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3,350 Thursday

The S&P 500 topped out yesterday at 3,387.

That was just shy of the 3,393 high we hit in February, the day before we plunged 1,200 points (35%) over the next four weeks.  HOPEFULLY we won't repeat that disaster but, just in case we do, we're beginning to cash in our positions and, today, we're going to once again roll up our hedges to help lock in our gains.

The market is up not 35% (that's what we dropped from) but 50% abover 2,200 and that's a pretty good run.  According to our 5% Rule™, we should be expecting a 20% pullback (of the 1,100 gain) from 3,300 back to 3,080 as a weak retracement and a stronger pullback would give back 40% of the gains, to our Must Hold Line at 2,860.  That would NOT be bearish if the Must Hold line does, in fact, hold – it will just feel that way.

Still, no point in riding out the dip if we don't have to so we're going to raise more CASH!!! and there are plenty of great stocks to buy, like WBA, INTC, BA and VIAC (see Tuesday's Report and yesterday's Live Trading Webinar) so we'll have somewhere to put that cash if the market doesn't crash but I'll feel a lot better heading into the Back to School Disaster with more CASH!!! in our portfolios.

Our Long-Term Portfolio Positions are up over 100% for the year and they are protected by our Short-Term Portfolio, which is up 315% for the year at $415,152.  That's actually down about 100% as TSLA has once again spiked up on us but we think we can outlast the Tesla bulls – even as the stock hits $1,600 again today.  It's time, once again, to make some adjustments as the Nasdaq tests 11,150 as well this morning:

  • CANE – Just a simple bet on Sugar.  I don't see any reason not to ride it out as it's breaking up nicely.

  • AAPL – On track and we don't need the margin but we may as well buy it back and clear the slot.  
  • INTC – Good for a new trade.
  • JPM – Not enough left in this one to bother keeping it open for 18 months so we'll cash it in.

We use the short puts to help offset the cost of our hedges.  In this case, the AAPL and JPM short puts made us over $9,000.  The hedging concept is very simple, we pick blue-chip stocks that are undervalued and we offer to buy them for even lower prices.  In this case we offered to buy AAPL for $160, INTC for $50 and JPM for $50 so we REALLY want to own those stocks at those prices in our LTP which means the money we are being paid to make that promise is essentially free.  

If the market goes lower, our main hedges (TQQQ, SQQQ, SDS) will go up and we'll have more money to buy our stocks with and, if the market goes higher, it's not that likely our short put stocks won't go up too and then the money we collected helps offset the loss on our hedges, a well-balanced system!  

SDS – Speaking of main hedges…  This is aggressive as we're only 2/3 covered and the S&P is back at it's highs.  We are still in the money but the short calls are up 75% so we're kind of done with those and now we should be realistic.  If the S&P drops 20%, SDS goes up 40% from $16 to $22.40 so that's our target.  Our time-frame is still January but let's play it like this:

  • Close the 200 short Jan $30 calls at 0.60 ($12,000)
  • Roll the 300 Jan $15 calls at $2.35 ($70,500) to 300 2022 $15 calls at $3.70 ($111,000) 
  • Sell 200 Jan $22 calls for $1.10 ($22,000) 

So we're spending net $30,500 and we're buying another year of protection and we're still only 2/3 covered and, if there's a total disaster, we can roll the short calls to a higher strike and have more coverage.  If the S&P stays up, we can sell more short calls and start making up what we spent.  At $20 + we'll have $150,000 on our spread, the current net is about $60,000 + $30,000 more we're spending so $90,000 means at least $60,000 worth of protection here. 

  • TQQQ – We may as well buy back the Jan $55 puts at $4 ($20,000) as they will only get in the way of cashing in the long puts.  The Jan $90 puts are $12.20 ($61,000) and we can roll those up to the Jan $100 puts at $15.50 for $3.30 ($16,500) and that buys us $50,000 more protection.  If the Nasdaq falls 20%, TQQQ drops 60% to $50 and those $100 puts would be worth $50 ($250,000) and currently net $40,000 + $36,500 we're spending is $76,500 so $173,500 is our net protection here.  

