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Will We Hold It Wednesday – Russell 2,200 Edition (again)

The 2,200 line.  

After shooting up to it last Winter on a stimulus-fueled 50% run, the Russell kind of lost interest in going anywhere this year and, once again, it's looking to prove itself on one side or the other of the 2,200 line.  Perhaps that's because despite the Russell having a forward (dreamland) p/e ratio of 30 at 2,200 – it has a trailing (reality) p/e ratio of 642 times earnings.

That's right, even after ingesting $3Tn (15% of our GDP) of stimulus in the past 12 months, even with ultra-low interest rates from the Fed and all those SBA loans and even with all that free money given to their customers – things are still not going so great for the small-caps.  By comparison, the Nasdaq is trading at 35 times trailing earnings (still ridiculous) and the S&P is at 29 times trailing earnings with forward estimates at 30 and 22 respectively – though I can't see the S&P possibly improving that much in 12 months.

Dividends are down 20% on the S&P 500 this year – not good for people who invest to get dividend income during inflationary times.  Another sneaky way we all got taxed this year is on our Life Expectancy, which is down 1.8 years for 2020 – so we've been "taxed" 2% of our lives thanks to Trump's amazing handling of the Covid crisis, the environment, etc.  Not that it will matter much in 100 years, when everyone's life expectancy will be closer to zero, the way this planet is progressing.  

The drop was 0.3 years more than that of provisional estimates released in July 2021 and remains the biggest life-expectancy decline since at least World War II.  Covid-19 was the nation’s third leading cause of death last year, behind heart disease and cancer, and was the underlying cause in about 351,000 deaths, the new figures show. Increases in mortality from unintentional injuries—which include drug overdoses – as well heart disease, homicide and diabetes also decreased life expectancy.

So happy holidays – enjoy Grandma while you still can!  

China Evergrande will put coal in the stockings of investors, who loaned the developer over $300Bn as the Chinese Government has taken over and will begin "negotiating" with creditors on behalf of the company.  Since the choice in China are settle or "disappear" – I imagine a lot of settlements will be reached.  Last week, S&P Global Ratings downgraded China Evergrande Group to one of its lowest possible ratings, meaning the world’s three largest credit-rating companies all now judge the giant developer to be in default.

While this may be good news for the company (relatively, they are still dead), it's bad news for anyone who invested in anyone who invested in China Evergrande as now the official write-downs will begin and people won't be able to hide the damage on their books and $300Bn is a LOT of damage.  For example, JPM, the World's biggest bank (10% of Global Market Share), makes "only" $35Bn a year so if they lent Evergrande just $9Bn (3% of their total loans) and get back even $5Bn, they would still be writing off 15% of their profits.  Some lenders will be hit harder than others but these are devastating numbers – and Evergrande is one of many struggling property developers in China.

One way to play this is to go long on the 2x Ultra-Short Financials (SKF) into Q1 earnings, when this is most likely to hit the fan.  The index is up 10% since late October and we can play it simply not to go below $8 into April with the following spread:

  • Sell 20 SKF April $8 puts for 0.50 ($1,000)
  • Buy 20 SKF April $6 calls for $2.70 ($5,400)
  • Sell 20 SKF April $8 calls for $1.35 ($2,700) 

That's net $1,700 on the $4,000 spread that's 110% in the money to start.  All SKF has to do is hold $8 and you make $2,300 (135%) in 113 days.  The worst case is SKF goes lower and you end up owning 2,000 shares at net $8.85, about the current price but you can prevent that by using that bottom trendline at $8.50 as a stop, which should keep the losses well under $1,000 on the risk side.  

A more aggressive spread would be to just buy 20 of the SKF April $8 calls for $1.35 ($2,700) and sell 10 of the SKF July $10 puts for $2.35 ($2,350).  Here we're spending just net $350 on the spread but it's a much more directional bet which would still pay back $4,000 at $10 but has no upside limitation.  It makes a good hedge if you hold a lot of banking stocks (we don't) and using the same $8.50 stop should keep the damage to a minimum on the risk side.   

Don't forget that we're still getting 154,555 new cases of Covid every day in the US (3 football stadiums full of people) and 1,351 people a day are still dying – 1% of the people infected – despite all the "advances" they've made in treatment.  The Winder Olympics are still on in China in 6 weeks – we'll see if they go through with that.  The World Financial Conferecne in Davos has been cancelled – that's what our Corporate Masters really think about the virus risk – despite all their assurances to the contrary.  

Biden is sending 1,000 military doctors to hot spots in the US along with ambulences and medical teams to transport patients but that's because we're overhwelmed and patients have to be transported to more distant hospitals as many hospitals are over their capacity to treat new patients.  Most cities aren't equipped to deal with shipping patients out of town en mass.  Biden is also sending out 500M home testing kits but they won't come until January and the reason for that is also not good – since there are more people needing tests than there are professionals who are available to administer them – so DIY is the new watch-word.

