How much is enough?
Yesterday, Fed Chairman Jerome Powell essentially said the Fed will continue their Free Money Policy until 2023, which seems like a long way away until you think about how far away Christmas of 2019 was, when we were with our families and friends and not at all worried about catching a virus and dying. Does seem like a lifetime ago, doesn't it?
Yet, only 12 hours after Powell's speech and press conference yesterday, the markets began to sell off as the Dollar begain to recover from it's post-Fed drop of 0.75%, which boosted the indexes 1% and made it LOOK like the Fed had caused yet another rally but it's all BS – just theater-staging by the Banksters, who need to convince the Retail Investors to come in and BUYBUYBUY the stocks they are unloading at ridiculous prices.
Remember, the Dollar does not have a medium-term effect on the market – it has a strong short-term effect, almost no medium-term effect but then a strong long-term effect again – it's wierd. Anyway, of great concern is how easily the Nasdaq fell below the 13,000 line this morning. You would think there would be support but there was none. 10-year notes flew up to 1.737% as Powell gave us no confidence that the Fed was going to control inflation (more likely will cause it) and, as we pointed out in our Live Trading Webinar – they failed to adjust their inflation expectations which, as we predicted, caused investors to lose confidence in their ability to give us a "soft landing". When the pilot clearly can't see the dangers in front of him – it's time to grab your parachute!
Investors who are wary about inflation returning are looking at the scale of spending and borrowing combined. The budget deficit hit 14.9% of gross domestic product in 2020, the highest level since 1945. It was forecast to fall to about 10% in 2021 by the Congressional Budget Office, but that excludes the Covid-19 aid package – which is 10% of our GDP by itself – and the Infrastructure Bill is pending. Another $2Tn and we pass 1942s budget deficit – the year we put the whole country on a war footing.
And what happens in a war, when the normal cycle of supply and demand are distorted by a surge in Government spending? Why you get shortages, of course. That's right, the ultimate limiter on these stimulus bills is that, no matter how much money you throw at us – we can only build so many cars and boats and planes and houses in a year.
Before the 737 disaster, Boeing was backed up 10 years in orders (still 7 years). What does it do for the economy if we order another 3 years worth of planes? Nothing. No one is hired, no factories are built – just a lot of deposits made for planes to be built next decade. Meanwhile, we have very real issues of Global Supply Chain disruptions that is now so severe that Toyota (TM), Honda (HMC) and Samsung all made comments this morning that they will be CUTTING production due to supply chain issues. Honda pointed to a combination of port issues, the semiconductor shortage, pandemic-related problems and the crippling U.S. weather.
The disruptions underscore how several forces are coming together to squeeze the world’s supply chains, from the pandemic-driven rise in consumer demand for tech goods to a backlog of imports at clogged California ports to U.S. factory outages caused by weather woes. They are creating cost increases and delays for numerous industries, company executives and analysts say, affecting profit margins and the prices that companies and consumers ultimately pay for many goods.
Those of us who have worked in manufacturing can tell you how devasting these disruptions can be and the market has taken NONE of this into account when pricing out stocks over the next 12 months. Yesterday Powell said he expects supply chains to "adjust" and there will be bottlenecks over time and yes, that's true but, if you were supposed to make 110M chips (see chart) and you only made 80M chips for 6 months and the demand is for 110M chips – how long will it take you to catch up?
The answer is "forever" because, until you can produce more than 110M chips to meet current demand and fill the gap – you will always have left a shortage. The "adjustment" is that prices go up until demand decreases enough that people don't want the missing 30M chips and THEN things eventually get back to normal. It's also possible that you build new factories but why would you if you think the boost in demand is only temporary. Then you would be permanantly left with very expensive excess capacity – no one wants that either.
Economics is tricky. Business is tricky. Yet the Fed acts like it's some machine you can flip a switch on and that's becuase, out of 18 Board Members, maybe 2 of them have had real jobs in their lives.
Be careful out there!
Here is the link to yesterday's webinar…in case you missed it.
Good morning. Feels like it's waiting for the last shoe to drop. The PM recovery yesterday was something to behold.
hi all. yeah, not doing much/any trading this morning. just watching and waiting!
Not good if the Nas starts getting rejected at 13,000 – keep an eye on it.
Nice round trip on gold!
VIX rolled over to new contract:
Whee on Oil (again)!
