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Monday Market Movement

Powell, Powell, Powell!

You know the markets need a lift when they schedule Powell to speak but what kind of catastrophe are we trying to avoid when he's scheduled 3 days in a row?  As I've said, the Fed is out of ideas and out of money, so all they can do now is talk up the markets but, WOW!, 3 times in 3 days from the Chairman and 20 MORE speeches from the minions – all jammed in by Thursday, ahead of the 7-year note auction – the same auction that failed last month and sent the markets tumblin' down.  

There's also some data on the calendar this week, but who can tell with all the noise coming from the Fed.  GDP on Thursday is the final reading for Q4, which was last estimated at 4.1% and is not likely to be a surprise, so clearly it's the 7-Year Auction they are worried about with 3 speakers Wednesday afternoon and 3 before lunch on Thursday followed by Evans speaking during the auction and then Daly will wrap it up that evening with the post-game report.

As you can see from the chart above, we're only in the middle of a panic in the bond market and no, it isn't over just because we've been distracted since last month.  Was the 2007/8 crisis over in 2008?  It wasn't even over in 2009 – these things take time to play out.  

On top of all the auction nonsense that's going on this week, we still have earnings dribbling in – including GameStop (GME) who is currently at $200/share, which is $14Bn in market cap for a company that made $400M in it's best year – and that was 4 years ago.  Sales were $8Bn then, they were $6.5Bn last year and heading lower – not higher.  Best Buy (BBY), in contrast has a $30Bn market cap with $47Bn in sales and $1.8Bn in profit.  GameStop is essentially a SECTION in Best Buy – yet it's valued at 1/2 of that company's market cap – that is just INSANE!  

Image

Due to Reddit and a very poorly regulatated market, you can't short GME – no matter how logical it is but it will be fun to watch.  Q1 earnings don't really kick off until Thursday, April 15th, so a long way to go before they start to matter again, which is why we get to focus our attention on the Fed and they are able to manipulate the market so easily – there's not a lot of contrary data to call them out with – yet.

It's not just the Fed that's doing their best to pump up the market.  Just this morning, Cathie Wood of Ark Investments gave Tesla (TSLA) a $3,000 price target – a 5-bagger from their current $650Bn valuation so north of $3Tn seems realitistic to Cathie – by 2025, no less.  Of course, Cathie says there's only a 25% probability of TSLA being at $3,000 in 4 years – she also says it's just as likely they hit $4,000/share because – why not?  

That makes the forgotten Jonas brother, Adam of Morgan Stanley seem stingy with his $800 price target.  

10 Investing Lessons From Dilbert Creator Scott Adams and Vanguard Founder  John Bogle - The Micawber Principle

 


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  1. Good Morning.


  2. I see Phil is the only one who still checked Friday's site!!!! Phil still published one of the ports!!!!!

    For all you sleepers here again and I might be even better waiting a bit longer.

    yodi
    March 21st, 2021 at 11:14 am | Permalink | Tweet thisIgnore this user
    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. 




  3. thanks, yodi

    Oh, Good Morning!


  4. Good morning


  5. Phil/SKT. I have 1000 stock at 9 and for 2023 sold 10 calls 10 strike at 2.18 and sold 10 puts 7 strike at 1.96. Nett cost 4860 and now ahead by about 3100 out of a max 5160. Sadly didn't take a bigger position. Plan to just sell more puts at 7 or 10 strike to reduce cost. Any better ideas go increase return? Thanks


  6. It just happens that around 7% of XRT holdings are in GME.


  7. Good morning!

    COST/Yodi – A bit up there for my taste.  BGS more practical.  

    SKT/Stuart – Essentially that's done now and they are pretty much right-priced for their earnings potential and a rational valuation.  Making $2,000 on $8,000 is still 25% over 2 years and it's pretty risk-free so do you really want to take risks to reposition at the top of the channel?  