Be careful out there.


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  1. Good Morning.

  2. Good morning. At least not snowing, but -0 this am. The suns out so I guess that counts? And the sites up. My guess it was Phil's comments on the Russian's saber rattling report.

  3. Everything diving right now. 

  4. Phil/GM-

    Was the site having issues before 9 am, I got errors accessing the site.

  5. Phil – IRBT looking interesting again? Thinking of selling $50 2024 puts. I think supply chain and chip issues are keeping me from a call spread for now. Thoughts?

  6. Yes site was down. Saw it on the bottom of yesterdays comments.

  7. We are not the only ones affected. The Telephony and other systems are down at my work sites. It's Amazon Web Services ( again). Has anyone ever considered how dependent we are on the electrical grid and cloud services to operate ? Sometimes I want to move to a remote location and not be so affected by tech. I would rather deal with nature and things that I can observe than be a pawn to systems.

    Data center power loss brings down AWS services, in another East Coast cloud outage – DCD (

  8. Good morning!  

    Well my day is a mess now, site went down this morning.  We were talking about how AMZN has become a single point of failure for the web:

    Amazon Web Services said it was investigating connectivity issues for some servers in the region that covers cities including Boston, Houston and Chicago.16 min ago 1 min read

    We're mostly off them but still have some ties.  Getting to the final stages of a site revamp.  See to get an idea of what we've been doing all year.  

    No Webinar today – was iffy due to holiday stuff but losing time this morning was the last straw.

    IRBT/Rn – Well I haven't had any interest since the split away the military division, which is what I liked about them and I'm not thrilled with their product line as window-cleaning bots don't seem to be working yet and that was exciting and they aren't even doing lawn or pool bots, which I find disappointing.  Sales growth is about 20% but profits are not exciting and they are trading at about 30x earnings AFTER dropping 50% for the year so sure, a short put at net $40 is an OK place to start but I agree, I'm not inclined to bet they get back to $80 based on the current facts.

    AMZN/Randers – I was ranting about that in one of the Webinars.  This is the exact opposite of what the Web was supposed to do – DEcentralize our data to make us LESS vulnerable to a single point of attack/failure.  Humans are such idiots, we can't even remember why we started building something in the first place!  

    Cavemen Can't Clear Computer History - off the mark cartoons


    Omicron Has 80% Lower Risk of Hospitalization in South Africa


    Janice Kew


    December 22, 2021, 3:31 AM PST Updated on December 22, 2021, 8:13 AM PST


    Once admitted, risk of severe disease is the same: NICD data


    Compared to delta, odds of severe omicron disease is 70% lower

  10. Phil, new website looks great. Hoping it's organized well and the search feature works.

    Batman, great news. What still baffles me is why is no one talking about the research done on early treatment of Covid. Vaccines are helpful and useful but will never be the only solution. Treating the disease early seems to be a great solution but most docs aren't having any of it. Very odd.

  11. 80%/Batman – Currently, 1% of the people who get Covid are dying (mix of cases) and, overall, we've had 51.3M infections and 810,000 deaths (well ahead of my Christmas predictions), which is 1.5% so we're running, overall, 30% less deaths.  Whatever combination of Omicron being less deadly or our treatments getting better – that's the number that matters.  

    Numbers are fun but it's the big picture things that matter.  Globally, this is not at all over, deaths are a lagging indicator:

    I'd buy weekly cases next time they dip to 3M!   Definitely take calls on deaths…

    US hits 800,000 COVID-19 deaths as Omicron now in 36 states | CIDRAP

    Coronavirus Pandemic (COVID-19) – the data - Statistics and Research - Our  World in Data

    In truths that she learned
    Or in times that she cried
    In bridges he burned
    Or the way that she died
    Its time now to sing out though
    The story never ends
    Let's celebrate remember a year in a life
    Of friends

  12. looks like the computers are running window dressing programs for ending the year at high levels..

  13. Dollar dropping too is giving support.

    Essentially, that's all of the rally today.

  14. Phil/beta- Site looks slick.

    See that it is still wip as some of the bg color and font color don't make sense.

    Is there a go-live date for the new site? Thx

  15. 207 Of The Most Epic Snowmen People Have Built

  16. US economy grew at 2.3% rate in Q3, up from earlier estimate

  17. US consumer confidence rises despite omicron, higher prices

  18. Future is Now Portfolio Review:  $218,597 is down $34,102, erasing almost all of last month's gains.  COIN got crushed along with COWN, RKT and SPWR – not a good month for speculative stocks…   Still we're up $12,847 since Friday's close and up 118.6% overall, so it's not terrible – we were just getting excited about the crazy gains we showed last month but it wasn't likely to last.  What's important now is whether or not we are realistically positioned moving forward.

