Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

TGIF – Hedging for Disaster with our Short-Term Portfolio Review

What is hedging? | Advanced trading strategies & risk management | FidelityAren't you glad we added hedges last week?  

We did a review of our Short-Term Portfolio last week and our timing was excellent as this has been a rough week for the markets but we were able to relax as our STP bumped up from $245,485 to $281,128 as of yesterday's close, gaining $35,643 (14.5%) for the week.  Meanwhile, our Long-Term Portfolio (LTP) positions, which the STP is designed to protect, are down $79,067 (4%) since our April 16th review, so our STP is mitigating about 1/2 of the damages – as it's designed to.  Of course the STP kicks in a bit harder between a 10-20% drop but no real signs of that so far as we're bouncing nicely this week after a 7% drop in the Nasdaq (more on that later).

Let's take a look at where we stand now in our STP:

  • XRT – We went from 20 to 70 last week and caught a nice downturn and a lot of retail earnings are coming out next week – so we'll leave these for now – even though we should take 1/2 off the table now that we're even(ish).  

  • SCO – During the week we doubled down on the long calls as oil got expensive ($66.50), taking advantage of the lower price on the calls.  We also shorted Oil Futures (/CL) in our Live Trading Webinar and we bottomed out at $63.50 – up $3,000 per contract – that's another way we can enhance our returns while we wait for these longer options to play out.  At net $13,000, this is a $30,000 spread if oil is under $60 in January and half of our gains are uncapped – so I still like this spread but we do expect oil near $70 in the summer – so it's going to be a rough ride.   Rembmer, these are hedges – if the economy collapses, oil goes down and we win.  If the economy stays hot – we still think $60 is too much for oil – that's what makes it a good hedge.  

  • FXP – We bet China would begin to collapse.  Bingo.  Unfortunately, they are collapsing for many of the same reasons I predict the US will follow.  The nice thing about this spread is we sold June $35 short calls and we're right on track.  They can be rolled to higher, long-term calls to widen the spread.

  • TQQQ – Nice pay-off on the Nasdaq dip.  As we expected, the Ultra-Long ETF took a drastic hit, dropping 21% when the Nasdaq fell 7% and now we're in the money at net $64,000 but only half-covered and the short puts are rollable so I'm loving this hedge!  

  • CMG – We're losing on the short $1,400 puts ($1,800) and the short calls aren't worth much so let's buy those back and sell 5 June $1,400 calls for $21 ($10,500) and roll the 5 short June $1,400 puts at $96.85 ($48,425) to 4 short Jan $1,200 puts at $85 ($34,000) so we're spending net $5,725 to roll the 5 short calls down $200 in strike with a 20% lower obligation.  Meanwhile, at $1,200, the 5 Jan $1,500 puts would be worth $150,000, $30,000 more than they are now – so we're well-covered.  

  • SQQQ #1 – SQQQ is at $12.77 and let's say the Nasdaq drops 20% and SQQQ goes up 60% (3x inverse ETF) to $20.40.  That puts our $5 calls $15 in the money ($150,000) but the Nasdaq looks weak to me so let's buy back 1/2 (50) of the short 2023 $25 calls at $3.14 ($15,700) – just in case things go worse than expected.  
  • SQQQ #2 – I'm more comfortable here as $30 is unlikely and the short $20 calls are rollable but let's buy back half (50) of the short Jan $20 calls for $2.07 ($10,350) just to be safe

  • TZA – We doubled down on this protection last week and it paid off already.  Another 3x inverse ETF but at $35.45, a 20% drop in the Russell would lead to a 60% gain to $56.72 so I very much doubt we hit the short June $60s and we'll buy back the short June $45s ($4,575) - so no reason to worry on this spread, which would pay $167,200 at $56.72 yet this entire spread is currently (after adjusting) a net credit of $3,763.  

  • W – We sold more short calls just in time for the dip.  We're making money selling short calls, the put spread would be a nice bonus win – a $20,000 potential currently at $10,000 but we just sold $7,020 of premium for the month – that's fun too!

So each week we're hedging just a little more as we get closer and closer to the inveitable correction.  

The Nasdaq 100 has become stuck between the 50 and 200-day moving averages and the significan lines are 12,000, 13,000 and 14,000 so we're halfway to a 15% correction at 12,000 and the weak bounce line is 13,200 – failing to hold that today would mean we're likely to get the rest of the drop next week but that would only be a re-test of the March lows – not a tragedy.

