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Which Way Wednesday – Market Swings Getting Wilder

Wheeee, this is fun!  

On the whole, the Nasdaq has only fallen 150 points since Monday's open but it's had drops of 50 points, 200 points and 300 points in 3 days so I guess we're working up to the 600-point (5%) one-day drop ahead of us.  Meanwhile, rumors of stimulus is still keeping us afloat.  Yesterday, according to Treasury Secretary Mnuchin (why is it always a Goldman Sachs guy?), the Trump administration is open to resuming coronavirus aid talks with Democratic leaders and would offer more aid money to try to reach a compromise.

“The president is determined to spend what we need to spend. … We’re prepared to put more money on the table,” he told CNBC’s “Squawk on the Street.” 

Well, that's what he said after the markets plunged into the close.  Mnuchin promised they could get a deal done by the end of the week but they haven't actually re-started talks yet so that's a little hard to believe.  Remember how many times we had a trade deal with China "any minute"?  Meanwhile, Trump did not continue the moratorium on evictions because it's hard for homeless people to vote against him and so many of his friends are landlords.  

Schumer and Pelosi also criticized the measures in a joint statement Saturday. They said the policies would provide “little real help to families” and would not address Covid-19 testing, efforts to reopen schools and food assistance.  Dems call for $3Tn, the GOP wants to spend $1Tn.  The White House has already rejected an offer by the Democrats to meet in the middle with roughly $2 trillion legislation.

On Monday, New York’s Democratic Gov. Andrew Cuomo said the unemployment benefits spelled out in Trump’s executive order would cost his state an estimated $4 billion by December. It would add to a budget shortfall that Cuomo said was already $30 billion. “That’s handing a drowning man an anchor,” the Governor said.

Overall state budgets were almost $200Bn in debt in the first half of this year and no better so far in the second half of the year and they simply can't afford to prepare the schools to be virus-free or to fund the ambulences to take the children to the hospital when they catch the virus in school or to pay the unemployment for 20% of the population who are jobless or provide food or shelter for those who can't afford it anymore.  

This all has a direct affect on companies as consumer spending is 60% of the economy and our consumers are trending homeless, unemployed and shut-in for the duration of the year.  How is this a buying premise?

Anyway, that's why we're cashing out and yesterday we reviewed 10 trades we made on March 12th and we killed most of those and today we're going to review 10 more trades we made on March 17th and we're taking our profits and running uless they are deemed KEEPERS.  Keep in mind the text is from the original trade and the bold caps are the updated prices as of yesterday's close.

  • Intel (INTC) – $44.60 is $190Bn in market cap for a company that has made over $20Bn for the past two years. Yes there will be a slowdown this year but this is not a Zombie Apokalypse, this is a virus and, looking into the future we still see billions of people who will still want computers, phones and tablets. Again, we're not looking to buy them for $44.60 but we can sell the 2022 $30 put for $4, which is promising to buy them for net $26 and requires just $463 in margin selling 10 of them for $4,000 in our Long-Term Portfolio (LTP).  NOW $1.55 ($1,550) – UP $2,450 (61%) – KEEPER!

See how easy that is – that's a trade. We COLLECT $4,000 for promising to buy INTC for $30 between now and 2022. If it goes below $30, we are obligated to buy but, no matter what, we keep the $4,000 so our net cost on 1,000 shares would be now worse than $26,000, which is 40% below the current price!

  • Apple (AAPL) – Is nowhere near cheap enough at $240 as I hear FoxConn, who make IStuff, are testing all 200,000 workers every day but, when one of them tests positive, they have to shut the line down and clean everything and they are doing it over and over and over again because it's way too soon to push all those people back to work. Still, any chance to buy AAPL on sale is something we don't like to pass up and we can sell 5 of the June 2022 $150 puts for $14.50 ($7,250) in the LTP and that net's us in for $135.50, a nice 44% discount off the current price. Margin $1,667.  NOW $3.25 ($3,250) – UP $4,000 (48%) – KEEPER!

