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Friday Floppy Finish – Ending with a Whimper

Things WERE going well.

We were going to end the week at all-time market highs but then data from Johns Hopkins indicated Covid-19 (2 years now) cases were rising in Europe and Austria announced early this morning that the country would go into Nationwide Lockdown starting Monday, with Restaurants and Retail Sectors to close.  Areas of Germany will also be closing this week.

And, just like that, Christmas is cancelled – again.  

“As Covid spreads in Europe and restrictions are strengthened in places in Germany and Austria, there’s a general recognition that things may not be going the right way,” said Sebastien Galy, a macro strategist at Nordea Asset Management. “This affects sentiment, both within markets and in households.”

The falling Euro took the Pound down with it and that caused the Dollar to rise, which then killed the rally in Oil (as does any sort of lockdown, of course) and that brought the indexes down sharply (aside from their general toppyness) and here we are – losing the whole week's market gains on a Friday morning.  

We'll see if the downturn lasts the day though as we're in a low-volume, pre-holiday rally in the US (Thanksgiving is Thursday) with an effectively 3-day week ahead next week.  Of course, the US tends to ignore things that go on in Europe, it's the Europeans who are trading our indexs down pre-market.  Oil is down $3 (3.7%) back to $76 this morning and that makes a good line to go long on /CL (tight stops below!) as it should at least check the -2.5% line from $79, which would be $77.025, so we could get a nice $1 bounce – even if it is going to continue falling.   

The rising Dollar also put pressure on Bond Yields, Metals and BitCoin, which fell another 2.2% to $56,000, 18% off the Nov 10th highs.  

Austria had no choice but to shut down as hospitals in several regions had reached their capacity which means even a minor accident can become fatal with nowhere to put the patient (Texas' ICU beds are at 91% capacity at the moment).  It doesn't have to be the Covid that actually kills you when it overwhelms the entire medical system.  This comes despit Austria being 64% vaccinated – about the same level as the US is at – though Austria didn't have idiots in Congress preventing vaccine requirements to protect the general public.  

Austria locks down unvaccinated as Europe fights fresh Covid waveAll residents of Austria will need to take a Covid-19 vaccine as of Feb. 1 to be able to participate in most aspects of public life including working outside the home, the government said Friday.  As of Monday and for a maximum period of 20 days, residents will only be able to leave their homes with a valid reason, including going to work. All nonessential businesses will close and employers will be asked to let people work from home. Schools and kindergartens will remain open, but parents are advised to enroll children into online classes.

“Despite months of campaigning and discussions, we have not managed to convince enough people to get vaccinated,” Austria’s conservative Chancellor Alexander Schallenberg said in a televised press conference.

“Now we must look reality in the eye…increasing vaccination rates is our only way out of this vicious circle of virus waves and lockdowns: We don’t want a fifth, sixth, seventh wave—the virus is here to stay and we must learn to live with it,” Mr. Schallenberg said.

Coronavirus: Austria locks down as new wave grips Europe - BBC News

Today is options expiration day and we've been reviewing our Member Portfolios all week.  Generally we're playing the market cautiously – not on the sidelines but "Cashy and Cautious" into the holidays as I'd rather miss a 10% rally than participate in a 20% drop.  We're not missing a thing in our Butterfly Portfolio Review, as we're at $1,351,252 – up $67,210 (5.2%) since our October 14th review and now up 575.6% from our Jan 2nd, 2018 start in our oldest portfolio.

The reason we didn't cash out the Butterfly Portfolio along with the others in Sept of 2019 is that it's generally self-hedging – so we weren't worried about being caught in a downturn.  When the downturn did come, however, the Butterfly Portfolio took a huge hit so we added $100,000 to it and took full advantage of all the bargain stocks that were on sale at the time.  That then set us up to take advantage of great positions moving forward – leading to the outsized gains.  Generally, this is a fairly conservative strategy that aims towards 30-40% annual gains (see "7 Steps to Consistently Making 30-40% Annual Returns") – our most consistent Member Portfolio:

  • AAPL – Just blasted higher on news of their car business, which is a shame as we had the short Jan $145 calls but we're simply going to roll them along next month.  It was only a 1/4 sale and we're down $34,000 since our last review but the bull call spread has gained $50,000 and now the short calls are protecting those gains.  

