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Troubling Tuesday: Oil’s Not Well

$6,000 per contract!  

That's how much our Members have made (so far) shorting oil off our August 26th "Hurricane Edition." when I said to our Members in the Morning Report:

Hurricane Laura is coming.

It's a good excuse to get Oil (/CL) back to $43.50 but it makes a nice short there as nothing else is going on in the energy market to prop it up.  We do have a holiday weekend approaching (next Friday) but driving is mostly off the table this year and, for oil, I'm a lot more concerned with the Dollar bouncing back from it's -10% position and kicking oil's ass after Powell's speech tomorrow at the Jackson Hole conference. 

While I prefer to short the Oil (/CL) Futures at $43.50 with very tight stops over that line, we can also make the simple bet that oil won't be over $50 in April by picking up the following bearish spread on USO:  

Buy 20 USO April $35 puts for $6 ($12,000) 

Sell 20 USO April $30 puts for $3.15 ($6,300)

Sell 10 USO Sept $30 puts for 0.52 ($520) 

If USO goes below $30, we need to take a loss on the short Sept $30 puts but, if not, we can sell those puts for 0.50 each month and collect $2,000 more through January.   As it stands, the net of the spread is $5,180 and it's $8,000 in the money at $31 to start.  If we drop our basis by $2,000 more, we should be in very good shape.  

Plan the Trade, Trade the Plan”USO, as you can see, remains on track and the April $35 puts are now $7.80 ($15,600) and the $30 puts are $4.40 ($8,800) and the short Sept $30 puts died last week (Wednesday morning) at 0.75 ($750) so the spread is up about  $1,000 (20%) at $6,050 so far.  Setting those stops is key as the short puts are now $1.75 – exactly enough to wipe out our profits if we hadn't taken the loss below the $30 cut-off.

You should always have a trading plan set up – especially for short-term trades.  We often don't seem to have a plan for our long-term positions but our plan is usually to stick with them and let our hedges do their job.  The hedges are the pan and we often make just as much money on the hedges as we do on the long positions.  

Last week, for example, in our Live Trading Webinar, we went long on gasoline (/RB) as it hit $1.18 and that became a hedge to protect our shorts on oil – in case it all wen the wrong way.  Having the longs on /RB protected us against the bounce (weak) in /CL and we were able to exit the /RB longs with a very nice gain of $1,200 per contract but, more importantly, it allowed us to hold onto our /CL shorts, which ended up making $6,000 per contract.  

Speaking of hedging, the Nasdaq is taking yet another massive dive this morning, down 2.5% (300 points) already and that is NOT a good way to start the day.  The Nasdaq, through SQQQ and TQQQ as well as TSLA, is the primary hedge in our Short-Term Portfolio.  

I recently went over why we cashed out (partially) and got more bearish into the end of August back on the 24th (see also: "Record-High Wednesday, Again") and, as I said at the time, I'd rather be prepared for the crash too early than be over-exposed and surprised by it when it comes and that's exatly what happened/is happening – as we had a very boring couple of weeks watching the market continue higher but now we get all the fun of watching it crash from the sidelines – which really beats being caught up in the panic by a mile, doesn't it?

There's no big news but there's no good news likely to hit this week and the market momentum has shifted down a bit and we'll see if we test some support lines.   After the holiday weekend, there isn't much going on on the data front but next week should be more interesting and stimulus talk will come back quickly if the market has a 10% correction (5% so far). 

And, of course, this week, the Back to School disaster begins!  

Good night and good luck….

 


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  1. There is simply no support for these markets at these levels – it's simply that there is nowhere else to put these trillions that are being injected by all the the CBs around the world and the fiscal stimulus. Millions of people here in the USA face eviction, the $600 checks are gone, so the E in P/E will be greatly lower than they anticipate.


