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Which Way Wednesday – S&P 3,800 Edition

Monday's shorts are still going strong.

Of course we cashed most out already but even now (7:45), the Dow (/YM) Futures are still above the 31,000 line, which is our shorting line for /YM and the S&P Futures (/ES) only just crossed back below 3,800, which is our shorting line for /ESAs I noted in yesterday's Morning Report:

It's an interesting way to start the year and we'll see how things play out but we're still shorting those index lines at Dow (/YM) 31,00, S&P (/ES) 3,800, Nasdaq (/NQ) 13,000 and Russell (/RTY) 2,100 and we'd love to see Oil (/CL) closer to $55 so we can short that into tomorrow's inventory report as further OPEC cutbacks aren't going to make a dent in the surplus we have going on.  For now, we can use the $52.50 line as our shorting zone with very tight stops above

The hardest thing about trading the Futures is all the NOT trading the Futures you have to do in between.  It's been a long time since we've played the indexes but we now have a nice alignment of good, solid resistance points to guide us and market conditions that are truly toppy so the risk/reward profile brings us back to Futures trading for the first time in quite a while.

Unfortunately, I can only tell you what is likely to happen and how to profit from it – the rest is up to you.  On Monday, for example, I said:

According to our fabulous 5% Rule™, the Nasdaq topped out at 13,060 and 12,900 is the 7.5% line up from 12,000 and 13,200, of course would be the 10% line and a rejection of that 1,200-point run would be 240-points but we'll call it 250 and that make 12,950 the weak retrace line.  If that holds, we should be worried but, if it fails, the next support is way down at 12,700 so that's the next shorting zone we can play.

If you missed Monday's call (and you would not if you subscribed HERE) I would not chase the Nasdaq this morning but play the S&P as it crosses back under the 3,800 line as it's lagging the others – as is the Russell (/RTY), which is still over 2,100 at the moment.  Of course we already have our index hedges in place in our Short-Term Portfolio, which is now down 52.8% thanks to this never-ending rally.  That's OK as our Long-Term Portfolio is now up 200% and now we'll see if we have enough protection in our STP to keep us even on the way down.

How much protection do we have if the market heads lower?  

  • FXP – This hedge is sprecific to a China crash and pays $28,000 at $40 and is currently net $3,000 so there's $25,000 upside potential if FXP goes up 33%, which would be a 16.5% drop in the Chinese markets.  

  • TQQQ – This is a 3x Ultra-Short on the Nasdaq that pays $60,000 if TQQQ is below $40 which is down 22% so a 7% drop in the Nasdaq is all we need and currently the spread is net $30,000 so $30,000 upside potential if the Nasdaq falls 7%. 

  • CMG – This one is tricky and the Jan positions are expiring.  The short puts will go worthless so a gain of $4,750 but the Jan $1,300 calls are $102 in the money and we're down $9,675 but, at the moment, that's offset by nice gains on our longer puts.  We think $1,400 is very toppy so we're not going to sell more short puts and we'll roll our 5 short Jan $1,300 calls at $102 ($51,000) to 5 short March $1,400 calls at $95 ($47,500) – so we'll spend just a little money to push the short calls $100 (7.6%) higher.   

  • SQQQ – We are still at the money on our 2022 $15 calls so a 20% drop in the Nasdaq will send SQQQ up 60% to $24, which would put the $15 calls $9 in the money for $180,000.   The rest is just preemium selling we do in between.  The net of the spread is now $35,187 so about $145,000 of upside potential here.  The short calls will expire worthless for a $36,375 gain and we're down $7,625 on the short puts – I can live with that!  We will roll the Jan $21 puts at $6 to the March $20 puts at $6.20 and we'll hold off on selling more short calls for now.

  • TSLA – Fairly new and already in trouble.  We sold the short puts and calls for $20,400 and it's going to cost us $9,930 to roll the short Jan $700 calls.  We'll roll them ($150 = $15,000) to 2 short March $900 calls at $98 ($19,600) picking up another $4,600 and hopefully TSLA doesn't go over $1Tn mark in valuation (now $800Bn) and the short calls expire worthless.  As with CMG, this is too tricky to count on.  

  • TZA – The short Jan calls will expire worthless but the long $10 calls are way out of the money now.  In March, TZA went from $33 to $118 so we can get a 3x move on TZA in a big drop but even that would only take us to $15 and it's certainly nothing we can count on.  Since our primary concern is getting through Q1, we can cash out the $10 calls for $7,500 (the others should go worthless) and pick up 200 June $6 (0.90)/11 (0.55) bull call spreads for net 0.35 ($7,000) and the upside potential is $100,000 for a potential gain of $93,000 – that's a lot more realistic.

