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TGIF – Stopping the Week before it Gets Worse

Wheeeee!  

Yesterday was fun, wasn't it?  The Dow dropped 400 intra-day points – a 1.25% pullback as interest rates once again ticked higher – FREAKING investors out completely.  Clearly the Fed is losing control of the narrative and that is really spooking investors and, with Fed rates currently set at 0.25%, there's a whole lot of spooking to come…

We're now negative for the week on the S&P 500 but of course we were going to be rejected at the 40% line (above 2,850) at least on our first attempt to cross over.  From 30 to 40% has been just under 300 points so a 60-point (20% of the run) weak rejection (back to 3,930) was the least we'd expect and 3,870 would be the stronger rejection and is also the rising 200-day moving average, so it has a good chance of holding the first time as well, which means we didn't feel compelled to do anything drastic as we're certainly well-hedged enough to deal with a 5% correction – back to 3,845 (the 35% line).

As you can see, overall we're back to where we were mid-February – so no progress in the past month yet, to hear the pundits on TV – you would think this rally is going strong, wouldn't you?  And, keep in mind this was the month we officially passed a $1.9 TRILLION spending bill.  I wonder what we'll do to support the market next month?  As I noted on Monday – we're likely into the post-Fed blues and soon we get our Q1 earnings reports and I don't think they are going to look like 6% GDP growth, will they? 

Of course hope will spring eternal for Q2 and our $1.9Tn spending spree as all those stimulus checks hit people's bank accounts but most of that money will go to paying off rents and credit card bills – not into shopping and services.  That makes the Retail ETF (XRT) a fun short at $90 as that's FRIGGIN' INSANE since 50 was normal pre-crisis so XRT is probably a little ahead of itself here:

Do you think Retail Sales and profits are up 100% from 2019?  Probably not.  I love betting that reality will re-assert itself as it often does over time and, if you can make money betting on reality – why not?  In this case, our catalyst will be Q1 earnings so our timeframe is April/May and let's say that even if we get to $100 from $50, there should be at least a 10% and probably 20% correction back to $80 so that's our target and the June $80 puts are $1.75 and the June $85 puts are $4 so it seems we can double our money on a $5 drop in XRT while the June $75 puts are $1 – so we risk losing $1 if we're wrong vs making $2.25 if we're right.

Good options trading is all about finding positive risk/reward scenarios to bet on.  If you have a 2.25/1 advantage if you are right – you only have to be right half the time to do very well.  So a combination of good logic and good money management can make you rich!  

To that end, in our Short-Term Portfolio, let's buy 20 of the XRT June $80 puts for $1.75 ($3,500) and see how that goes.  Our target is $7,000 ($3.50/contract) but we are more likely to re-position than stop out if it goes higher – and we'll deal with that if we have to.  It also makes a nice hedge for our long retail positions and there's nothing I like better than a dual purpose position.

We'll see what kind of bounce we get off yesterday's sell-off but let's keep in mind that the AVERAGE company has gained 10% since their Q4 earnings reports were released – the AVERAGE!  We already know GDP Growth is projected, optimistically, to be 6% for 2021 so, even if 100% of that growth went into corporations and even if they profits went up in-line with revenues with no inflationary pressures and no impact from material shortages or wage increases – they would STILL be 4% short of expectations.  

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Have a great weekend,

- Phil

 


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  1. Phil I noticed on your portfolios of yesterday, you do not make use of selling short term calls against your BCSs.

    Any reason or just to much work?


  2. Good Morning.


  3. Phil Your XRT write up hard to understand sorry to say. The put prices you are quoting are more or less all prices you could receive when SELLING the put. However you use the word lets PICK up and this one could understand as buy the put.

    However by selling a put you will only receive the amount what you sell the put for. So it does not makes sense how you make from a sale of 3,500 ( 1.75)  7000.


  4. Good morning!

    Reason/Yodi – Well the relentless up market has not made it as attractive to sell short-term calls.  I prefer to do it when things are a bit flatter (in the LTP).  Certainly we're making enough money not to need it at the moment.