  • CMG – The short Aug $1,050 calls are in the money but we think CMG is very toppy here at $35Bn since they only made $350M last year so it's a fast-food franchise trading at 100 times earnings.  Even in this market, that's ridiculous!   We're going to roll the 3 short Aug $1,050s at $110 ($33,000) to 3 Sept $1,050 calls at $125 ($37,500) and we're not even going to sell more puts at the moment as it's too risky.  

  • TSLA – This stock is so insane!  It was on a nice path down but now back to $1,600 and there's not much to do but grin and bare it as we should save our money for adjustments if we have to make them.  The stock is splitting and people seem very excited but that still doesn't make the company worth $300Bn, which is 10x sales and 300Bn times profits.  Remember, this is also a hedge – it will do well if the market crashes and pay us about $300,000 if TSLA goes back to $1,200.

  • UNG – A long play on natural gas into hurricane season.  So far, so good.

So we have a good $500,000 of downside protection, about 1/2 the value of our Long-Term Portfolio and, since the STP is $400,000 now, even if the LTP were completely wiped out and the LTP gained $500,000, we'd still have $900,000, which is 50% more than the $600,000 we started the year with.  

Now I can sleep soundly over the weekend!  


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  1. The insanity continues! Good news though, fewer than 1M people applied for unemployment this week! 

  2. Good Morning.

  3. Good morning! 

    Only 1M/week unemployed – why that's barely 50M a year – let's buy stocks!  cheeky

    China’s Days as World’s Factory Are Over, IPhone Maker Says.

    China’s Xi Speeds Up Inward Economic Shift.

    Estate Agents Warn of Boom to Bust for U.K. Housing Market.

    U.S. Cases Climb 1.1%; Trump Pressures Schools: Virus Update.

    Accuracy of U.S. coronavirus data thrown into question as decline in testing skews drop in new cases.

    • The country recorded an average of 52,875 new cases every day over the last seven days, down 19% from 65,285 new cases per day on July 28.
    • However, Covid-19 testing has declined as well, falling from an average of about 814,000 tests per day two weeks ago to about 716,000, a 12% decline, over the same two-week period.
    • In Texas, new Covid-19 cases have fallen by 10% over the last two weeks, but testing is down by 53% over the same time.
    • The decline in testing is particularly acute in some of the hardest-hit states with the worst outbreaks, which further skews the overall case numbers across the U.S. 

    ?Chart showing U.S. coronavirus cases and tests through August 11, 2020.

    Coronavirus vs Trump: the US president's authoritarian bluster has ...

    Vaccine Nationalism Makes a Deadly Disease Even Worse.

    U.S. Deficit Totaled $2.8 Trillion From October Through July.

    Cities Weigh Cutting Police Budgets and Discover How Hard That Is.

    Coronavirus-Hit State Budgets Create a Drag on U.S. Recovery.

    Cisco falls on disappointing quarterly guidance as revenue continues to drop.

    No sign of a stimulus deal in sight as Mnuchin, Pelosi phone call yields no progress.

    The recovery is faltering, top forecasters say.

    Warren Buffett said this metric signaled the 2001 crash — now it’s sounding the alarm on global markets

    Peak Idiocy: Wisconsin Government Agency Mandates Facemask Use For Virtual Zoom Meetings.

    Real Estate Collapse: In Q2, A Record 44 NYC Neighborhoods Closed Fewer Than Five Deals. 

    Lyft Reports Lowest EBITDA In History As Revenue Craters 60%. 

    Uber and Lyft threaten to temporarily shut down in California over labor disputes.

    S&P Jumps Above Record High After $9 Trillion Global Liquidity Tsunami. 

    Miami and New York top the US in mortgage delinquencies as rates rise in all 50 states.

    See – everything is AWESOME!!!

  4. Phil csco down more than 5$ can not find the reason. but offered to sell some Jan 22 42.5 put for about 7$. Any comment????

