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Why Worry Wednesday? Short-Term Portfolio Review

Still at those highs.

Trump is determined to go out with a bang so he can blame any market crash on Biden and all the stops are being pulled out to keep things afloat.  The Nasdaq was at 5,000 when Trump took office and now were up at 12,000 (up 140% in 4 years)  but it's a great short this morning (/NQ) at the 12,000 line as Apple (AAPL) just announced they will be cutting App Store fees by 50% (to 15%) for most developers.

That's going to take a bite out of earnings potential as it shows that, like NFLX, AAPL can't just keep raising rates to generate more revenue – eventually you do get blowback.  In Apple's case, they are in court with their clients as well as the Government over their billing practices.  

If AAPL goes down from it's current $2Tn Market Cap – it will certainly take the Nasdaq with it so we're shorting the 12,000 line on /NQ this morning with tight stops over the line as it's a very attractive risk-reward play.  11,800 would be a reasonable pullback target – good for $2,000 per contract on /NQ – we'll see how that plays out into this afternoon's live trading Webinar.  

Notice we've been pulling back less each time we test 12,000 – that's a very bullish pattern so we're just playing for this little pullback for the moment but, if that 50-day moving average fails (11,500) – it's a long way down (15%) to the next support at the 200-day moving average at 10,250 (by the time we get there). 

I guess this is a good time to review our new Short-Term Portfolio (STP) which we just started on 10/28 as we cashed out the old one as we had a nice dip and took full advantage.  The new STP started with $200,000 to protect what is now a $1.2M Long-Term Portfolio (see yesterday's LTP Review) though now mainly in CASH!!! as we got out of half our positions yesterday.  

Our last STP Review was way back on last Friday and we've taken a 5% hit since then as our very aggressive TZA hedge got clobbered with the outperformance of that index but losing $10,000 on our hedges is nothing compared to what we gained in the LTP but now we've cashed out half the LTP and we have to decide if we are staying with these very aggressive hedges, which are still protecting our smaller portfolios but the LTP certainly doesn't need this much:

  • CMG - If CMG stays below $1,300 into January we make $24,350 on the short calls and the spread is good for $120,000 or more below $1,100 and it's currently at net $93,270 but we're not in that for the win – we're using it to cover the short puts (we are covering our short calls with CONVICTION!) we sell and we made $10,365 on the last set.  We'll sell more on the next dip.   

  • SQQQ - We rolled to 2x the 2022 $15 calls and SQQQ is at $19.90 so we're well in the money on what I'll call a $300,000 spread because the short Jan $25s will be easy to roll and the other short calls are at $30 but, really, we can do better over the next year.  Currently the spread is net $65,050 so we conservatively have $234,950 of downside protection if SQQQ goes up $5, which is 30% and it's a 3x Ultra so a 10% drop in the Nasdaq would do it.

  • TZA – On Friday we spent $38,200 to turn this into a $300,000 spread that was at the money at the time.  This is where we took our big hit in the STP as we are only half covered and the Russell (/RTY) flew back to 1,800 today (another good short, by the way!).  We are fairly positive the short $40 calls will expire worthless and then we'll sell more short calls to reduce our net $30,000 entry but what a good price for $300,000 in protection, right?  
  • Actually, though, it's not $300,000 as even a 20% drop in the Russell will only pop TZA 60%, from $9.50 to $15.20 and that would pay out $100,000 for net $70,000 in protection.  Of course, in a major crisis, the other $200,000 kicks in so this is a two-layer spread and our real plan is, in January, the short $40s will expire and we'll sell 100 April somethings for $1 ($10,000 – currently the $15s) and then spend maybe another $34,000 to roll to the 2022 $8 calls, now $3.20 and then we'll have a full year of solid position AND more time to sell calls to lower our cost basis.  Cheap insurance….

So, now that I'm looking at it, we are actually protected just right so I guess, in the back of my mind, I had already decided to kill most of the LTP into the holidays as this really wasn't going to cover the full portfolio as it stands.  But it's PERFECT for what we have and I love that we're doing it with just 3 positions – it keeps us very flexible.  

 


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  1. Good Morning.



  2. Good morning, everyone. Here is your link to this week's webinar.

    https://attendee.gotowebinar.com/register/3779856405053092621





  3. Phil// I sold CHL Dec. 2020 $35 puts for $2.70 and now they are trading at $4.75 or so.  I am losing money on that trade and want to know if I should take my losses or roll that over.  BTW, I also sold naked CHL $30 jan 2023 puts as well.

    Thanks;


  4. HBI / Phil – I have a '23 10 / 17 BCS (1.75) I closed out all my Putters during the last run up – I'm looking to sell some more '23 $13 putters for 3.5 – Given they are 'reviewing the business 'looking to make more marketing investments and cost curbing initiatives…  with a new CEO .  do you think this will hold a $10 price ?  Should I sell now or wait till after Jan when they are to provide update .  My view is the analysts already took a ax to this after the earnings, and they should hold up after the details or possible go up..  What's your view?


  5. Nice move in FCEL – sold calls to cover. Out of half of ETHE at 70.50, thanks BDC :D


  6. Good morning!  

    Little dip at the open but recue bots jump in again.  

