW!  When you think about it, WTF were you guys thinking when you voted for this guy?

    TSLA/Pirate – That will sting the STP but we're long on AMZN in the hedge fund at least.

    This re-infection is going to be great for them.

    Dollar down half a point this morning, that's helping.

    UNG/QC – Not from yesterday, it's in the STP (above).

    No changes to the STP after cashing in JPM (66.6% profits locked in, Master) so that's a great bunch of hedges since I was going to make changes but these will do incredibly well in a downturn.


  17. Now amzn is up over 50 pts so far.


  18. Wow – major window dressing into Qtr Close – I'm tempted to sell some short callers into this…. 


  19. SFIX 102,6 market cap with over 40% shorted. Only money they have is borrowed, it seems but it just might be a long with a squeeze. 


  20. How does one find the current virtual portfolios?


  21. True it is the end of Q so can't trust any of this.

    SFIX/Pirate – They lost a lot of money last Q, $34M and $2.56Bn market cap at $25 for $1.7Bn in revenue and bleeding cash is a good reason to be 40% shorted.  They'll probably survive but if I have to choose between them and GPS – I think I go with LEVI at $5.3Bn ($13.25) with $5Bn in revenue and about $350M in profits in a normal year ($143M this year projected). 

    Year End 24th Nov 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Total Revenue
    $m

    4,754 4,494 4,553 4,904 5,575 5,763 5,835 4,680 5,474 3.92%
    Operating Profit
    $m

    294 417 462 457 540 542 520     13.0%
    Net Profit
    $m

    106 209 291 281 283 395 401 143 326 30.0%
    EPS Reported
    $

    0.271 0.536 0.744 0.732 1.07 0.966 0.975     28.9%
    EPS Normalised
    $

    0.577 0.637 0.758 0.752 1.06 0.997 0.984 0.357 0.807 11.5%
    EPS Growth
    %

    -1.75 +10.4 +19.0 -0.795 +40.9 -5.95 -12.9 -64.2 +126  
    PE Ratio
    x

              13.3 13.5 37.1 16.4  
    PEG
     

                  0.294 0.538  
     

    They've been around since 1853 so I think the management can handle and economic downturn! 

    Portfolios/SK – We have the tab at the top right for the old ones and the new ones I did on the 19th, starting with the still-unfinished morning post and then in the chat session.


  22. Um, GLD is moving so very nicely for us…..so so nice.


  23. I love the Minions…..




  24. RUT is making progress.

    So you hear them saying industrial must be good because copper is picking up but it's also a hedge against Dollar inflation and the Dollar is down and /HG is not up more than /SI or /YG – analysts think they know a rule and they just keep spouting it off – regardless of how little sense it makes in the current situation.

    Nice crash coming when we get the holiday driving numbers:

    Honey badger don't care:

    Masks!

    Gloves:

    Rubber market: Covid impact 'to mirror that of financial crisis'


  25. the last point is really something ….. oh to break even!
     

    Shares of  Tesla hit an all-time high on Tuesday and were last up 6.6% in afternoon trading as U.S. stocks rose overall

    * Volume jumped and Tesla's market cap breached $200 bln, based on 185.37 mln outstanding shares Its market cap was last at about $199.13 bln

    * On Monday, Tesla Chief Executive Elon Musk, in an internal email, called on employees to work hard to allow the electric car maker to break even in the second quarter despite the coronavirus pandemic

    * Tesla's stock is up ~158% for the year so far while the Nasdaq is up ~11% in that time


  26. So crazy, people hear break even and jump in:

    The really smart ones are just leaving the planet.


  27. EPD, ENB/

    What are your thoughts on these two? 8% yield, decent coverage, I know today isn't the day to add longs but if (when) there is a pullback?



  28. How to Play “Friendly Hardball” in a Negotiation