Have a great weekend, 

- Phil


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!

Comments (reverse order)

    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!

  1. Good Morning.

  2. Good morning! 

    /NG with a nice re-test of $3.

    /CL back to $65

    Watch /BZ $70, that's the no-no line.  

    Keep in mind it's only 2 weeks to Summer driving season so it's a tricky time to short.

    Copper be crazy! 

    uses of copper in the United States


    See yesterday's NAK re-play.  World's largest copper mine…

  3. Colonial Pipeline Paid Roughly $5 Million in Ransom to Hackers

  4. Crazy action but at least it's cheap to press the shorts:


    LTP made $50,000 back already – all is well.

  5. Happy Friday Phil!!.  Would appreciate your thoughts on Palantir (PLTR).  Lots of hype around it on seeking alpha.  Stock has more then halved from it's IPO bump.  Given the ongoing issues with cybersecurity and data analytics and there seemingly in with the goverment contracts…worth dipping a toe in at least?  Options seems pricey though.  

  6. ultyguy / PLTR: this is a totally not Phil sanctioned trade, but: i got into the PLTR Sept $18 options yesterdat at $2.70. Sold a smaller # of the August $19 puts to partially fund the trade. Would complete by rolling to Jan and making a 20-30 call spread. I liked the technically reversal of the stock when it flushed down at open after earnngs and then came back. 

  7. PLTR – i was lucky enough to ride the train up to $30 originally from IPO.  Part of me feels like there are better CS stocks out there. This feels kind of washed up, but that's just a hunch.  No need to chase, right?

  8. PLTR/Ult – Rick is right, $34.5Bn at $20 is a bit high for a company not actually making money and, even if they had 100% margins, $1.5Bn in revenues isn't going to get them there.  As it is, it costs them about $1 in losses for each $1 in revenues but, supposedly, THIS is the year they start making money.  

    Year End 31st Dec 2015 2016 2017 2018 2019 2020 TTM 2021E 2022E CAGR / Avg
    Total Revenue

          595 743 1,093 1,434 1,475 1,913 35.5%
    Operating Profit

          -623 -576 -1,174 -1,288      
    Net Profit

          -580 -580 -1,166 -1,290 326 475  
    EPS Reported

    0.000 0.000 0.000 -0.387 -0.357 -0.654 -0.772      
    EPS Normalised

    0.000 0.000 0.000 -0.377 -0.348 -0.654 -0.771 0.144 0.207  
    EPS Growth

    PE Ratio

                  128 88.7  

                  2.92 3.75  

    To some extent that's caused by the way their contracts work – they have to service contracts they've already been paid for but that's a dangerous game as it insures failure if you stop growing/raising capital.  They've been getting a pass this week as Biden says he'll spend more on cyber security but who knows of PLTR will win?  As I said back in March:

    Submitted on 2021/03/03 at 12:49 pm

    PLTR/Hicket – Specialty software mostly relies on Government spending and $54Bn is an INSANE valuation for a company with only $1Bn in revenues that only first broke even in 2020.  Let's say they immediately morph into the next MSFT and drop 30% of their revenues to the bottom line because all they do is sell the same thing over and over again every year.  They STILL need to get to $7.5Bn in sales to justify that cap which means a whole slew of Government agencies need to allocate 7x more of their IT budget to PLTR.  Will that take one year or 5 years?  

    This is just a cool-sounding start-up that's trading 150% higher than their own backers thought they should be priced at 6 months ago, when they went public at $10.  Just because they are slightly less idiotic at $24 than they were at $38 doesn't mean $24 is a good deal.  