    Let's say we were to cash in the stock ($16,800) and buy the short $7 puts for $1 ($1,000) and sell the $13 puts for $3 ($3,000) that's net $18,800 in pocket but you're left with the short 2023 $10 calls at $8 ($8,000) and let's say you roll those up to 15 of the 2022 $13 calls at $6 ($9,000) and cover with 15 of the 2023 $10 calls at $8 ($12,000).   All that work is net $7,800 in pocket and you are left with 15 2023 $10 calls covered with 15 of the 2022 $13 calls (rollable to 2023 $15+, which is why I like them) and the short puts which would put you back where you started with 1,000 shares at $13, worst case.  The upside potential is at least another $4,500 but it seems like a lot of work and a lot of waiting just to get a couple of thousand more dollars out of this trade.

    XRT/Randers – Well, it didn't start that way.  They were a $5 stock so that was 40x ago – divide 7% by 40 and that was their intention at the time.


  8. Yes OOCH on COST they must have read my comments need to wait and see. BGS filled nicely. Sorry can't catch them all.


  9. Phil, thanks as always for the clarity and good advice.


  10. My roundabout point was that you can not short GME, but one can buy puts in XRT. 


  11. Phil / Futures – Any milestones we need to keep a tight watch on this week?


  12. XRT/Randers – Like this?

    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 $2.40 and I'm sure not chasing them.  

    $1.97 at the moment so still haven't triggered but at least more reasonable than $2.40.

    Milestones/Jij – Can't count Mondays so we'll have to see where we are tomorrow.



  13. Exactly !  I was a little late on that trade and could not get a fill, got a similar bear put spread instead. Fingers crossed ! ;)



  14. Good day!!

    Good day!!

    I currently have positions in GOLD, GILD, LYG, MO, PFE, WPM and hedged only with SQQQ.

     I read over the portfolio reviews and didn’t see much that’s “good for a new trade” Looking for new trade ideas. IBM? I could also add to GILD and GOLD as they are small positions. 

    Any ideas? Of course, I don’t want to chase it and can wait patiently.


  15. Trade Ideas/Youngy – When in doubt, look at recent Top Trade Alerts but, as I keep saying – I'm more inclined to cash out now than add new positions – be careful.


  16. Thanks, Phil. I've been bearish for 2 years now and missed out on a lot but will just wait for the right opportunities.

    Cheers


  17. Butterfly Portfolio Review:  $870,757 is up $74,643 since our last review and we didn't even make any changes.  It's the same 10% we gained on everything else so no big deal – just a huge base here as this portfolio goes way back to Jan, 2018. when Trump had only had 12 months to make us great – look how far we've come now!   

    At least he made our portfolio great but, unlike our other portfolios, we don't have real target gains since the Butterfly portfolio is all about taking every possible advantage to sell options premium to suckers who think they can predict what the market is going to do.  We only had $178,415 in positions last month and they generated $74,643 in gains – that is one efficient portfolio!  

    • AAPL – We went with an aggressive put sale into earnings as we can't imagine they miss and AAPL is well off the highs.  However, we sold the April $125 calls for $15 and they are now $2.83 and we're up $121,700 on those so WHY ON EARTH WOULD WE RISK THAT?  Let's buy the April $125 calls back ($8,760) and sell 40 July $130 calls for $6.30 ($25,200) – just to stay in the premium-selling game.  Lots of room to roll.

    • AMZN – The short April $3,300 calls should expire worthless.  Things opening up should not be great for AMZN and earnings are not until the end of April so these will expire first and that means we'll have lots of premium to roll to.

    • DIS – Ouch on the short April $160s but I don't see $200 breaking over so let's wait a bit longer.  Europe is having problems opening things back up (virus surges) and if that happens here, DIS can go back to $160 very fast.

    • F – Another one where the short calls are burning us.  We sold the June $10s to protect us through earnings and it's only a 1/2 sale.  We can roll them ($2.96) to 2x the Jan $15s at $1.57 (NOT YET) so there's nothing at all to worry about here.