  2. Good Morning.


  3. phil USO 

    Thanks for the idea on the USO put spread! its offsetting my loses nicely today. 

    so talking of exits (and trying to get better at that myself) The $10 spread is now worth $6.50.  It's only a couple of weeks old so great progress (good reason to exit) but it's only 65% of the way there at is sitting perfectly at target with 220 days to go (good reason to stay in) what does one do in a situation like this. and no, i don't have anything better to with $6.50 ! 


  4. and sorry just to be clear. i went a little deeper with a 25/35 USO put spread


  5. Dow bouncing around the 27,500 Must Hold line it seems.


  6. Good morning!

    Just the weak bounces so far, nothing very exciting.  

    SPX back in the range on the Big Chart, Nas back in the range would seem catastrophic but only a 10% correction to get there.  Notice we never go NYSE and RUT over the Must Hold lines – that was always the indicator we'd get back to reality one day. 

    USO/Monk – Well the spreads are not good for taking quick profits, unfortunately.  So you answered all the questions.  USO is already below $30.  Do we have a reason to believe our bet will fail?  If not, you have nothing better to do with the money and we're on track so PATIENCE is the only logical option available to you.  You were greedy with your target – it might pay off or it might not.  

    Dow/StJ – It's major support so there should be at least a weak bounce and we also have 3,350 on /ES (which is just technical but meaningless to the 5% Rule, where 3,420 is already lost but 3,300 is good support), 11,200 on /NQ and 1,500 on /RTY so we're in a real bouncy area where NOT bouncing would be a surprise. 

    Of course bouncing does not mean you are suddenly going to reverse and go higher, right?






  7. 9 vaccine makers sign safety pledge in race for Covid-19 vaccine


  8. McConnell: Senate to vote on ‘targeted’ virus aid






  9. woof.  not looking fantastic out there


  10. Not too terrible, what matters is how we finish.


  11. Really shows you the strength of the market when you give back 3 weeks of gains in 3 days!


  12. Mostly holding up, need Nas to get back over 11,200 though. 

    Oil hit $36.  /RB $1.085 post-holiday.  /NG $2.375.

    Gold hit $1,911.  Dollar back to 93.50.

    TSLA $335!    Now I'm worried about our short $300 puts…

    Back in business!  

    TSLA Short Call 2021 15-JAN 380.00 CALL [TSLA @ $339.39 $-78.93] -70 8/20/2020 (129) $-581,980 $83.14 $-24.39 $-94.82     $58.75 $-57.00 $170,730 29.3% $-411,250
    TSLA Long Put 2021 15-JAN 190.00 PUT [TSLA @ $339.39 $-78.93] 25 6/19/2020 (129) $85,350 $34.14 $-22.64     $11.50 $2.26 $-56,600 -66.3% $28,750
    TSLA Short Put 2021 15-JAN 300.00 PUT [TSLA @ $339.39 $-78.93] -30 8/21/2020 (129) $-78,900 $26.30 $25.15     $51.45 $13.95 $-75,450 -95.6% $-154,350

    This was on the 3rd:

    TSLA Short Call 2021 15-JAN 380.00 CALL [TSLA @ $407.00 $-40.37] -70 8/20/2020 (134) $-581,980 $83.14 $24.44 $-94.82     $107.58 $-29.63 $-171,045 -29.4% $-753,025
    TSLA Long Put 2021 15-JAN 190.00 PUT [TSLA @ $407.00 $-40.37] 25 6/19/2020 (134) $85,350 $34.14 $-23.04     $11.10 $1.52 $-57,600 -67.5% $27,750
    TSLA Short Put 2021 15-JAN 300.00 PUT [TSLA @ $407.00 $-40.37] -30 8/21/2020 (134) $-78,900 $26.30 $14.48     $40.78 $4.78 $-43,425 -55.0% $-122,325

     

     

    TSLA $380!  There's like a $1M upside in the STP if we hit that target!

    It was still good for a new trade!  

    LTP still up 101.8% at $1,008,850 so we're riding this dip out in style…


  13. STJ – isn't that how it always goes in bull markets though? long drawn out rally followed by snap back corrections?