  • AMZN – Similar problem to AAPL as they blasted higher.  The short calls are burning us but, overall, the spread has a nice profit and, in 60 days – we get to generate more premium sales.  

  • DIS – Totally tanked after earnings but a good example of how we are so neutral in this portfolio.  The Jan $175 calls will now expire worthless and we'll roll the short Jan $165 puts – but they still may go worthless too.  Clearly it's a good time to sell April puts so let's sell 20 of the April $160 puts for $12.60 ($25,200) and put a stop on the 20 short Jan $165 puts at $15 ($30,000).  As we collected $17,500 for the Jan puts, our worst case would be a net sale of the April $160 puts for $12,700 ($6.35).  

  • F – Another one that blasted higher.  We got blown out of the water on our short $13 calls and they are now $6.73 but the 2023 $20s are $3.50 so that's an even(ish) 2x roll and let's do that and cover the 60 short calls with 100 of the 2024 $20 ($4.80)/27 ($3.35) bull call spreads at $1.45 ($14,500).  So, rather than paying $20,175 to buy back the short calls, we're spending $14,500 to buy a $70,000 spread to cover them after the 2x roll.  That gives us a lot more upside potential in a still-conservative spread and we still have the original spread to cash in for a $30,000+ gain in the future.  

  • GNW – They were right on our target but now pulled back but fortunately we sold more calls than puts, so we're fine.  

  • GOLD – We're aggressively long at the moment.  

  • IMAX – Right on track for the Jan short $20s to expire worthless.  It doesn't seem very exciting but we have 2024 longs and the spread was net $750 and we sold $3,600 worth of short calls in October and we have 8 more quarters to sell more calls!  

  • KO – Right on target for January short calls to expire.  If they have a big pullback, we'll sell some short puts too but no pressure on that side.  

  • MJ – We lost $14,500 on the spread for the year but we gained $10,560 selling calls in the past 4 months, so it's a great little spread!   We're a bit low in the channel to sell more calls so let's let the Jan calls go worthless (+$2,175) before we sell more.  For now, let's roll the 30 Jan $20 puts at $6.90 to 20 more 2024 Jan $15 puts at $5.45.  We can also salvage most of the net $3 we spent on the spread to roll our 100 2023 $15 calls at $2.63 ($26,300) to 200 of the 2024 $15 ($3.90)/22 ($2.75) bull call spreads at net $1.15 ($23,000).  The purpose of the long calls is simply to protect us from the short calls popping – so this will allow us to sell more short calls than before.   This is how we end up with those big positions in this portfolio – they don't cost anything – we just roll into them over time. Then, if we luck out and the position pops – we make a fortune off a very small initial investment.  The problem is this strategy takes YEARS to play out and most people don't hae the patience…

  • WBA – The short Jan puts should expire worthless and we're too low in the channel to sell calls at the moment.  See – boring!  

  • WHR – We bought back the short calls last months as I was worried earnings would be too good and they popped as we expected but now it's time to reposition so let's sell our 25 Jan $150 calls for $199,875 and we already sold puts so our new spread will be 30 of the 2024 $220 ($44.50)/250 $30 bull call spreads at $30 ($90,000) and we'll sell 15 of the March $230 calls for $17 ($25,500) so it's net $135,375 off the table and we have 7 more quarters to sell $25,000 worth of premium (and that's just calls) from a spread we paid maybe net $60,000 for back in August.  That's why this portfolio is a money machine!    We're not selling short-term puts, of course, because we're too close to the top of the channel – so we wait, PATIENTLY, for a pullback and, if there isn't one  – then our longs should do great, right?  