  5. CSCO/Yodi – They made the mistake of making money but offered a realistic forecast that freaked people out.

    The stock dropped to $45 in after-market trading as Cisco (CSCO) forecast current-quarter revenue to decline between 9% and 11% from the same period last year, implying a range of between $11.71 billion and $11.97 billion. The analyst consensus is for $12.25 billion. The company expects adjusted earnings of 69 cents to 71 cents per share, which is below analysts’ estimates of 76 cents.

    .  Oh nooooooooooooooooooooooo!!!!

    “The pandemic has had the most impact on our enterprise and commercial orders, driven by an overall slowdown in spending. We are seeing customers continue to delay their purchasing decisions in certain areas while increasing spend in others until they have greater visibility and clarity on the timing and shape of the global economic recovery,” said Cisco CEO Charles Robbins. “Despite this challenging economic environment, the pandemic has also triggered a massive and rapid shift to remote operations and automation to maximize personal safety.”

    For the fiscal fourth quarter, sales declined 9.5% to $12.15 billion year-on-year, topping estimates of $12.08 billion, as the work-at-home shift drove demand for Cisco’s web security and virtual networking products. In the quarter ended July 25, the company earned an adjusted 80 cents per share in the quarter, exceeding estimates of 74 cents. "We executed well in Q4, delivering strong margins despite the very challenging environment," said Cisco CFO Kelly Kramer.

    Following the earnings results, five-star analyst Jonathan Ruykhaver at Robert W. Baird lowered the stock’s price target to $46 from $48 and maintained a Hold rating saying that he expects overall Cisco growth to remain under pressure as macro headwinds persist. (See Cisco’s stock analysis on TipRanks).

    “Our $46 price target represents an EV/CY21E FCF of ~12.2x, a discount to peers trading at a median of ~15x,” Ruykhaver wrote in a note to investors. “We see this discount as justified given our expectations for continued macro and secular pressures though believe the multiple could expand if Cisco shows better than expected growth.”

    Overall, Wall Street analysts are cautiously optimistic on the stock’s outlook. The Moderate Buy consensus is divided between 12 Buys and 8 Holds. The $50.38 average price target implies 4.7% upside potential in the coming 12 months.

  6. Cisco Systems (CSCO) plunged 11% after delivering weak earnings guidance late Wednesday

  7. Thanks Phil still like to buy it for 35$

  8. Phil/Typos.  I pronounce you Human!  

  9. Analysis: The Republican Senate nightmare is coming true

  10. Battle Royale brewing:

    Epic Games, the North Carolina-based developer behind Fortnite and other games, announced on Thursday morning that players who want to buy Fortnite’s virtual currency no longer have to buy it via Apple’s App Store. Instead, they can buy it directly from Epic. The difference for players, however, is that Epic will charge them 20 percent less if they buy the currency from Epic instead of Apple.

    This could set a bad precedent for sure! Or Apple can ban Fortnite from the App Store but might not be a great move.

  11. Better Buy: Disney vs. Hilton

  12. CSCO/Yodi – That's what we did in the LTP:

    CSCO Long Call 2022 21-JAN 35.00 CALL [CSCO @ $42.78 $-5.33] 40 3/5/2020 (526) $37,600 $9.40 $0.40 $10.63     $9.80 $-4.28 $1,600 4.3% $39,200
    CSCO Short Put 2022 21-JAN 25.00 PUT [CSCO @ $42.78 $-5.33] -20 3/12/2020 (526) $-6,400 $3.20 $-2.15     $1.05 $0.10 $4,300 67.2% $-2,100
    CSCO Short Call 2022 21-JAN 50.00 CALL [CSCO @ $42.78 $-5.33] -40 5/18/2020 (526) $-18,200 $4.55 $-1.81     $2.74 $-2.31 $7,240 39.8% $-10,960

    Human/Wing – More!  

    AAPL/StJ – They got too greedy and the App providers now have too much incentive to circumvent them.  

