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28,000 Thursday – Dow Back Within 5% of it’s All-Time High

We're back baby!

The Dow Jones Industrial Average topped out at 29,500 in February as we ignored the virus in China and then it plunged 11,000 (37%) points, to 18,500 in late March and now it's back up 9,500 (51%) since then and we're only 1,500 points (5%) from a full recovery.  Recovery, of course, is a funny word when over 7M Americans now have a disease that has terrible, long-lasting effects on the body but who cares – it's rally time!

The revised Q2 GDP came in yesterday at -31.4%, which was better than the previous estimate of -31.7% but that's not why we rallied, we rallied because it was the last day of the quarter and the hedge funds all like to "dress the window" and make things look good in the brochures they use to lure in fresh month during the following quarter.  

This will be a nice time to go over our hedges and make sure we're prepared – just in case the indexes are rejected at their all-time highs again – given the 200,000 dead and 7M infected and 31.4% decrease in economic activity and all.  Oh, and the nation's slide into Fascism….  So, in our Short-Term Portfolio, which we reviewed back on Sept 18th, we've made no changes but we've made a lot of money as Tesla Calmoed down a little – though that may change at any moment again:

While the TSLA position has the potential to give us a huge pay-off, it's very volatile and we need to focus on our hedges, which we KNOW will pay us if the market falls for sure.  At the moment, our primary hedges are SDS and SQQQ so let's make sure they are adequate to protect what is now a $1M Long-Term Portfolio (up 100% for the year).  

  • SDS – This is now a simple bull call spread and the spread is $12 wide with SDS at $16 so it needs to gain $6 to be 100% in the money for $240,000.  $6 is 37.5% of $16 and SDS is a 2x Ultra-Short of the S&P so the S&P would have to fall a bit less than 20%, from 3,380 to 2,704 for us to collect the full $240,000 and we're currently net $120,000 in the money and the spread is net $113,500 so it's offering us $126,500 against a 20% drop in the S&P.   

  • SQQQ – This is a 3x ETF at just under $24 so it needs to get to $30 which is up 25% and that requires roughly an 8% drop in the Nasdaq 100 from 11,555 to 10,630 – it wasn't far off that last week!   The $15/30 spread has a $300,000 potential and it's currently net $60,750 so it's much more efficient than the SDS spread with $239,250 upside potential from here.  The downside is it's a June spread, so the Nasdaq would have to go down and stay down for us to colllect but that's fine because, if it doesn't stay down – it means our longs are recovering.  

So we have about $350,000 of downside protection in the STP, which should get the LTP through a rough patch but I'd feel better if we had some good short-term protection and TQQQ has been fun to play so let's re-establish a short in what will be a calendar spread we can build up over time:

  • Buy 40 TQQQ March $130 puts for $30 ($120,000) 
  • Sell 40 TQQQ November $100 puts for $7.50 ($30,000) 

That's net $90,000 on the $120,000 potential spread, which doesn't sound exciting but our longs are 6 months out and our shorts are 2 months out so they can be rolled to a wider spread or, if that's not needed, we can re-sell 2 more times and knock our cost down to $30,000 on the $120,000 spread and that makes sense.  We'll officially add that to the STP.  

We should be able to roll the $100 puts to the Jan $80 puts (now $7.25) and that would widen the spread to $50 ($200,000) so we're techincally adding $110,000 worth of protection for $90,000 so we've punched up our protection by 33% and that makes me feel a little better heading into the weekend with all these longs still in play.

 


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  1. Funny what adding $4T to the economy does to the markets!


  2. Good Morning.


  3. I wonder how many people that Trump fired on The Apprentice are in fact better business people the he is!


  4. Good morning everyone. Here is a link to yesterday's webinar. Please forward to about 12 minutes in. The video refused to edit for some reason

    https://youtu.be/vzJmJ64yb1k


  5. Good morning!

    New hedge for the STP from the post above:

    So we have about $350,000 of downside protection in the STP, which should get the LTP through a rough patch but I'd feel better if we had some good short-term protection and TQQQ has been fun to play so let's re-establish a short in what will be a calendar spread we can build up over time:

    • Buy 40 TQQQ March $130 puts for $30 ($120,000) 
    • Sell 40 TQQQ November $100 puts for $7.50 ($30,000) 

    That's net $90,000 on the $120,000 potential spread, which doesn't sound exciting but our longs are 6 months out and our shorts are 2 months out so they can be rolled to a wider spread or, if that's not needed, we can re-sell 2 more times and knock our cost down to $30,000 on the $120,000 spread and that makes sense.  We'll officially add that to the STP.  

    Stimulus/StJ – Well they postponed the vote yesterday on the $2.2Tn – doesn't sound very promising for more stimulus before they break.  Also, it's such a budget-buster, no one wants the blame.

    BA is up $35 in 5 days, that's adding 300 Dow points or essentially all of them since last week's low.  That means the rest of the index isn't performing at all.

    We had a good discussion with Doug from our Hedge Fund yesterday – lots of good trading talk.


  6. With the weakness at the top, I'd grab the TQQQ long puts and hold off a bit selling the short puts.


  7. Talk – It was great to actually 'hear' the thoughts and ideas versus reading them.

     

    While Phil does a great job writing his thoughts and ideas, it can't carry the same conviction as when you hear it in someone's voice…   :)


  8. 1020-I agree. It was super to hear the thought process going into the trades. Makes me think it is the ultimate to let someone watch dog the trades like he does. I need to get certified to do it.