That's all we have to do – we just make slight adjustments as required but the BE THE HOUSE system we employ in this portfolio puts the odds solidly in our favor – especially when we let things play out over time.

Have a great weekend, 

- Phil

 


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  1. Phil/PETS-

     

    In your review you just wrote "on track but its a crazy track"…  what do you think going forward – I keep reading about declining sales with no clear vision.  Are they wrong?

     

    TIA


  2. SAP and Quantum Technologies




  3. Good Morning.


  4. I think there was once a discussion of selling short calls on MU against our LTP positions when it hits 80 again. Is this something we still want to do? 


  5. Good morning!

    PETS/Jeff – They pay a nice 4% dividend if you own the stock and, at $30, they are a $617M company with no debt and $25M in profits on $300M in sales but they were making $37M in 2019 on $283M in sales so I think they'll get back on track and justify their value while still growing.   These are very early stages and PETS is a significant savings over buying drugs at the vet, which is still 75% of the market:

    Here's the investor presentation:  https://www.1800petmeds.com/on/demandware.static/-/Sites-1800petmeds-Library/default/dw26877ba6/c_pressroom/PETSQ2InvestorDeck102221.pdf

    People are simply too impatient and punish companies who invest in future growth – that's a big problem with the stock market.

    MU/Rn – I think they kind of knocked it out of the park on earnings so let's see how far they run first.

    If they fail to hold $80, we'll sell the $80 calls.  Otherwise, hopefully we'll sell $85 calls or higher.  

    Micron Technology: Look Past Guidance To A Strong 2021-2022

    Semiconductor shipments swelled to a record high of $145 billion in Q3 2021

    Micron commits over $150B in investments for manufacturing and R&D globally


  6. hi phil 

    would you try /cl again off 76 or is it too dangerous now?


  7. its ok i have my answer lol


  8. /CL/Tommy – 2nd time is not usually a charm.   If we get back over $76, play for 0.50 at most but that was a bad fail so I would not be too brave.  


  9. AAPL is all of the market gains this week.



  10. House passes Biden’s social spending bill


  11. Dividend Portfolio Review: $387,134 is down $13,358 from our last review and we only made one change last month – so just a bad month for dividend stocks, I guess.  Overall, we're up 93.6% since Oct 25th, 2019 which, like the Butterfly Portfolio, is ahead of schedule for this 30-40% strategy and also because we took advantage of the downturn and moved $100,000 into this portfolio from the STP in March of last year – taking advantage of the dip with our sideline cash.  

    • GILD – On track.  Looks like we won't get to own them cheaply but we'll keep the $5,375 as a consolation prize. 
    • VIAC – Another one we won't get to own but cash is good too.
    • ET – We will be called away on these.
    • TWO – We will be called away on these.  
    • Dow – Pulled back on earnings but fine for the way we're playing it.  

    • KHC – Right on target.  Good for a new trade with the pullback.

    • LYB – Right on target, good for a new trade with the pullback.

    • MO – On track.

    • NLY – On track.

    • PFE – Miles over target.
    • TWO – Got cheaper.  Great for a new entry.  Probably will add it to the Money Talk Portfolio on 12/1.

    • VTRS – It's in our range and still good for a new entry.  

    • FRO – Well, you can see how we lost ground this month – everything is turning down a bit.  Unfortunately, we were playing FRO aggressively so this one really hurt us.  Earnings not until Nov 30th but clearly people think they will be bad – I like the contrarian play.  

    • PETS – Also we're aggressively long and PATIENTLY waiting for a pop.

    • SIG – I forgot, we were supposed to cash them in.  

    • T – We just doubled down.  And then they went lower!  

    Well people are sure bailing out of dividend stocks this month.  Can they all be bad or are there hidden gems?  


  12.  