  • Automatic Data Processing (ADP) – You would think people are never going back to work the way ADP is selling off. I doubt revenues will take the hit that is being baked in at the moment but what I find really attractive is that you can sell the 2022 $80 puts for $12 and that nets you infor $68, 43% below the current price so let's sell 10 of those in the LTP for $12,000. Margin $3,163.  NOW $3.00 ($3,000) – UP $9,000 (75%)

  • Amazon (AMZN) – Is HIRING 100,000 people because they are being overwhelmed by demand. Very obviously, if people are not leaving their home, they will buy more things on-line and that should be great for Amazon. I would never pay $1,700 for the stock as that's still over 50 times what they earn but I don't mind promising to buy them for $900 by selling the 2022 $900 puts for $47.50. That nets us in for $852.50, 50% off the current price and we can sell 5 of those in the LTP for $23,750. Margin $13,078.  NOW $8.35 ($4,175) – UP $19,575 (82%)

  • Caterpillar (CAT) – Is one of our all-time favorites that we always buy when it's on sale and, while $95 is nice, wouldn't $45 be nicer? We can sell 10 of the 2022 $50 puts for $5 ($5,000) in the LTP and those are so far out of the money that the margin is just $1,863.  NOW $1.00 ($1,000) – UP $4,000 (80%)

  • Clorox (CLX) – Bleach is one simple way to kill the coronavirus (but don't drink it!) and CLX has gone up, not down during this crisis so not on sale and not cheap but it's a stock we know will be doing well and, because we know how to use options to our advantage, we don't have to pay $175 or even $125. We can promise to buy CLX for $110 and get paid $7.50 for selling 10 of the 2022 $110 puts for $7,500 against $4,944 in margin in our LTP.  NOW $1.40 ($1,400) – UP $6,100 (81%)

  • Lockheed Martin (LMT) – Is our Stock of the Century and miles above where we picked it when it was well below $100 but we're happy with any chance to own the company most likely to develop a working fusion reactor and, of course, virus or no, the Military still wants their planes. We can sell the 2022 $160 puts for $16 to net in for $144, 50% off the current price so 5 of those in the LTP nets us $8,000 but, frankly, I'd be happier if this one were assigned to me than expire worthless. Margin $2,483.  NOW $2.80 ($1,400) – UP $6,600 (82%)

  • Medtronic (MDT) – Is an old favorite that hasn't been cheap in a long time. They will have a bad quarter or two as all non-emergency surgery is being pushed back to keep beds open for virus victims. Still, it's a fantastic long-term play and we can sell 5 2022 $60 puts for $9 ($4,500) in the LTP to remind us to keep an eye on them as I'd love to add a bull call spread when we find a bottom. Margin $2,028.  NOW $2.30 ($1,150) – UP $3,350 (74%)

  • Square (SQ) – Is those little white payment terminals you see in so many retailers these days. It's been a very hot stock and we felt like we missed the rally but now is a great time to jump in as it's more than 50% off it's highs – as if no one will ever shop again. These are the kind of stocks we like – there's no competitor taking them down – just the irrational fear that life will never go back to normal and SQ has over $2Bn in cash and made $375M last year – they can weather a bad quarter or two. We can sell the 2022 $30 puts for $6 and that nets us in for $24, which would be 40% below the current price. Let's sell 5 for $3,000 in our Future is Now Portfolio as this is truly a Stock of the Future. Margin $471.  NOW 0.75 ($750) – UP $2,250 (75%)

  • Exxon (XOM) – Is a diversified company that refines and sells oil as well as drills it so they still make good money selling gasoline when oil is cheap (it's an ingredient in gasoline, of course) and $34.50 is about the same as the low they hit after 9/11 and far lower than the $60 they held in 2008 and, both of those times, oil was below $20 a barrel for a while. We can promise to buy 1,000 shares of XOM at net $21.50 by selling 10 2022 $27.50 puts for $6 ($6,000) in the LTP. Margin $753.  NOW $2.40 ($2,400) – UP $3,600 (60%)

Well, it seems like sometimes you CAN win them all – 10 for 10 on our second set of Panic Picks for our readers.  Of course it's not really that complicated – these were all stocks that were on our Watch List, which we compiled last fall with the intention of initiating positions if we got a good dip in the markets.  We did – so we did.  Make a plan and follow through, but check your premise along the way….