    • The stock market continues to pare weekly losses, with tech stocks, hit hardest in the first three sessions, leading the major averages higher.
    • The Nasdaq (COMP.IND) +2.1% is benefiting the most, while the S&P 500 (SP500) +1.5% is enjoying broad-based gains.
    • The Dow (DJI) +1.1% is being hampered by Disney's price slump after it failed to impress on the Disney+ side.
    • The 10-year Treasury yield is off its lows, down 2 basis points to 1.65%. It has gotten down to near 1.62% earlier in the session.
    • The Big 6 megacaps are all up, with Tesla battling to regain its 200-day simple moving average.
    • All 11 S&P sector are higher.
    • Energy (NYSEARCA:XLE) is in the lead, but it's runner-up Info Tech (NYSEARCA:XLK), and its outsize weighting, having the big influence.
    • Chip-equipment stocks are strong, but it's storage stocks that are the big gainers after Morgan Stanley said they could benefit from increased demand from cryptomining.
    • Cryptos are higher, with bitcoin stabilizing.
    • Among active stocks, cruise lines are near the top of the S&P gainers list as the Senate advances a bill on resuming Alaska trips.
    • But on the flip side of travel, Delta and American are among the biggest decliners. Delta says it will require all new employees to be vaccinated.
    • And retail favorite AMC is having a volatile day following its capital raise, up 2% after being up more than 10% earlier, but still on track for its sixth-straight winning day.
    • DarkSide, the ransomware group behind the Colonial Pipeline breach, says it's closing up shop after its servers were seized by an unspecified country and a cryptocurrency account used to pay affiliates was drained by an outside party.
    • Notably, DarkSide said it would release decryptors to all of its current targets who had not yet paid and the group will meet all of its outstanding financial obligations by May 27.
    • Brian Krebs has the full rundown at Krebs on Security. He also cites cyberintelligence firm Intel 471, which notes that the high-profile Colonial Pipeline attack led to the retreat of DarkSide and other ransomware group. But the firm says the "a strong caveat should be applied to these developments" since the operators are likely "trying to retreat from the spotlight more than suddenly discovering the error of their ways."
    • Related cybersecurity stocks: FireEye (FEYE +5.2%), CyberArk (CYBR +4.0%), CrowdStrike (CRWD +2.6%).
    • Yesterday, Bloomberg sources said Colonial Pipeline had paid DarkSide $5M the same day as the attack but the provided decryptor was slow going.
    • Earlier today, Toshiba's French subsidiary Toshiba Tec said it was breached by DarkSide.

    WTF?  Does DarkSide have a CEO and CFO who will be on a conference call with investors?  

  9. Thanks rick2000/Phil re: PLTR……….Rick….I had sold June 18 puts yesterday and bought them back today up 55%.  Like your play but going to wait a bit and see how it shakes out.  If it get's closer to the mid teens….will give it ago. 