  9. BBBY bustin a move today


  10. It's been a long road on BBBY – finally up nicely, hooray!


  11. Thoughts on EPD down here??…Way beaten down, paying 10% dividend







  12. Oil came down hard.  

    Don't blame the Dollar:

    Blame the global outlook on demand:

    BBBY/Wilsons, Atty – Nice job on the patience play.  

    Top Trades for Thu, 16 Apr 2020 15:15 – BBBY

     

    • Baird checks in on Bed Bath & Beyond (BBBY +17.2%) after the retailer's earnings reporte.
    • "While we believe BBBY has enough liquidity to survive this downturn, the unprecedented demand shock adds another layer of complexity to what is already a difficult turnaround process,' reads the firm's update.
    • Q2 and Q3 are seen dropping 5% to 20% from last year's levels.
    • Barid keeps a Neutral rating in place and lowers its price target to $5 from $10 to reflect reduced EPS estimates.
    • Previously: Bed Bath & Beyond +13% after slight sales beat (April 15)

    Very tempting down here!  I think, for the LTP, we may as well pick up the 50 of the BBBY 2022 $3 ($3.55)/10 ($1.45) bull call spreads at $2.05 ($10,250) and sell 20 of the 2022 $5 puts for $2.62 ($5,240) for a net $5,010 entry on the $35,000 spread so $29,990 (598%) upside potential if BBBY can get back to $10 in 20 months. 

    Sadly, I forgot to enter it. 

    Good little company with a nice dividend.  I like it!   We already have ET in the Dividend Portfolio but I think there's room for EPD and their $1.78 dividend so let's go for the following:

    • Buy 1,000 shares EPD at $15.92 ($15,920) 
    • Sell 10 EPD 2023 $13 puts for $2.85 ($2,850)
    • Sell 10 EPD 2023 $15 calls for $3 ($3,000) 

    That's net $10,070 on the $15,000 spread so about 50% upside and the $1.78 dividend is 17.67% while you wait!  Worst case is we get to own 2,000 shares at an average of $11.53, which is a 27.5% discount to the current price.  That's the worst case – and we're not even counting the $3.50(ish) you will collect in dividends over 2 years.  Aren't options fun?


  13. So, why did I jump on that trade (thanks Millard, by the way)?  Not only does it pay a nice, safe(ish) dividend but it's a cheap stock we can easily adjust and it has long-term options with good premiums to sell – unlike many good dividend payers.  With that trade, we make 100% if it simply doesn't go DOWN $1 over two years.


  14. just so you know, EPD issues a K-1 for the distributions


  15. Phil,

    With the Pelosi/Mnunchin stimulus meeting today (with Pelosi reportedly quoted as saying 'we're close') any thoughts about a short term (Oct) speculative QQQ (Oct 280/290) or SPY trade ? 

    Thanks in advance


  16. Phil

    Stimulus meeting trade, above

    Omitted 'BCS' trade, of course.


  17. Plus EPD has raised the Dividend every year for the past 21 years


  18. Stimulus package trade

    Oops! Both Pelosi and McConnell now say the two sides are too far apart. 


  19. VLO  I'm keeping an eye on them and would like to see a dividend cut.  Then I'll sell some 2023 puts as a bet on a recovery 


  20. K1/Stock – Yuch, taxes! 

    Close/8800 – We've heard that before.  It's nothing I'd bet on.  And what's your bet, that 1/2 as much money as they approved last time will take the S&P even higher?

    VLO/Stock – You have to watch the crack spread between gasoline and oil for them.

    RBOB prices

    Oil is being artificially propped up but actual demand for gasoline is low so that's not good for VLO this year.  I think this will be a nice bottom for them, $40 usually is. 


  21. So a VLO Jan 23 $30/40 BCS seems pretty safe to me as a "dip my toe in the water" start


  22. VLO/Millard – Well, I'd wait for it to stop falling first.

    You can sell the VLO 2023 $22.50 puts for $4, that's like free money.  

    Dow ending up in the red after all that.  

    China getting ready for hyperinflation:

    Chinese Dragon and Phoenix 1 Vigintillion Paper Banknotes Not Currency Anti  Fake Bills Collectibles| | - AliExpress


  23.  Millardd 

    If you bought VLO at $40 and sold the 2023 $40 calls for $8.50 and the $25 puts for $5 you would collect 13.50  against your $40, thats about 33%  or 14% annualized.  On top of that, you would collect a nice dividend along the way. Worst case you would have more VLO put to you at $25. 


  24. Is a vigintillion a 1 followed by twenty zeros???


  25. 63 zeros.  10 to the 63rd power.


  26. Phil / fusion   This looks interesting    

    Nuclear fusion reactor could be here as soon as 2025

    By Charles Q. Choi - Live Science Contributor

    https://www.livescience.com/nuclear-fusion-reactor-sparc-2025.html


  27. And in classic 2020 fashion, Trump gets COVID-19.  



  28. President Trump and Melania have Covid-19. What now?


  29. The Coronavirus College Scam


  30. Pfizer CEO pushes back against Trump claim on vaccine timing