Our second set of trade ideas has made a very nice net $60,925 in just 5 months for our readers against the $81,000 we collected, so we're already up 75% of our potential gains.  Last time we reviewed these trades, I liked CAT as a global infrastructure play as they are still down at $112.11 so we added a bull call spread to the short puts in our Long-Term Portfolio (LTP):

  • Buy 15 CAT 2022 $100 calls for $24 ($36,000) 
  • Sell 15 CAT 2022 $120 calls for $15 ($22,500) 
  • Sell 5 CAT July $120 calls for $3.60 ($1,800) 

That's net $11,700 but we sold the first round of short puts for $5,000 so our spend on the spread is now net $6,700 and it's a $30,000 spread with $23,300 (347%) upside potential if CAT is over $120 in Jan 2022.  Along the way, we can sell more short calls and hopefully pick up more cash (the options expire before the July earnings report).  The short calls don't add margin because they are offset by the margin already committed on the short puts.

As you can see, we're not doing anything very complicated but what we are doing is VERY profitable.  We simply take advantage of a sell-off (and these happen every earnings season without a virus) of stocks we like on our Watch List providing, of course, that we feel the reason the stocks sold off is temporary.  Of course we also stick with solid, blue chip stocks – no fad chasing!  

If we get new information, like the massive long-term layoffs that will affect ADP and AMZN just getting higher than we were comfortable with (so we take quick advantage and move on) – we adjust our positions accordingly but, otherwise, we expect to make another $40,000 over then next 18 months plus our bonus $23,300 on Caterpillar.  

THAT is how you play a crisis!

CAT is already well over our $120 target and we've rolled the short July calls at $17 to the short Aug $125s at $14.50 and we're confident they will provide good protection for us to lock in our $30,000 spread's gains.  We'll be rolling the Aug $125 calls (now $17.50) to the Oct $130 calls at $17 and we'll keep doing that until CAT has a sell-off and the short calls expire worthless but, for now, it's still good for a new trade!  

CAT Long Call 2022 21-JAN 100.00 CALL [CAT @ $142.53 $0.00] 15 5/11/2020 (527) $36,000 $24.00 $22.45 $21.60     $46.45 $0.00 $33,675 93.5% $69,675
CAT Short Call 2022 21-JAN 120.00 CALL [CAT @ $142.53 $0.00] -15 5/11/2020 (527) $-22,500 $15.00 $17.20     $32.20 $0.00 $-25,800 -114.7% $-48,300
CAT Short Call 2020 21-AUG 125.00 CALL [CAT @ $142.53 $0.00] -15 7/15/2020 (9) $-21,750 $14.50 $3.18     $17.68 $0.00 $-4,763 -21.9% $-26,513

Why are we closing out so many good positions?  Because look at the stunning amounts of money we were able to make with blue-chip stocks in the last dip – we would rather have our firepower ready and wait PATIENTLY on the sidelines than risk our gains betting the record-breaking rally keeps breaking records DESPITE the raging global pandemic that just crossed 20M infections. 

It was 80,000 in March, this is August, that's up 24,900% in 6 months – which is going to get tired first, the virus or the market?


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  1. Phil// What is your thought on ARR and your trade suggestions if any?  Thanks.

  2. GILD, Phil  how do you feel about 2022 65/75 spread for around 3.90, selling 60 puts for 6.50? Seems like nice trade for a credit. Thanks

  3. Stimulus / Phil – The more you find out about what Trump offered, the more it looks like only a political offer. The unemployment benefits needs to be shared with states who have no money and/or cannot implement the process. The payroll tax is not eliminated, it's only pushed back so companies will be presented with a huge lump payment in January. Or he will eliminate that payment if re-elected (promises, promises) and kill Social Security and Medicare with one stroke!

    And he can't stop evictions and that will start this month!

  4. Good Morning.

  5. Phil,

    Thanks for the thoughts on news feeds (Bloomberg & S.A.) that you and Deano offered yesterday. Would it be possible for PSW (in reality – you) to negotiate an arrangement for PSW members who were interested to have access to either for an incremental charge to their PSW acct? 

    In theory at least, a group purchase should lower the cost to members vis-a-vis the standard retail charges (Bloomberg $35/mth or $290/yr; SA feed $29/mth or $240/yr).

    Your thoughts, please.

  6. Phil/Typos Well you did endow me with some extra calls here as I really only have 5 to play with. Got me excited and woke me up though ;)

    “Then you'd have just the 50 2022 $240 calls and the short puts and the short Nov $400s to play with.”

    A special thanks for your most helpful rolling advice and description of the ‘naked’ shorts you often suggest as part of the bcs. I can certainly follow your analysis of it although I don’t believe I can see how you decide the number and strike for the extra shorts (or when to use them). You seem to use 5 shorts against a setup of 20 bcs as a rough ratio? By this description it seems the short puts do not play a role in your planning for the short calls – or the margin/risk evaluation (for the short calls)?