So that's $293,000 of protection (not counting our short stock spreads) if the market falls 20% and what we need to do is take a good look at the Long-Term Portfolio (LTP) and make sure we feel comfortable that it won't lose more than $500,000 on a similar pullback.  We cut a lot of LTP positions in our last adjustment (Dec 16th) and should be less exposed but we'll verify that in the review.


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  1. Good Morning.

  2. Phil/IBM – Reminder to roll Jan 15th short call.

  3. Phil, any thoughts on if a new PLUG trade? Or has the boat been missed?

  4. Good morning, Everyone!!  Here is the link to today's webinar…

  5. INTC gets ex VMWare CEO. Nice!!

  6. Phil / TSLA,

    I have a TSLA Jun 21 510 short call. Is there any rollout you would recommend to salvage this position at this point of time or should I just sit tight and pray that TSLA price starts falling down in the next 6 months.

  7. the net draw in oil and oil products is minus 9.4 but minus 8 is from other oils.

  8. jij, TSLA  The question  is always what to have to balance this short call. If you have a long say 350 Jan 22 call you would be doing well, however if this call is naked I can only say the hope will always die last. Never sell naked calls especially not of stocks like this. My be Phil will draw a trick out of his hat.

  9. Phil any comments on REYN I did mention the other day???

  10. Here an example of TSLA I set up a while back  Buy Jun 22 600 call @ 286.00 sell Mar 21 740 call @ 88.20.

    Looking at it today Jun 22 is 392 and Mar 21 is 166.00 

    I let you do the math.

  11. jij123 / TSLA

    I was in a similar situation before with short calls. Literally, TSLA price went up so much in a week that my loss kept going up every day. And, I got out with a sizable loss. Thank God. Had I waited longer, the loss would have been even more. TSLA valuation is completely irrational. It wouldn't surprise me if this becomes the most valuable company in the world – an auto company with low margin with so much competition coming. 

    With my limited experience in options, I would not do naked calls with TSLA. 

  12. Yodi / TSLA

    Unfortunately it's a naked short call as a hedge against my long option positions in other stocks – the short call has resulted in far greater losses than the profit from my long positions.

    I learned a lesson to never sell naked calls. Hoping Phil and others on the forum can provide advice on what is the best option I have now – Sit tight and pray that TSLA price goes down a bit and I can recover some of the losses, take the loss and exit out of the short call completely, do some kind of rollout to have a better shot at recovering some of the losses partially.

  13. jij rolling up could bring you from the fire in to the frying pan!!!! The Jun 510 call has only 36$ premium that is about 10% of the call price. The delta is already .89, meaning with every dollar up in TSLA your option runs .89 cents against you. Just on one option the asking price is 364.00 That is 36.4K just on one option, less what you received. boy o boy. Hardly to see TSLA as a hedge????

  14. Yodi / TSLA,

    Yes, I am definitely feeling the fire every time TSLA goes up by a buck. At this point, being on the frying pan would feel better than being on fire.

    Is there a roll up you could suggest? I am willing to wait for a year or more and see if I can salvage some of the losses.

  15.  ravi_s IBM still 24 cents premium in the 125 caller. Down 1.50 today possible could go to 125 by Friday. So I sit and wait, if I have to roll  to the OTM call it  will rise or fall in proportion.

  16. jij, sorry I am not such a wizard to see where that stock will go to. As I said possible Phil has a clue, rolling up a naked call could be more dangerous than it is now. You need a case like BA, I sold the put at 250 when the stock was trading at some 400 never thought it would go to 120. Still I can hear Phil's words " wait till an engine falls down!!!!" possible something like that could happen to TSLA????

  17. Lets look at AAPL I still have some stock and even long call over (not covered), always eyeing to sell some calls. But now same as INTC hang on and wait AAPL might come up with a surprise again, and I would be sorry having sold calls that cheap

  18. Talking about electric cars I did set up plays on NIO doing very well. here some further comments. But pls NO naked calls against them!

    Nio (NIO): Nio priced its offering of $1.3 billion in convertible notes. The China-based electric vehicle maker plans to use the proceeds for general corporate purposes and to strengthen its balance sheet.

  19. Yodi/ NIO.. what play would you recommend today based on the current situation.


  20. BA …. Feb 215C for 9.60.  Few for the move up….and it is moving quickly.

  21. Good morning!

    IBM/Ravi – Yes, I have a lot of homework tonight. 

    PLUG/Swamp – That one got away a long time ago.  We already sold ours from the Future is Now Portfolio.

    INTC/Jeddah – What a pop.  Very insulting to the outgoing guy.

    TSLA/Jij – Not much of a roll once they get so deep.  Praying is not the best investing strategy.  June $510s are $358 and the Jan $1,100s are $190 so a 2x roll there with a stop at $250 would put $22 in your pocket and then take $250 back out if you have to stop but it's a good probability roll as the value would be insane with TSLA up around $1Tn and the option naturally decays at $20/month but that's $40/month if you have 2 outstanding.