    Oil Retreats After Report Points to Swelling U.S. Stockpiles.

    That was kind of obvious at $42.50 – I was too excited about shorting the Nasdaq (1/2 out already).

    America’s Zombie Companies Have Racked Up $1.4 Trillion of Debt.

    Zuckerberg, Dorsey Face Angry Lawmakers Still Split on Concerns.

    Moderna and Pfizer Are Reinventing Vaccines, Starting With Covid.

    Dominion Voting Systems and Smartmatic Designed for Vote Fraud

    Sidney Powell: A high-ranking military witness explaining how Smartmatic threw elections

    The NFL will hold a virtual Pro Bowl this year, with players competing in the Madden video game.

    Opinion: Now that Tesla is joining the S&P 500, you might want to sell.

    SoftBank CEO Warns Of "Lehman-Like-Crisis" That Could Crash Global Economy. 

    Sen. Chuck Grassley Tests Positive, Tokyo Placed On Highest COVID-19 Alert Level: Live Update.

    Goldman Plans Second Round Of Layoffs Ahead Of "Significant Staff Reductions" In 2021. 

    China De-Dollarization Accelerates: Treasury Holdings Near 4-Year Lows.

    Short-Squeeze Sparks Small-Cap Buying-Panic, Bitcoin Nears Record High. 

    CHL/Rookie – Down every day!  Well the 2023 $30 puts are $6 so I'd just roll the Dec $35 puts lower rather than buy them out.  If $30 fails, then you can take a loss on some.

    HBI/Batman – Silly dip off last earnings, which they kitchen-sinked with the new CEO.  Why would it go below $10, which would be $3.5Bn while the make $500M/yr?   

    FCEL/Ati – Wow.



  7. TSLA off to the races.


  8. I held FCEL but gave up on them a few months ago after reading a bunch of worrying articles about their debt. :( :(

    I watched the Social Dilemma last night on Netflix. I highly recommend it. I have a prism to reflect on here: I may have UNDERESTIMATED the transformative power of the emergent Knowledge Economy. This new economy literally monetizes ourselves. Like all transformational economy shifts, it requires its own efficient currency mechanisms. Just wow. It's like putting two partially finished sections of a puzzle together for me, I'm starting to really see it now.

    A couple of additional thoughts:

    - traditional manufacturing economy outptut will get exponentially cheaper. Energy, food, stuff, like couches, TVs, computers. This is key. A guy with a shovel is worth less every year. Phil posted a graph of Biden/Trump counties by GDP. It's no wonder GOP counties are pissed. They're being financially left behind.

    - Energy and carbon are inverting: Carbon (atmospheric decarbonization) is becoming valuable and energy is becoming free. In X years (a decade, whatever, make a guess) energy will be a positive externality of decarbonization. We've been talking about this since pre-split Tesla was $23 a share. Its current value is a function of this understanding and investors trying to find the truly transformative companies that will lead this inversion. Decarbonizing requires putting a social value on carbon because it's not a traditional commodity. This is presently occurring.



  9. Hm. That Wapo story of 3 million infectious people, data from Johns Hopkins. "More than 3 million people in the United States have active coronavirus infections and are potentially contagious, according to a new estimate from infectious-disease experts tracking the pandemic. That number is significantly larger than the official case count, which is based solely on those who have tested positive for the virus."

    I use the Atlantic Covid site (https://covidtracking.com/), and I calculate current prevalence of test positive at 6 million. Hmm


  10. Phil/SPWR  Wondering if you have any suggestions for the old SPWR1 spreads. Feeling I should unwind my position, perhaps at least buy back the shorts and then sell the longs on a swing, maybe set up a new position with the new options, leave the old puts to expire? Seems like it will get harder to trade the old options.

    SPWR1 '22   100 $5c ($4.40)

    SPWR1 '22 – 100 $8c ($2.60)

    SPWR1 '22 -   20 $8p  ($2.73) 

    THX!


  11. Apparently Macy's (M) got cut out of our LTP review:

    M Short Put 2022 21-JAN 8.00 PUT [M @ $9.05 $0.25] -40 3/23/2020 (429) $-18,400 $4.60 $-2.40 $0.30     $2.20 $-0.03 $9,600 52.2% $-8,800
    M Long Call 2022 21-JAN 5.00 CALL [M @ $9.05 $0.25] 60 3/24/2020 (429) $14,700 $2.45 $2.33     $4.78 $0.23 $13,950 94.9% $28,650

  12. Phil/Markets,

    What is your take on the market direction? It seems that it is losing steam end of the day.

    regards


  13. Wheeeeee – So glad we let those shorts ride!  

    Congrats to all who played along at home!  Tight stops now, we can always get back in if 11,900 breaks and 1,750.

    Millions/Snow – At the rate it's expanding, with 9 more weeks of Trump – we're all doomed either way….

    SPWR/Wing – The $5/8 spread looks like $2.50 but the $8 puts are $1 so they are not worth buying back but the spread is miles in the money so safe enough to keep – especially as they are illiquid.


  14. Wow on LB – I got scared and sold calls to cover way too soon. Hope someone on the board is still nice and long there.


  15. LB/Ati – That's why it's so satisfying being a value investor…