    It seems like a great afterburner to the bcs to add these extra short calls and if I can get setup for this one I would like to try it even though the margin might be high (no PM allowed in Canada). I would like to get more comfortable with managing the process and when to use it in a bcs. In your example, if AAPL goes higher and the short $460c goes UP you would then roll when the premium (not the price) goes below $25%.

    At your request, I must add that one of us may have a typo in the actual calculation of loss above $492 on the 5 shorts. On 5 contracts I thought there should be a loss of $500 per point above $492 so at $500 (8 points) there should be a loss of $4,000 (you show $54k) and by $600 (108 points) a loss of $54k (you show $104k).

    “Very simply, if you have 20 $400/500 spreads at $40 ($80,000) then you have $120,000 worth of upside coverage up to $500 and if you have 5 short $460s at $32, you start losing money at $492 and, by 500, you would be down $54,000 and $104,000 at $600 so really your bet is AAPL is not going to be higher than $600 and you'll have a net profit on the spread vs the short calls (which can also be rolled). 

    You should roll when your short positions are down to less than 25% premium.  If you wait too long, you don't get good rolls. AAPL is very volatile so it's dangerous to do anything with short-term calls.  If your rolls don't pick up any significant premium, then they are pointless and you are better off with cash.

    Thanks again for your time with these details, – very helpful to this student/fan!

  7. Good morning everyone. Here is the link to today's webinar. 

    I also want to remind you to please like us on all social media platforms and remember, all of the past webinars can be found on our YouTube page.

  8. good morning all

  9. Andy/webinar, it would be good if you can post a link to the webinar after it finishes. in today's chat. thanks 

  10. Stuart, it actually takes a bit of work and space to download and edit the webinars for a replay. They go up on YouTube the following day. Here's a link to our page.

  11. Good morning!

    ARR/Rookie – The MREITs can get very unstable so just make sure you don't mind a bumpy ride.  They got through the 2008 crisis and they'll most likely get through this one and $9.68 is great, even with the 0.40 dividend (was $1.20).  They only have short-term options though but you can sell the Jan $10 puts for $1.40 and that nets $8.60 and if that's 1x and they fall to $5 and you buy 1x more at $5 then $6.80 avg and then if they fall to $3 and you buy 2x more that's 4x at $4.45 avg so you've still only spent 1/2 your allocation to own 4x at $4.45 and, if you don't REALLY want to do that – don't sell the 1x short puts.


    GILD/Jomp – Very reasonable now that they've come down again.  We took GILD off the table because it went too high, too fast, now it's back on track and we still think $85 is the right number – just not until 2022.

    We already have GILD in the LTP but, for the Earnings Portfolio, I like:

    • Sell 5 GILD June 2022 $60 puts for $8.25 ($4,125) 
    • Buy 10 GILD June 2022 $60 calls for $13.50 ($13,500)
    • Sell 10 GILD June 2022 $75 calls for $7 ($7,000) 

    That's net $2,375 on the $15,000 spread that's $8,700 in the money to start.  Upside potential is $12,625 (531%) in two years and ToS says ordinary margin on the short puts is $2,238 so it's a very margin-efficient trade but also a very low allocation risk so it's a trade we'd be THRILLED to adjust and add to if we do get a crash – that's why it's good for a new trade – even though we are cashing out many other things.  

    Payroll/StJ – Essentially he's building up a bribe he can then threaten you with in November.  BRILLIANT!  

    Incremental/8800 – It would be a logistical nightmare and, since they don't do it that I know of, it would be a tough negotiation but feel free to negotiate on our behalf!  wink

    Short puts/Wing – I generally establish an artificial long position in a stock I believe in so GILD above and then, WHEN I think it's run up a bit much, I sell 1/4-1/2 a short call position to lock in the gains.  You are looking for a rule in a dynamic environment.  It's like asking "When does the queen take a rook?" and expecting some sort of simple answer you can write down when, in fact, it depends on hundreds of other factors that have to be taken into account.

    As to math, well $460 + $32 you sold the calls for is net $492 so anything over $492 becomes a loss and, at $600 (not $500), you lose 5 x $100 ($50,000) + 5 x $8 ($4,000) and another $50,000 at $700 so I just mixed up the next $100 level but you get the idea why that doesn't worry me, hopefully, as AAPL is not all that likely to gain another $1Tn in market cap at $700.