    See how you can use Brent to play WTIC?


  13. Hi Phil,

    Any thoughts on ATVI? There are corporate issues currently which will be resolved via cleanup

    Thanks


  14. Phil / DIS –  I'm looking at Butterfly set up….  looking at the 120  ( 46) / 180 ( 17)  and selling the mar $135 put ( 4) and the 170 ( 4) – What do you think f this set up?  thanks,


  15. ATVI  today a trader bought 1400 April $62.5 calls for around $6.50-$7.00


  16. Dividend stocks-  prices have been run up as bond proxies/yield reaching. Now, with some rumors of interest rate changes, opposite effect. Although, bonds (at least as measured by TLT) are down for the year, still in a longer term uptrend (3yr). All about inflation now, IMO- transitory or not- supply chain narrative and  massive borrowing to finance social/infrastructure spending (unless you buy the fantasy of "all paid for").

    All in all, my preference is for decent yielding stocks with covered call writing to add to the income. In theory, such stocks should be less vulnerable to any pullback (if we ever see one).


  17. PYPL / Phil    You were right when I mentioned them a couple of weeks ago.  Then again, V not doing much better.  MA not quite as bad.  


  18. Mixed news day, pick your side just don't tell me   

    Rittenhouse not guilty on all counts 

    Build Back Better plan passes the House. 


  19. News- either way, its outrage theatre time! Let's make some popcorn :)


  20. There should have been some culpability for the underaged white boy… This would not be a thing had he stayed home and played video games.

     

    Even though I won't benefit from BBB, I'm willing to scratch a check for those who need it…Wish I had some of the same benefits when I was young….

     

    I don't want to hear the bitchy whines about paying more in taxes. We had our fun, now Scratch the Check!


  21. Wonderful. Tomorrow is gun season for our poor dear for the next week and now these nut fuds have let a murderer free to find another AR probably. What a total freaky joke.Not enough to have Covid running rampant and now a new variant and basically everyone I know very ill with some blasted thing. No stress living here! 


  22. Stocks are a sea of red. But appl's up. Hooray.


  23. COVID news from Colorado today.  Just when you thought it was over :

    Colorado approaches new pandemic peak as COVID hospitalizations top 1,500 and only 75 ICU beds remain available

    https://www.denverpost.com/2021/11/17/colorado-covid-hospitalizations-cases-outbreaks/


  24. The twin ports Superior/Duluth have NO beds available. Makes it tough for anyone who needs emergency care. They are putting them in halls. I think twin Cities might be the same. Per capita Minn is tops in the nation right now for cases.


    • ATVI/Harip – I don't think their pipeline is good.  I think any game company that's not Meta-ready is going to have a lot of problems in the next few years.  It costs Billions of Dollars to develop new games and these guys keep putting it into Warcraft upgrades instead of new content.  They've lost 29% of their user base since 2018 and their last new title was Overwatch in 2016.  What are your reasons for wanting to invest?   Sometimes a ship is sinking because there's a huge f'ing hole in it that nobody can fix…

    DIS/Batman – I think your spread is too wide so you're spending more than you need to.  The bull call spread is a bonus, not the point of the butterfly trade.  

    Dividends/Pstas – I agree, I feel good about having them into the uncertainty.

    PYPL/Stock – Yes, ouch on earnings!  

    Submitted on 2021/10/21 at 3:48 pm

    PYPL/Stock – Apples and oranges I think.  $300Bn+ for Paypal is not for me.  You know that… V only make $15Bn and MA makes twice as much money ($10Bn) with a $350Bn valuation so this is like betting Dr Pepper beats KO and PEP over time.  It's been 100 years – it's not going to happen…

    Submitted on 2021/11/05 at 1:36 pm

    PYPL/Kustomz – Haven't seen you in a while!   $268Bn for PYPL is 50x current earnings and 40x fantasy forward earnings so yeah, if they are not firing on all cylinders, the sell-off is justified (and overdue).  As I was saying above – stocks bought by idiots who don't grasp simple math.