    • GOLD – These are the leftovers after we cashed out our longs.  Let's cash in the 2023 $20 puts at $4.10 and let's buy 50 of the 2023 $15 ($7)/23 ($3.50) bull call spreads for $3.50 and it's too early to sell short calls.

    • KO – What a perfect Butterfly stock – nice and flat.  No changes

    • MDLZ – Also nice and flat.  A bit over our target but we're a bit bearish on the market so nothing to change.

    • MJ – These guys are volatile but the premiums are so good we can't resist.  We got burned by the July $17 calls but only a 40% sale and our $100,000 spread is mostly in the money so all is well (and the short puts offset the loss).  The $100,000 bull call spread is just net $41,000 – that's a nice return!  

    • WHR – $75,000 spread at net $57,000 has $18,000 to go but WHR is certainly toppy at $217 so let's sell 10 of the June $210 calls for $17.50 ($17,500) for a little spending money for the month.

    So we sold another net $34,000 in premium and that's how we make so much money in this portfolio – do that for 2 years and it adds up.  Being right on our long positions is just bonus money!  


  18. TSLA $700 – we might get to short them again!  



  19. Phil/IBM I have:

    32 ’22 IBM $120calls ($16.5)

    - 16 ’21 IBM $140c ($7.28 expired)

    - 8 ’22 IBM $140c ($11.4)

    -10 ’22 IBM $100p ($9.98)

    Would you now sell some more calls against the ’22 $120s?

     

    Also have (var on your prev sugg):

    30 ’23 IBM $100c  ($27.4)

    -30 ’23 IBM $140c  ($12)

    -5 APR ’21 $135c    ($5.2)

    -5 APR ’21 $120p    ($6.6)

     

    THX!


  20. Huge vix drop today 


  21. Fed’s Powell and Peers Aren’t Rushing Into Digital Currencies



  22. VIX/Rick – I think that's because the VIX rolled to the new contract on Wednesday and popped up (due to more time) but the trend continued calm so the VIX is pushing back down to the 20 line – where it was before the rollover.

    IBM/Wing – Our target on IBM is $150 next year so I'm not too keen on covering at $130.  You pretty much have a $120/140 bull call spread and a few short puts and calls – nothing wrong with that.  




  23. WSM where are they going to? Shortly rolled to 150 now 180.



  24. Phil/IBM.   My IBM '22 $120/140 spread is 32 longs but only 8 $140 shorts (the others expired).

    Are you saying stick with the 24 NEVER BUY NAKED LONGS for now  ;)

    THX.


  25. Wing the long IBM are OK obviously you can step up sell more short calls against your longs. As I understand Phil thinks the stock will go up to 150 so selling far out shorts will not be to advantages. I would sell some Apr and May say 135 calls which you can always roll further out. But do not cover all your longs!!!


  26. Thanks Yodi .. was thinking along the same lines of the short term shorties. I know my IBM longs are only recently naked too ;)

    Seems IBM is on the move so I quite see that it might be good to wait for a pause before selling, even for the short term shorties. 

    Could get around $3 for the May $135s at the moment, could sell 20 for $6k?


  27. I would not start with such a high number


  28. WSM/Yodi – Going crazy is where they are going.

    IBM/Wing – Well if we keep having up days, I'd wait and see if IBM makes a move before covering.  Earnings are April 19th.  Let's see, if you are 32/8 then the 2022 $120s are $16 and the 2023 $115s are $22 so $16,000 to roll them along and you can sell 15 Jan $130 calls for $10.50 ($16,800) and then you have 32 2023 $115 calls, 1/2 covered with Jan $130s (so good, rollable protection) and the 8 Jan $140s.  That's a bit safer in case you are worried. The 2023 $150s are $6.50 so shouldn't cost much to roll to target – even if it goes up quickly.

    Good start to the week.


  29. IBM/Thanks Phil. You say $16k to roll from 32 '22 $120s to 32 '23 $115s for $7, wouldn't that be 7x32x100= $22,400 for the roll out? Would you consider a shorter sale of say 15 May $135s at $3 first as Yodi was suggesting? Then maybe the roll out to '23 after that?