    Oil/Tommy – There was nothing that was going to support that level.  Still over $52.50 though.

    TSLA/Yodi – We always get burned at some point and it usually works out in the end. 

    REYN/Yodi – Good, solid company.   Not particularly cheap but not expensive and not exciting 3% dividend.  I give it a YAWWWN rating.

    They IPOd at $26 last year and that was the result of extensive analysis of their division by the World's leading Investment Banks.  It's not an IPO, they make what they make ($400M) on 3.2Bn in sales and that's nice and $6Bn is a fair price for them if they hit their numbers but I don't see any reason to be excited about them.  Can be played not to go below $27 but I wouldn't be aggressive.

    Webinar time!

  22. Hicket These are my present positions on NIO. The stock was up today already at 64, now 62.20. I enter my trading at 41.50. As you can see more than 20$ lower. But if this stock takes of like TSLA well any entry will do. The stock pays no div. so I always would enter a poor man's trade.

    See what happens during the coming week, Trump's caprishas, etc. Buy a Jan23 call with a delta of say .85 and sell shorter month calls against the leap call. You could further reduce your cost by selling half Jan23 40 put. The Mar 80 call sells at present for about 5.40. Sell only half of the leap options. Just some ideas, Also look at LI still on the low side of the ladder. 


    NIO210219C55 19-Feb-21 55 -1 CALL 6.05 11.275 -86.36%

    NIO210219C65 19-Feb-21 65 -2 CALL 7.59 6.475 14.69%

    NIO220121P7 21-Jan-22 7 -2 PUT 2.7 0.365 86.48%

    NIO220121P10 21-Jan-22 10 -2 PUT 3.5 0.635 81.86%

    NIO220121P25 21-Jan-22 25 -2 PUT 5.5 3.35 39.09%

    NIO230120P25 20-Jan-23 25 -3 PUT 8.3 5.975 28.01%

    NIO230120C30 20-Jan-23 30 10 CALL 26.583 41.075 54.52%

    NIO230120P30 20-Jan-23 30 -1 PUT 11.4 8.525 25.22%

    NIO230120C45 20-Jan-23 45 -10 CALL 22.564 34.825 -54.34%


  23. On REYN I have set up a play buy the stock 29.10 and sell the July 21 25/30 strangle for 4.50

  24. Yodi, what's your typical criteria selling front-month calls against LEAP?  As an example, the IBM 2023 $110C is $24.65.  What would you sell against it?

  25. if it means something when professionals say the same thing I do.

    "“Instead of considering each individual spike and fall as a discrete bubble, there may be more merit in the argument that this volatility is simply part of the price discovery in a new asset class, and that these are not bubbles, but part of a not-so-random walk that will eventually dwindle to give Bitcoin more stability, and ultimately, legitimacy,” the analysts wrote."

  26. the obnoxious wallstreetbets guys on reddit really have a hold of GME. I wish I had been in that one.

  27. jeddah62, IBM  At present we have very unsettled times. Observe that the stock was trading at opening at 129.75 and now 127.00.

    In principal I do not like to sell any calls if the stock is falling especially if the /ES is in a positive position. If you would have asked this morning I would have said sell the 26 Feb. 2021 32 call for about 3.30. But now the call is already down to 2.50. So let the stock settle and I would look in case of IBM with an OTM call one month out for 3 to 5 $ above the stock price.

  28. LMT….nice. If you don't take profits, at least set stops.

  29. Andy-Webinar replay instructions.

  30. biodiesel 

    opinion on bakkt  now ticker VIH     backed by ICE

  31. Phil / Semi MFG – I'm looking  into the equipment manufacturers of silicon ( processing, yield , controls etc).  My theory is that we have supply constraints across the wafer tech spectrum and there may be some upside here. the top names I've looked at AMAT, KLAC, LRCX all their look pretty solid from a business standpoint.    There are also some test houses lit ASX who may  benefit as well.  Any favoritisms names here from your view?

  32. Webinar/Deep – Takes a day for them to process the Webinar video usually.  

    AMAT/Batman – I always like them when they are cheap but $100 is not cheap when they were $36 in March and $50ish last year.  Fab houses are generally utility plays and AMAT is 25x, KLAC 35x, LRCX 30x and ASX is interesting (23x) but not sure how much growth there can be in that one. 

    That being said, I'd love to own AMAT for $50 so selling the 2023 $50 puts for $4 is a nice way to keep an eye on things.

  33. Phil / Amat thanks

  34. Thanks Phil for time table.

  35. Phil / TSLA,

    Thanks for the roll up tip on TSLA. I will plan to roll it up to Jan 22 $1100 (after adding some more cash to my account to factor in the increased margin requirements)

  36. Here is the replay of Wednesday's webinar