    By the way, people, I did an LTP review last night:

    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.  

    So keep in mind we gained $100,000 since the last review and we're only supposed to make $671,000 (was $771,000) over 2 years or about $35,000 per month so that's another indicator to watch as we're 2 months ahead of expectations and, when you get more than 3 months ahead of expectations – it means your risk/reward profile is moving up quickly (more risk/less reward going forward) and it's a good indicator that you need to re-evaluate your positions.  

    Remember, we are ONLY comfortable with our longs because we hedged the crap out of them!  I'm still expecting a 20% drop and, if it catches us off-guard, we'll likely tread water at around $1.5M (now $1.9M) so it's easy come, easy go with the $400,000 we made since the fall.  If we manage to unwind without taking a huge LTP loss AND we time a good exit on the drop in the STP – then we can pop over $2M while the market goes on sale – that's our best-case scenario.  In betwen, we're currently at $1.9M and we hope to make $671,000 more in the LTP without losing the whole $200,000 in the STP.

    That's our plan!


  5. Phil / STP Review / SQQQ – I am not seeing any July $12 puts, please check if the below is correct.

    Let's sell 20 July $12 puts for $5.50 ($11,000) to generate some additional cash


  6. XRT/Yodi – We are BUYING the puts, not selling them.

    SQQQ/Jij – I must have read that off some other ticker and thought we were in SQQQ.  It's way off.  In the STP, make it selling 20 SQQQ Jan $15 puts for $5.25 ($10,500) on that spread.  The short March $20 puts are finishing below $6 so we'll make an actual profit on those!  


  7. Well Well quite a difference in price!!!


  8. Phil//  Are we buying Jun XRT 75 puts?  Do you think we buy $85 puts and sell $75 puts on XRT make sense?  Thanks.


  9. rookie / Phil – I actually put in an order for that June 85/75 put spread for $2.50 on the $10 spread. Hasn't executed yet though…. 


  10. In the STP, we are BUYING 20 of the XRT June $80 puts for $1.75 but it's no trade at the moment as they opened at $, which opened at $2.40 and I'm sure not chasing them.  


  11. Money Talk Portfolio Review:  $170,163 is up $7,958 since our last review and that's great considering we only had net $37,930 invested with $124,275 CASH!!! on the sidelines.  I was last on the show in December and I wasn't going to go into the holidays exposed when we couldn't make any changes (we only make changes on the show).  This portfolio has been running since 11/13/19 – so a year and a quarter and we're up 70.2% despite only quarterly adjustments that are pretty much only new plays and our very conservative use of margin (as we have the big TV audience following it).  Once again, a good example of you don't have to take silly risks to make very nice returns:

    • IBM – $24,000 spread at net $6,000(ish) so $18,000 to go makes it good for a new trade.  
    • INTC – $25,000 spread at net $12,000 so $13,000 to go is also nice.
    • M – $14,000 spread at net $11,500 is pretty much done but too deep in the money to not wait for the extra $2,500 (and we just added a retail hedge!).

    • PFE – $7,000 spread at net $1,000 so $6,000 left to gain is one of those trades you can put all your money into and take a vacation until Jan, 2023.
    • SKT – $10,000 spread at net $8,500 is not worth keeping if they don't reinstate the dividend but $1,500 of easy money coming.
    • SPWR – $10,000 spread at net $7,500 is a little less dull with 33% to make by the end of the year – $2,500 to go.

    Notice how bored we are by a 33% return on SPWR in 10 months on a spread that's 300% in the money at the moment.  Aren't options fun?  The chip shortage has spooked investors and you know I'll be BUYBUYBUYing if they get back to the $20s.  

    Overall, we have just 6 spreads and they are on track to make another $43,500 left to gain and usually we add one trade per quarter.  I'm not scheduled for March so I assume April will be the next show. 