  10. Bill and Melinda Gates’s Divorce Spotlights a Secretive Fortune

    • Citing a new study conducted among healthcare workers, the Centers for Disease Control and Prevention (CDC) says that messenger RNA vaccines approved in the U.S. can cut the risk of getting COVID-19 by 94% in fully vaccinated individuals.
    • “This report provided the most compelling information to date that COVID-19 vaccines were performing as expected in the real world,” noted CDC Director Rochelle P. Walensky.
    • The CDC has sourced data for what it called the largest CDC COVID-19 vaccine effectiveness study from a network covering 500K healthcare personnel (HCP) across 33 sites in 25 U.S. states.
    • After full vaccination defined as seven or more days the second vaccine dose, COVID-19 symptomatic illness was reduced by 94% in HCPs whereas in those who were partially vaccinated the decline of COVID-19 was 84% following the receipt of dose one through six days after dose two.
    • “These findings support CDC’s recommendation that everyone should get both doses of an mRNA COVID-19 vaccine to get the most protection,” CDC said in a statement.
    • With more than a third of the U.S. population having been fully immunized against COVID-19, the new coronavirus infections have dropped to the lowest level in the country since mid-September.
    • In December, Pfizer (PFE +0.1%)/BioNTech (BNTX +5.7%) and Moderna (MRNA +5.1%) accomplished FDA emergency use authorizations for their two-dose mRNA-based COVID-19 vaccines.
    • Facebook (FB +2.9%) has lost its bid to block an EU privacy ruling that may suspend its ability to send information on European users to its U.S. servers – a move that could have wide-ranging consequences for all Europe-U.S. data flows.
    • That brings an earlier preliminary decision closer to a more permanent interruption of Facebook's data flows.
    • Ireland's High Court has dismissed all of Facebook's procedural complaints about the August Data Protection Commission ruling.
    • That's a procedural ruling, but it paves the way toward finalizing the preliminary decision – and the logic in Ireland's order is easily extended to other technology companies subject to U.S. surveillance laws, including cloud service and email providers – putting billions of dollars of business at risk.
    • Next steps: Ireland's DPC needs to finalize its draft suspension and submit it to other EU privacy regulators for approval, which could take months even barring other court challenges.
    • Johnson & Johnson (NYSE:JNJ) is allegedly pushing Latin American countries to accept shipments of its COVID-19 vaccine that are unfrozen, a move that could ruin many doses before they are used up, the Financial Times reports.
    • Jarbas Barbosa, assistant director for the Pan American Health Organization, told the newspaper that J&J wants vaccine deliveries sent at refrigerated temperatures, rather than frozen, which is what the World Health Organization requires.
    • If the doses are thawed, their shelf life is three months.
    • "Maybe they have vaccines that were already unfrozen and want to deliver them through COVAX," the global vaccine distribution initiative, Barbosa said.
    • J&J shares are up 0.4% to $170.62 in afternoon trading.
    • The electric vehicle sector is taking back some ground after a couple of rough weeks.
    • It is not all about Tesla today after Fisker (FSR +2.6%) announced a deal with Foxconn and QuantumScape (QS +3.2%) said it is pushing ahead with its Volkswagen partnership. A positive update from General Motors (GM +1.7%) on its Cruise self-driving production ramp is also turning the attention away from crypto dalliances to electric and autonomous vehicle technology advancements. There is also XPeng (XPEV +6.3%), which issued slightly better comments on the global chip shortage than what was heard last week around the industry.
    • As for the EV Mother Ship, Tesla (TSLA +2.0%) is not without its defenders. Morgan Stanley, for one, recommends snapping up shares.
    • Analyst Adam Jonas: "We believe the pullback provides an emerging opportunity for investors to increase exposure to Tesla in their EV/Auto 2.0 portfolios and we are a buyer on this weakness as our $900 price target embeds what we believe to be some of the most conservative assumptions about Tesla’s long-term standing in China on the street."
    • EV names riding higher in midday trading include Niu Technologies (NIU +9.5%), Ayro (AYRO +8.2%), Kandi Technologies (KNDI +7.7%), Nio (NIO +5.9%), Workhorse Group (WKHS +4.6%), Arrival (ARVL +5.7%), Canoo (GOEV +4.9%), Li Auto (LI +4.4%), Foresight Autonomous Holdings (FRSX +9.8%), Nikola (NKLA +2.4%), Lordstown Motors (RIDE +3.9%), Hyliion Holdings (HYLN +4.7%), GreenPower Motor Company (GP +3.1%) and Lucid/Churchill Capital IV (CCIV +4.1%).
    • Earlier today: Tesla looks to secure new battery supply deal in China.
    • Cryptomining and the new cryptocurrency Chia could "significantly boost hard disk drive supply and demand in the current quarter," says Morgan Stanley analyst Joseph Moore.
    • Chia is still small but the nascent currency could have a "significant short-term positive impact to the storage markets."
    • The demand trends would serve as a tailwind for storage stocks Western Digital (WDC +4.9%) and Seagate (STX +8.1%).
    • Nvidia (NVDA +3.0%) is also trading up today since the company's GPUs are frequently used in cryptomining.
    • Related: Cryptocurrency stocks bounce as Bitcoin stabilizes, Ethereum re-takes $4K
    • With the summer months around the corner, vaccine rollouts continuing to see progress, and an economic reopening poised to come alive, the travel and leisure space has become a growing space of interest. 
    • Furthermore, fueling the reopening, the CDC has now issued new guidance that vaccinated individuals can abandon masks indoors.
    • According to data reported by the CDC, 46.6% of the total population of the United States have received at least one dose of the COVID-19 vaccination, and 35.8% are fully vaccinated. 
    • Moreover, cases have come down throughout the country from the peaks in late December and early January. See a visual chart below.

    • With cases coming down and the vaccine rollout continuing to show promising results, more and more individuals should be looking to participate in traditional lifestyle activities. Activities such as traveling and family gatherings as well as sporting events, shows, concerts, restaurants, hotels, and more can potentially see a boost in traffic.
    • Market participants can see data provided by the TSA and see that air travel is at its highest point in one year. While there is still room for improvement as the country looks to get back to its pre-pandemic highs, momentum is currently favoring the upward trend. Below is a chart that depicts TSA throughput for one calendar year from today.