I'm afraid the only 'shoe' to drop is a bunny slipper…it feels like consolidation before the next move up. 🙂
rick2006 any trading? Well tomorrow is witching Friday. Tons of options to roll. If you have no work today you are not trading!
Trading here a new kid on the block CHPT the leading play on electric vehicle charging infrastructure… As a pioneer in electric vehicle charging, ChargePoint is building a highly defensible business by designing smart charging infrastructure.
PMT buy the Jan 22 20 call @ 10.45 and sell the 20 put @ 6.80 and sell the May 21 30 call for 2.95. Puts you in the driver seat for .70.
Just as I said new kid so don't bet the farm.
yodi-The other investigative government entity is FINRA. They investigate brokers and apparently report on those who have had complaints. This is different than SEC as it actually apparently helps traders. I read some Robinhood traders couldn't transfer their accounts and got FINRA involved and the matter was handled quickly. FWIW.
pirateinvestor Thanks made a note of it. At present I hope to have the matter solved. Put having a look at tastywork for a second leg.
missed reccommendation on the gold roll on the March sell 25 call and sell 21 put. Any feedback on that one?
deeppan GOLD If you still hold these positions, the call will be worthless. 21 short put I would roll to Jun21 20 put. Would wait for an up day to sell new calls.
CHPT/Yodi – Under $1Bn is not bad considering the potential.
GOLD/Deep – Not sure what the question is? If you mean in the portfolio, I'm working on those reviews.
Done with oil if it breaks over $62.25 – nice dip!
What's the 5% Rule from $65? $61.75 so bounces off the $3.25 drop are 0.65 so $62.40 is the weak bounce but why lose $800 (2 contracts) waiting for it – may as well be happy with what we got.
Meanwhile, the Dow (/YM) is kicking my ass so I'm DD short at 33,100.
THANKS Yodi. Thought that would be the call, but I didn't see any reminders. I will have to keep my record keeping a little more up to date.
Short-Term Portfolio Review (STP): $220,473, is up about $30,000 since the webinar so we must be doing something right but it's just as quick to go the other way when we bounce. Bottom line is the hedges work and gain money fast to offset the LTP losses but the LTP is still $1,692,168 at the moment, so hardly any losses to offset and a new record high for our paired portfolios. We amped up our hedges on Friday so there's not much to do today other than verify our current coverage.
By the way, if you wonder how the STP cranks up such huge gains – that's how. Unlike the Butterfly Portfolio, we very aggressively sell short-term premium when we can and that drops tremendous money into the portfolio – when we are right….
So that's $503,924 of protection against a 20% drop in the markets and our Long-Term Portfolio only has $644,293 worth of positions so we should be well-covered here with enough left over to cover our other Member Portfolios as well. I am still, however, inclined to cash out the whole mess and skip the coming correction (as I said yesterday in the Webinar).
PHil-the sqqq spread. You have the long as 22X and the shorts @23X? Guess I am confused. Shouldn't it be the same?
> Let's sell 20 July $12 puts for $5.50 ($11,000)
Phil – for selling the SQQQ $12 Puts, I assume you meant JAN 2023 and not JULY 2021 (based on the pricing I’m looking at)?
phil / GS
Have been doing many long terms using your BCS / Short Puts strategy successfully. After losing my shirt on TSLA with uncovered calls, I haven't done any uncovered calls though I have lots of uncovered puts if I don't mind owning them at those prices. There is a lot to learn in allocation blocks, rolling trades, when to exit & risk management. I am up 168% in a fairly large account since July 2020. I feel many of the positions could take the account to 200% by end of the year. Of course, any thing can happen with the virus variants etc.
I hear you about leaning towards closing all the positions and staying in cash for now. Unfortunately, all this gains came from a taxable account and I want to wait until 1 year to avoid short term taxes.
Here's an example trade.
Long BCS 10 GS Jan 2023 170 / 220 Calls and Short 5 GS Jan 170 puts for a net cost of $7,600. These positions are now worth $41,380. I remember you mentioning to exit at 80% of the spread. If I exit now, it will be short term tax. With GS at $352 now, I want to wait until 1 year before exiting,
What do you think?
sk2020 Interesting question. All positions are deep ITM On your BCS I see two options, close and you forefoot about 6,5K of the full 50K or roll to a new position say 320/370 and you could take about 21K of the table. Not sure what you received for the put but again you could roll the put to a much higher position say 280. What will happen in the future is any mans view. People think that after corona there will be a new beginning, true or false, any once guess.
yodi / GS
Thanks for your insight.