  12. Phil/M --

    Any current thought on Macy's?  Too risky?


  13. DGAZF debacle unfolding?

  14. Phil/keepers

    good morning!

    so, from the above list, you are getting rid of everything except INTC and AAPL- correct?

    I don't always follow you in the exact trades but have similar stocks/ options.

    please confirm above.

  15. You can watch Bloomberg TV live from the Etrade launch platform.  Maybe some other sites have that option too.

  16. Maya1

    I looks to me that Phil is closing on puts mainly sold 19th March, the big dip. Unfortunatelly if you did sell the puts at a different date you might not find an 80% plus profit. And you might want to stick to them, hoping for better days. See M!!!!

  17. You can get the live audio of Bloomberg TV via the app.

  18. Dr. Sanjay Gupta: Why I am not sending my kids back to school

  19. M/Jeff – Certainly risky though I've been considering that turning Sears into AMZN fulfillment centers as opposed to a rival dept store in malls is not really a negative for M as it's lots of traffic without direct competition.  So I still like them.

    DGAZF/Ati – Sometimes those 3x ETFs fail their stress-tests miserably.  Of course, someone is probably happy.  

    Keepers/Maya – Yep, time for CASH!!!  

    Puts/Yodi – If they are up more than 60% or if I don't want to ride out a 20% dip, I'd rather kill them than keep them.

    Webinar time!

  20. The U.S. Needs Smarter Lockdowns. Now.

  21. Looks like this is going accord to Trumps plan – cases are being underreported with an incapable system…

    A new system for reporting Covid-19 data from U.S. hospitals is off to a rocky start,one month after states were ordered to report directly to the Department of Health and Human Services. Lags in key indicators, such as estimates of the portion of inpatient beds occupied by Covid-19 patients, make it harder for citizens and local officials to get a handle on how the pandemic is progressing and for agencies to allocate supplies, public-health experts say.

    HHS officials say the new system is more complete because nearly twice as many hospitals are reporting a more thorough set of statistics. But because the system is so new, it is taking time to ensure the quality of the data and control for variations in numbers such as the quantity of cases reported each day. 

  22. Underreporting/Batman – Ah, I didn't think of that.  I was just noting the case counts look like they're improving but I guess that could be total BS.  

    Still another great day in the market with Nasdaq up 280 points and TSLA back at $1,550 – up 13% today.

    Just make up numbers and we can engineer them apparently.  

  23. CSCO – Earnings – pretty steady Quarter – outlook a bit light vs CE but overall a solid Quarter – They View Gov / Med Bus as a concern going forward, but indicated '21 would pick up well if COVID was abated a bit.

    Q4 Results:
    Revenue: $12.2 billion

    Decrease of (9)% year over year
    Earnings per Share: GAAP: $0.62; Non-GAAP: $0.80

    GAAP EPS increased 22% year over year

    Non-GAAP EPS decreased (4)% year over year

    FY 2020 Results:
    Revenue: $49.3 billion

    Decrease of (5)% year over year

    51% of revenue from software and servicesEarnings per Share: GAAP: $2.64; Non-GAAP: $3.21 GAAP EPS increased 1% year over year

    Non-GAAP EPS increased 4% year over year

    Q1 Guidance:
    Revenue: (9)% to (11)% decline year over year
    Earnings per Share: GAAP: $0.41 to $0.47; Non-GAAP: $0.69 to $0.71

    SAN JOSE, Calif., Aug. 12, 2020 /PRNewswire/ — Cisco today reported fourth quarter and fiscal year results for the period ended July 25, 2020. Cisco reported fourth quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion or $0.62 per share, and non-GAAP net income of $3.4 billion or $0.80 per share.


    Guidance for Q1 FY 2021

    Cisco expects to achieve the following results for the first quarter of fiscal 2021:

    Q1 FY 2021

    Non-GAAP gross margin rate Non-GAAP operating margin rate Non-GAAP tax provision rate Non-GAAP EPS

    (9)% – (11)% decline Y/Y 64% – 65%
    30% – 31%

    $0.69 – $0.71
    Cisco estimates that GAAP EPS will be $0.41 to $0.47 in the first quarter of fiscal 2021.