    • For market participants considering investment decisions that may touch on the broad travel and leisure industry, a few exchange traded funds that may be worth analyzing are below.
    • ETFs and their daily price action: (NYSEARCA:JETS) +3.10%(NYSEARCA:PEJ) +3.18%(NYSEARCA:AWAY) +3.44%(NYSEARCA:XTN) +1.85%(NYSEARCA:BEDZ) +2.63%, and (NYSEARCA:EATZ) +2.41%.
    • Learn more about updated CDC guidelines.

  11. 13,400 on the Nasdaq (strong bounce).

    • AMC Entertainment (NYSE:AMC) is up another 11% today, heading for what looks like its sixth straight session trading higher.
    • Shares are up 55% since closing at $9 on May 6, just eight days ago. And it's the second up session since the company announced it raised $428M through a 43M-share at-the-market offering.
    • B. Riley FBR notes that the raise lessens the need for new capital ahead of an industry recovery in fiscal 2022 and 2023, yet it still leaves management with options for improving the balance sheet.
    • It's raising its price target, assuming that adjusted EBITDA will return to 2018 levels. A target of $16, up from $13, implies another 13% in upside beyond today's double-digit gain.
    • University of Michigan May Consumer Sentiment:  82.8 vs. 90.4 expected and 88.3 prior; Y/Y it indicates a 14.5% change.
    • The tumble is due to higher inflation--the highest expected year-ahead inflation rate as well as the highest long term inflation rate in the past decade.
    • Current Economic Conditions: 90.8 vs. 99.6 forecast and 97.2 prior.
    • Index of Consumer Expectations: 77.6 vs. 85 estimated and 82.7 prior; Y/Y the growth stands at 17.8%.
    • Real income expectations were the weakest in five years.
    • The average of net price mentions for buying conditions for homes, vehicles, and household durables were more negative than any time since the end of the last inflationary era in 1980.
    • Consumers anticipate a booming economy over the next year or so, including rapid job gains as well as increases in the inflation rate and interest rates
    • April Industrial Production+0.7% M/M vs. +1.2% consensus and +2.4% prior (revised).
    • Capacity Utilization 74.9% vs. 75.2% consensus and 74.4% prior (revised).
    • Manufacturing Output: +0.4% M/M vs. +1.8% consensus and +3.1% prior (revised).
    • A noisy April retail sales report that lapped the lockdown-heavy month from a year ago did indicate strength for the restaurant sector.
    • The food services & drinking places category showed a 116.8% Y/Y gain from a year ago, but more importantly displayed a 3.0% sales gain from March to stand out as one of the stronger categories for the month.
    • The strong industry read follows on a report from earlier this week that restaurant sales last week were 12% higher than the level seen in 2019.
    • Restaurant stocks have already been bid up this year on recovery expectations, with Dine Brands (NYSE:DIN), Chuy's Holdings (NASDAQ:CHUY), Jack in the Box (NASDAQ:JACK), Potbelly (NASDAQ:PBPB) and Red Robin Gourmet Burgers (NASDAQ:RRGB) all up at least 20% YTD.
    • Restaurant stocks trading with forward price-earnings ratios below 20X include Bloomin' Brands (NASDAQ:BLMN), Brinker International (NYSE:EAT), Cheesecake Factory (NASDAQ:CAKE) and Del Taco (NASDAQ:TACO).
    • Sector watch: The increase in diner demand and a shortage of workers has added wage pressure to the menu for restaurant stocks.
    • Last year marked the secular low point for inflation and interest rates and 2021 is bringing global rates off the lowest point since 3000 BC, BofA Data Analytics says.
    • In the chart below, BofA illustrates the path of long- and short-term rates covering a period that includes the Great Depression, the Napoleonic Wars, the fall of the Roman Empire and the building of the Pyramids at Giza.
    • Sources include BofA's own strategy department, the Bank of England, Global Financial Data and the influential book "A History of Interest Rates" by Sidney Homer and Richard Sylla.


  12. Phil / Nasdaq – does a close above 13400 (the strong bounce line) suggest that uptrend is resuming (i.e. we will revisit the old highs)?

  13. Above/Rick – I would not read too much into a BS up-and-down close like we just had.  We are right on the line, so that basically means we don’t know what’s gonna happen. Will have to wait until next week..

    Have a nice weekend everyone,

    - Phil