I got $28 for the puts and now trading at $5.27. Jan 2023 280 is trading at $28.52. If I roll this, I could get another $11,625. Let me think about the 320 / 370 trade.
I actively managed the SPG trade. I kept rolling puts from $45, $60, $100 and bought back covered calls for substantial gains. I managed BAC, WFC, C & JPM as well. Don't know why I didn't do the same with GS.
I assume when you roll before 1 year, those gains (if any) will be taxed short term. Since I started all these option trades in 2020, I will soon find out the tax implications for what I have done already.
Sorry I can not comment on US taxes. I have enough problems with tax withholdings.
Woops, I've been busy working on the LTP Review and I refreshed it and it was down a few points.
Good for our /YM shorts, back to 4x with tight stops on half as I didn't really want to DD – it was forced by that silly spike.
This is what I mean when I say I'd rather sell early, while it's easy to get good prices for our longs.
Still in those 2 oil shorts – only because I got distracted though…
$59 is now the stop and $58.50 should certainly be bouncy so that's the stop too!
Long-Term Portfolio Review (LTP): $1,701,943 is up $92,465 from our last review (BEFORE I put in our new positions) and that's really great as we only made NO CHANGES last month – so the positions we have are just chugging along. Still, as I pointed out, we only have net $644,293 in positions and last month they were net $551,828 and that's a ridiculous amount to gain in 30 days. That's because we sell A LOT of premium and the VIX has decayed (making the premium we sold less valuable – so a profit to us) and, of course, the market has continued to chug higher – which is good for our longs.
Of course all this can reverse in an instant and it's not likely we make another 20% on our positions in April and just as likely we drop 20% so why play at all is the question? Well, for one thing – there's the friction cost of buying and selling. These are all positions we want for the long-term so we're only going to buy them again eventually – so why sell them just because they dip? On the other hand, why not sell them and buy them cheaper? Maybe we won't time it right…. See – tricky.
Without the new positions, here's where we were:
We did, however, add a bunch of new positions to the LTP, as we didn't want to miss a bigger rally if it came, so here's where we now stand (AKAM, FB, FRO, GOLD (adjusted), LYG, MFGP, NRG, PBR, TROX, and W were all added since the last review). I'm not going to get into details as there's nothing to change and we'll see what kind of sell-off we have and maybe do something tomorrow.
Wow, that was a terrible close!
Saved by the bell.
As you can see, in the LTP, we now have $35,170 worth of short puts (current net) and those are placeholders for stocks we'd like to buy if they get cheaper. They use up some margin but add to our cash pile so the net cash cost of all our new positions was negligible.
For the rest, just some quick notes:
So it's hard to be worried about GS and yes, I dare you to make me buy 1,000 shares for $165. That's our worst case? PLEASE let that happen! That's why it's so hard to close these positions down – we got them at great prices and the risk of being forced to own GS at $165 isn't enough to get us to forgo collecting $9,000 against our $31,000 position – even though it's only 30%.
It's not like we have something better to do with the money, as we're playing things cautiously (cautiously making 15% a year!) and it's not like we need the margin with $1M out of $1.7M in cash. That's how we have to look at each one of these and decide if we're really worried enough to cash them out but also to make sure we don't have anything better to do with $31,000 than make $9,000 over 2 years.
So the first half of the portfolio has 10 positions (not counting CHL) that should make $279,000 plus the $35,000 from 8 short puts is $314,000 over 2 years so far.
16 trades in this section are good for $357,000 in future profits so, adding up the other half we're projecting $671,000 in future profits between now and Jan 2023 if the market simply maintains these levels (or at least our stocks do). As noted above, some of these stocks are so good we'd almost rather be assigned than make the rest of our money and some of the spreads are so good that it's hard to find a reason to do anything else but sit back and let them make us richer.
As usual, this portfolio is too good to dump so we're going to have to take a licking to motivate ourselves to walk away. As noted before, we have about $600,000 worth of protection in the STP – so we don't think we'll take too much damage on the way down – lots of time to decide to bail and the profits are already built in if the need never comes.
On the whole, we're very well-balanced with a ton of CASH on the sidelines.