    We have $161,535 in CASH!!!, so plenty of room to adjust.

    • NAK – Speculative but speculation is dimming as the Biden Administration shows no inclination to let this project go through.
    • KRBN – I wish we had been more aggressive, up 88% already with a year to go.  May as well cash it in and free up a spot.

    • CIEN – Miles over target at net $12,865 out of a potential $15,000.  We certainly have better things to do with $12,865 than make 16% in a year but we don't need the money or margin so may as well leave it for now.   It's funny how we can't be bothered to make $2,135 (16.5%) in 13 months – too boring! 

    • COIN – They got crushed but I love their NFT move so this is an opportunity for us.  Let's buy back the 5 short 2024 $300 calls for $67.50 ($33,500) and roll our 5 2024 $200 calls at $105.55 ($52,775) to 10 of the 2024 $250 calls at $87 ($87,000).  We're paying net $67,725 and we are already in for a net $4,000 credit so net net $63,725 but we can sell the 2024 $400 calls for $50 ($50,000) and we'll have a $150,000 spread but, hopefully, COIN pops and we get a much better short call than that.  The 2023 $400 calls were more than $50 at the beginning of the month – that would be a great spread.  

    • COWN – Still rangey but we got more aggressive at the wrong time.  Not worth changing until we see earnings.  

    • DAL – Omicron not doing us any favors here and this is about where we came in so no changes on the 2024 spread.  

    • F – Deep in the money but only net $10,240 out of a potential $15,000 if F holds $15 (now $20) so silly to cash it out, even though it will only make a boring 50% over the next year.  Good for a new trade for people who are satisfied making only 50% on a blue-chip trade that's 133% in the money to start.  Aren't options fun?  

    • FF – F is so good FF must be better, right?  It's not looking good at the moment so let's roll the 30 Feb $7.50 calls at 0.50 ($1,500) to 50 Aug $7.50 calls at $1 ($5,000) and see how earnings go. 

    • GPRO – Already near our target with 2 years to go so we're happy.  It's a $12,500 spread at net $3,212 so $9,288 (289%) upside potential at $12.  

    • IGT – Legal sports betting is a good bet.  Already at the money on the $14,000 spread and only at net $5,800 so far.  They just give money away on these things!  

    • RKT – Cheaper than our entry on this $17,500 spread at net $2,150 so GREAT for a new trade for a very undervalued stock

    • RWLK – I love this technology.  The stock isn't doing well but the company is great.  We have to DD here – otherwise, why are we in at all.  Let's buy 10,000 more shares for $13.350 and we'll average $1.8875/share.  

    • SPWR – We just adjusted them on Friday.  Hopefully, that was it for the sell-off.

    • THO – Betting on camper life to be a thing.  Down a bit from where we entered but I'm happy with the targets.  

    • WTRH – Here you would think Omicron would be helping.  This was a net $11,500 credit position and it's still an $11,500 credit so not much to do but wait for earnings.   At $3 this would be $20,000 with a $31,500 profit so that's the potential reward while we can cap our risk at $3,500 (-$15,000) – so it's worth a shot.

  19. Colors/Ravi – Feel free to suggest color adjustments.   Bill is looking for input.  Site will be ready in a couple of weeks – they have been saying since May…   

    That's why I brought Bill in – to get it done finally.

  20. Winnebago Earnings: 3 Big Takeaways

  21. Phil/IMAX – Any new trade ideas on this one?

  22. Another lovely day in the markets.

    IMAX/Swamp – I still like our Butterfly play, we discussed it yesterday.

    IMAX Short Put 2023 20-JAN 20.00 PUT [IMAX @ $18.41 $0.11] -10 6/2/2021 (394) $-4,000 $4.00 $1.20 $-7.71     $5.20 - $-1,200 -30.0% $-5,200
    IMAX Short Put 2023 20-JAN 20.00 PUT [IMAX @ $18.41 $0.11] -10 9/29/2021 (394) $-5,100 $5.10 $0.10     $5.20 - $-100 -2.0% $-5,200
    IMAX Short Call 2024 19-JAN 25.00 CALL [IMAX @ $18.41 $0.11] -20 10/19/2021 (758) $-9,500 $4.75 $-0.90     $3.85 $0.16 $1,800 18.9% $-7,700
    IMAX Long Call 2024 19-JAN 17.00 CALL [IMAX @ $18.41 $0.11] 30 10/19/2021 (758) $22,950 $7.65 $-0.75     $6.90 $0.19 $-2,250 -9.8% $20,700
    IMAX Short Call 2022 21-JAN 20.00 CALL [IMAX @ $18.41 $0.11] -15 10/15/2021 (30) $-3,600 $2.40 $-1.83     $0.58 $0.02 $2,738 76.0% $-863

  23. Just killed a AVGO $10 spread 6 months early 96% max payoff thanks to this group!