  12. Do you put trades in the STP, even when not executable at terms described?


  13. STP/Deep – No, if the prices don't work, we ditch the trade but we also give them time to fill.  Hopefully XRT bounces back.  Generally, I'll accept a fill within 15% of goal but more often I'm looking for the better fill, not worse.


  14. Phil – I’m still confused about the SQQQ, you said

    “.  In the STP, make it selling 20 SQQQ Jan $15 puts for $5.25 ($10,500) on that spread”

    For Jan 2022, $15 puts, the price I see is $12.50. 


  15. Never mind, I was looking at the 20 share version.


  16. Phil / INTC – you have a Jan '22 Put that can be closed for .36 with 7 months to go… why not close that out? Especially since the stock has run up so much, and the New CEO is due to speak next week…. with the run up there are high expectations and possibly profit taking.


  17. Future is Now Portfolio Review:  $197,822 is up $4,335 since our last review and we only had $49,948, so that's about on par with our other gains.  We have $143,540 in CASH!!! so I'm happy with that and PLUG is coming down, so we'll probably add them back in and look for some more things during earnings (hopefully post-correction).  

    • CIEN – $15,000 spread at net $9,000 so $6,000 to go.  See how easy this is when you wait PATIENTLY for a stock you like to sell off?

    • JETS – Bennie!  $15,000 spread at net $6,500 so $8,500 to go and 100% in the money.  Also way too easy.

    • SPWR – Ridiculously in the money.  $20,000 spread is net $16,500 so $3,500 to go there and $28,000 spread is net $22,000 so $4,000 to go there.

    So here we have $197,822 sitting around and just $22,000 upside potential.  Of course we're already up 100% and locked in our gains into the holidays but now we need to find something better than making a 10% return on our  money, right?  


  18. Phil / M – Why not close out the short Put on this one as well?


  19. INTC/Batman – I take it you mean 10 short INTC Jan $30 puts in the LTP that we sold for $3 and are now 0.36?  We still have $360 left to collect and INTC is at $64 and I can't imagine a scenario in which we go back below $30 and, even if we do – PLEASE sell me 1,000 shares of INTC for $30!  So, there's no pressure to sell, we don't need the margin and we've already got $1,054,990 in cash.  Why do we want to throw away $360?  I'm sure someone here will volunteer to take your $360 if you are determined to give it away….   They may pull back but then I'd sell more puts and still leave those to expire.  

    M/Batman – See above.  Why pay money for no reason?  


  20. Phil / INTC – I'll take the .36 today…..  and if they pull  pull back. rollup to the Jan '23 $40 putters 


  21. Earnings Portfolio Review:  $294,723 is up $14,035 since our last review and we didn't change a thing with $122,818 invested at the time.  So people ask me what's good to trade and here we are with our 5th portfolio and all of them were barely touched and all gained 10% in a month.  Once again (as repetition may help) – NO crazy bets, NO swing trading, NO risky plays — just good, solid, diversified, fundamental positions that are set up to make money over time.

    • SBUX – These are down since we sold them and I'd call this more of a bet than a hedge so not going to count on the money.  Notice it's the occasional gambles that are most likely to hurt us.

    • HRB – Wow was this one obvious!  Who knew HRB would go up into tax season?  $750 expected – or you can collect it from Batman right now! cheeky

    • IRBT – I wish we bought more of those!  $70,000 spread at net $63,000 so $7,000 to go and 200% in the money.  

    • PETS – $20,000 spread at goal, net $7,000 so $13,000 to go is good for a new trade. You make almost 100% if it simply doesn't go lower. 

    • GILD – $15,000 spread at net $2,000 also lovely for a new trade with $13,000 to go.

    • HBI – $10,000 spread at net $8,000 has $2,000 left to gain this year.  25% – yawn.

    • INTC – $25,000 spread at net $15,000 so $10,000 to go (66%) deep in the money.  Another trade you can take a vacation on.