    And I wasn't saying I liked MA or V, just that PYPL is not going to be an actual threat to them and doesn't compare.

    Rittenhouse/Stock – Soon we'll have one on every corner!  

    Kyle Rittenhouse trial: What it means for America and guns.

    But on Monday, the lead prosecutor, Thomas Binger, offered a meticulously documented closing argument that deftly summarized all the ways Rittenhouse acted unlawfully. We’ll see if the jury buys it, but to me, Binger’s argument had a power beyond this case.

     

    Rittenhouse left the car dealership and his armed peers and found himself in a crowd of strangers he suspected might be hostile to him. The prosecution says the killing began when Rittenhouse pointed his gun at Joseph Rosenbaum, an unarmed, 36-year-old protester, prompting Rosenbaum to run after him in an effort to stop a potential shooting. Rittenhouse denies provoking the attack; he says that Rosenbaum and another man, Joshua Ziminski, who was armed with a handgun, “ambushed” him, and chased him when he tried to run away.

    Rittenhouse pointed his gun at Rosenbaum, but the man kept coming. In order to claim self-defense as a justification for shooting Rosenbaum, Rittenhouse had to have believed that Rosenbaum posed an imminent threat of death or great bodily harm to him. Binger asked Rittenhouse how he could have believed that — Rosenbaum “didn’t have any weapon of any kind, correct?”

    “Other than him grabbing my gun, no,” he answered.

    It’s a telling response — Rittenhouse’s main worry was his own firearm. As Rosenbaum closed in, Rittenhouse said it became clear to him that Rosenbaum wanted to take the rifle — and if he got it, Rittenhouse said, he would have “killed me with it and probably killed more people.” Rittenhouse fired four shots in quick succession, killing Rosenbaum, just as he said it seemed that Rosenbaum lunged for the weapon.

    Chaos ensued. Rittenhouse ran, and people who had just seen him shoot Rosenbaum begin to go after him. At some point Rittenhouse stumbled, and while he lay on the road, an unidentified man jumped and kicked him in the head. Rittenhouse shot at “jump kick man” — as he was often called during the trial — but missed. A 26-year-old named Anthony Huber attempted to smash his skateboard on Rittenhouse’s head. Rittenhouse shot Huber in the chest. He died.

    Finally, Rittenhouse was met by Gaige Grosskreutz, an E.M.T. who testified he firmly believed in the right to bear arms and prepared for that night like any other: “It’s keys, phone, wallet, gun.”

    Grosskreutz said he had rushed to the scene to provide medical help; as he ran, he’d drawn his own gun, thinking that Rittenhouse was an “active shooter.” Rittenhouse and Grosskreutz squared up, face to face, each lethally armed. But Grosskreutz hesitated. After pointing his gun at Rittenhouse, he testified, he decided that he could not take another human’s life. Rittenhouse had no such qualms. He fired, hitting Grosskreutz in his right biceps.

     

    After all this mayhem, all this death, what use were the guns that night?

    The guns failed to deter attacks against their owners. According to the defense, Rittenhouse’s gun was a reason Rosenbaum pursued him. And Grosskreutz’s gun was the reason Rittenhouse shot him.

     


  25. AAPL/Pirate – Imagine where we'd be if AAPL were not strong.

    Colorado/Stock – I don't understand how people can read that Austria is shutting down again but think we're not going to be affected.  Our infection rates are 10x worse than Europe.  Now it's cold and flu season – very dangerous time for virus transmission and here comes Black Friday!  

    And on that note:  

    Have a great weekend, everyone!  

    - Phil


  26. The best comment on kevin mccartny's 8.5 hour record speech…

     

    “Watching Kevin McCarthy ‘speech,’ I’m struck by the fact that he lacks Mitch McConnell’s charisma.”  :)