    Nasdaq not even up 100 – what a terrible day…

  13. AAPL 500 on bundles?

  14. Yodi / CSCO – I sold the Jan '22 $40 Putters for 5.3 this AM – Doubled up on my shorts for this one. If it drops below 40 ( pr at 40) I''ll sell more… 

      I think they are being conservative and will beat.   Also one analysts commented on the conference call that they were being too cautious given that we are making such good progress on COVID…  the CEO replied he felt lite the last 30 days was a step back, and reiterated they outlook….  Crazy….  

  15. Another possible issue for Apple:

    An iPhone without WeChat is effectively not a phone at all for the hundreds of millions of Chinese users that rely on the service — customers on which Apple’s entire iPhone business model relies. If Apple can’t offer WeChat on the iPhone due to Trump’s ban, then much of its Chinese business will almost certainly evaporate overnight.

  16. We were talking about the Russian vaccine a couple of days ago.

    similar to what Phil said, that they just skipped phase III     

    "Asked why Russian authorities have said the vaccine works while the trials are far from completion, Rotstein said Phase 3 trials were taking place “as is customary in the Western world,” simultaneously with the finalization of the vaccine.

    He said that beyond the trials, the vaccine was also being administered to a limited number of patients via so-called “expanded use,” which normally involves offering patients in serious or life-threatening conditions experimental treatment before trials have been completed. It wasn’t clear how that would be done with a vaccine." 

    Israel’s Hadassah says it’s involved in development of Russian COVID-19 vaccine

  17. CSCO Yes Phil I did set up the same play entered the long call at 8.13 now 9.67, as well as stock. Still would be a good entry. Possible buy the call and sell the put only at this time. Thanks

  18. yodi / CSCO

    I don't have a CSCO trade. 

    Is this your trade?

    Long Jan 22 35 call

    Short Jan 22 42.5 put

    It comes to net $2.90. I guess we can sell calls in future. 

  19. Phil/More  Borg!

  20. Good afternoon all. Im wondering if anyone knows a good free resource for up to date charts with interesting global macro data?

    i.e. time series charts showing: increasing correlation of countries GDP to world GDP, world trade as % of GDP, correlation of S&P500 and international equities over time, average foreign revenues of S&P500 companies over time, historic debt to gdp ratios etc…


  21. Another afternoon sell-off.  Mild though.

    AAPL/Coulter – I hope it calms down.  If AAPL goes too high and corrects, it will take the whole market with it.

    Vaccine/Stock – It's just spin really, they are calling it solved in the middle of testing.  Very dangerous.

    Charts/Crs – Try

  22. AAPL – this could be a big deal

    Apple creating TV+ bundle with CBS All Access, Showtime – Bloomberg

    Apple (NASDAQ:AAPL) as soon as Monday could be launching its first discounted bundle offering for video, reports Bloomberg, with sources saying the company will offer CBS All Access (NASDAQ:VIAC) and Showtime with its TV+ streaming service for $9.99 per month. That compares to the usual costs of $9.99/month for CBS and $10.99 for Showtime.

    Viacom is adding to the day's gains on the news, now up 1.5%.

    While Apple TV+ has had some decent shows, it's still far behind players like Netflix and Amazon in the volume of content and number of subscribers. This move will hopefully create more interest in the offering and boost usage of Apple TV Channels – which lets users subscribe to third-party content through Apple devices.

    Earlier today, Bloomberg reported on Apple's plans for Services bundles that could also package in Music, News+, and Arcade.

    Previously: Apple planning $5.5B bond sale – Bloomberg (Aug. 13 2020)

  23. sk2020,

    CSCO yes that would be my start for a new trade. I did enter the trade 3/6/20. Now I would hold back on selling a short leap call.

  24. Phill// Suggestions needed on WBA trade.  I tried to follow the LTP on WBA and bought Jan 22 32.5 calls (instead of your suggested $30.00 calls) for $11.50 and now they are trading at $10.50.  Since LTP has an agressive position of  being naked on the $30 calls, is this a time to sell short calls against the long calls?


  25. Fortnite Creator Sues Apple and Google After Ban From App Stores