    • SQQQ – We even have a hedge in this portfolio!  Net $200,000 hedge is a bit much but it was cheap as we timed it out and the short March $20s are expiring worthless but let's not sell more as we're hoping for that correction soon.  Even now, this spread is only net $13,000 – great protection for the price!  

    • WBA – $25,000 spread at net $16,000 has $9,000 (56%) to go deep in the money.  How messed up is it that most of you wouldn't be bothered to make a trade like this?   And we started with a net credit!  

    Options sure do spoil us, don't they?  These are REALLY boring picks that are all in the money yet we're still looking to make another $54,750 on $136,853 invested and we've got $157,871 in CASH!!! so all is well here – for now.


  22. GOLD/Phil  Have a partial position in GOLD:

    15 '22 GOLD $15calls @ $14

    -10 '23 GOLD $23puts @$5.13

    In at a high price for the $15s, waiting to sell something .. any suggestions for adjustments?

    THX!


  23. GOLD/Wing – I don't know when you bought it – we covered ours at $30 and now it's back to $21 where we were just went long again.  I don't know why you would pay $14 for $15 calls – seems kind of crazy to me and now they are $6.35 so did you watch them just melt down?  Nothing wrong with the $23 puts, target-wise and those are now $6 so you are in for net about $10.50 on the $15s and if you cashed the $15 calls at $6.35 ($9,525) and roll to the 2023 $15 ($7.20)/$23 ($3.70) bull call spread at $3.50, you could have twice as many (30 for $10,500) that will pay you $16,000 back at $23 on your now $15,750 investment so you've lowered your break-even from $25.50 to $22.50 if you do something now.  I'd wait, of course for a move back over $25 before selling the short calls.

    NEVER BUY NAKED CALLS!!!!


  24. I forgot I have to go to the DMV today (they do appointments) so we'll go over Dividend Portfolio and Butterfly Portfolio over the weekend.

    Have a great weekend everyone, 

    - Phil


  25. How to Measure Burnout Accurately and Ethically







  26. I see we did have a very slow Friday all witches did go to sleep. 48 comments.!

    Today some wake up calls. I want to set up two new plays for Monday .
    Costco, obviously would have been nicer to have picked up still at a lower range 290, but I think it still has quite some upward potential. For me there are two plays, the yield is very low so this stock has more premium potential. Depending how much you wish to spend, one can enter 2 plays. 1. The BCS or 2. the PMT.
    BCS buy 2x the Jan 23 270 c for 76.50 and sell 2x the Jan 23 340 c for 38.80. Sell 1x the Jan 23 280 put for 22.35. Sell 1x the May 21 340 for 7.20. So this play net cost is 4585.00, with a spread of 70. In addition it gives you 2 years of selling short term calls against your BCS.

    If you wish to spend some more money and do not wish to limit the upside potential I go for the PMT, by buying a Jan 23 1x 270 call for 76.50 and selling 1x Jan 23 280 put for 22.35. Sell a May 21 2x 340 call for 7.20. The net cost here is 4,695.00.
    As you see not much of a difference in cash outlay. But you can sell 1x short term calls against one long leap PMT and upside, sky is the limit. But only 1x short term calls against 2 leap BCS's.

    My second play is an armchair trade.
    BGS a more slow rising company with a yield of 5.75% and a PE of 16. 
    Here we spend some money and buy the stock around 33.00 and sell a strangle Aug 21 35/27.5 for 4.20. My combined income shows some 2.96%. Nothing to sneeze at. Obviously you can change the number of calls in proportion.
    Remember prices could change at Monday’s opening. These are my plays and no recommendation.
    So do your own research and don’t bet the farm on it. 


  27. Thanks Yodi.  Even in this kind of market, if you are dilligent you can still find solid stocks to play.


  28. Dividend Portfolio Review:  $356,659 is up $28,570 since our last review and, of course, that's silly as this is a very conservative portfolio that is only supposed to make 3%/month.  We started on 10/25/19 with $100,000 and fell to $50,000 in the crash (because we were fully loaded early on) so we doubled down $100,000 more and played aggressively.  That's why we're now up 78.3% (on the $200,000) in 5 quarters but that's what you are supposed to do in a crisis – deploy your sideline capital!  

    We only have $88,944 in CASH!!! in this portfolio, so we'll have to think carefully about each open position.

    • GILD – Just a short put, expect to collect $4,200.
    • EPD – Just paid us 0.45 on 1/28 ($450) so 3 of those left ($1,350) and $15,000 if called away is $16,350 and now net $15,110 so we should cash out the stock and the short calls for $15,790 and leave the short puts as it simply doesn't give us enough more to make it worth keeping.

    • ET – Just paid us $306 on Feb 5th.  It's a $10,000 spread with $918 coming in dividends at net $7,456 so $3,462 left to gain in 10 months is worth keeping as it's safely in the money and we like the sector.

    • IVZ – This is a $30,000 spread well in the money so SAFE and net $27,100.  We collected $310 on Feb 12th so that doesn't make it too much more exciting so this one is borderline with $3,830 left to collect.  As soon as we need money, we'll kill it.

    • MO – Looking very safe now and they just paid us $430 on Dec 24th so 4 coming this year for $1,720 and it's a $23,750 spread at net $21,928 means $3,541 left to gain is a respectable amount but again – if we need the cash – we'll take it off the table. 

    • PFE – New one.  Net $23,850 paid for the $30,000 spread.  We missed the first $390 dividend but should collect $1,170 for the rest of the year and another $6,150 on the 2-year spread and $1,560 next year so it's $8,880 to come is a nice, reasonable return.

    • TWO – Paid us $170 on Dec 29th so $680 coming this year but the rest of the trade is messed up as we didn't log in the roll from December so have to skip this and figure it out later.

    • F – No dividend and it's a $21,000 spread at net $16,230 so $4,770 is a respectable gain for the year and we're safely in the money.  No reason to touch this one – even without the dividend.  

    • M – No dividend.  It's a $10,000 spread at net $8,160 but so deep in the money it's not worth killing.  $1,840 expected.

    • PETS – Paid us $280 on 1/29 so $840 coming (this year) and it's a $22,500 spread at net $19,550 so $3,790 left to gain is not very exciting .  Another one to kill when we find something better.  

    • SIG – Sadly, no dividend.  It's a $60,000 spread at net $47,730 though and miles in the money.  $12,270 (25.7%) left to gain over 2 years but so little risk it's hard to walk away from.

    • SKT – They snuck in a $534 dividend on us on 1/28 – wasn't expecting that!  Supposedly, that will be normal so $1,602 coming this year and it's a $30,000 spread at net $28,050 but we can improve that by rolling the short March $12 calls at $4.83 to 10 more 2023 $10 calls at $7.90 so we pocket $3,000, dropping our net to $25,000 so $5,000 upside on the stock at $10 (easy) and $4,272 in dividends by Jan 2023 is $9,272 back on $25,000 is a lovely rate of return – so a keeper.

     

    • SPG – Paid us $1.30 on 12/3 but nothing yet this month.  Supposedly $5.20 annual dividends should be $2,600 and we're miles in the money on our $42,500 spread at net $34,849 so $12,851 over 2 years to go is 36.8% – nothing wrong with that!  

    • T – Paid us $520 on Jan $8th so $1,560 left to go this year and no short calls as we still think $30 is way too low.  At the moment, if we hit our $35 goal, it's a $35,000 spread at net $22,810 (so fantastic for a new trade) and you get $3,640 in dividends AND we'll reduce the net when we sell the $35 calls (when T is higher).  How can you not love this stuff?  I'm going to call this at least $12,500 to go.

    So, as Boring and SAFE and Unchallenging as this portfolio is, it will STILL make $81,206 if all goes well and, even with a $356,659 base, that's a 22.7% return.  We'll see what dividend stocks go on sale this earnings season – we have 3 trades we would like to upgrade and $88,944 in CASH!!! to spend!