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Tuesday Top Trade Review – Q1 2021

Nothing happened yesterday.  

At least nothing that stuck so there's no point in talking about it though it was an interesting test for the Nasdaq, which almost completed the fall we expected (to 15,000) but held up at the weak bounce line at 15,200 and blew right back over the strong bounce line at 15,400 so now we'll wait and see what happens when Powell speaks to Congress this morning (it's the Confirmation Hearing for his 2nd term). 

Esther George speaks ahead of Powell at 9:30 but yesterday, at noon, Raphael Bostic said he wouldn't mind a Fed Hike as soon as March and that's when the markets took off.  I guess it was better than saying January?  Anyway, it's hard to say what traders are looking for at the moment so it's a good day to review what worked and what didn't work in the past year.  

Our Top Trade Alerts have a tradition of being wildly successful.  In 2020, we finished with 43 winners and 4 losers for a 91.4% success rate and, as of thier reviews (generally about 9 months after starting the trades), we had net gains of $668,627 so no wonder it's our most popular service but keep in mind we are successful BECAUSE we don't force the trades – we call them when we see them and there's been only one this month (VIAC) so far and there were 9 in December – though we found nothing we liked after the 13th.

Now we go back in time, to the winter of 2021:

Top Trades for Thu, 07 Jan 2021 11:04 – GOLD

By the way, in yesterday's Webinar we talked about a new trade on GOLD before it pops back up.  

  • Sell 10 GOLD 2023 $20 puts for $3 ($3,000)
  • Buy 30 GOLD 2023 $23 calls for $5.75 ($17,250) 
  • Sell 30 GOLD 2023 $27 calls for $4.50 ($13,500) 

That's net $750 on the $12,000 spread so the upside potential at $27 is $11,250 (1,500%) and all you are doing is obligating yourself to buy 1,000 shares of GOLD at $20.75 (assuming you lose the $750), which is $3.75 (15%) below the current price.  TOS says ordinary margin on the short puts is $1,617 so it's a very margin-efficient way to make $11,250 and a great inflation hedge as well. 

Timing is everything with these trades and so far, so bad on GOLD as we topped out at $25 in May and have had a terrible year since.  In our portfolios, we have rolled the position out and added to it as we love GOLD as an inflation hedge but the Fed's narrative of fighting inflation has been killing Gold – and GOLD – in the second half.  In our Long-Term Portfolio, we ended up with this aggressive position, which we rolled to in October:

GOLD Long Call 2024 19-JAN 15.00 CALL [GOLD @ $18.62 $0.52] 50 10/15/2021 (738) $27,500 $5.50 $-0.18 $6.33     $5.33 $0.36 $-875 -3.2% $26,625
GOLD Short Put 2024 19-JAN 25.00 PUT [GOLD @ $18.62 $0.52] -20 10/29/2021 (738) $-17,000 $8.50 $0.25     $8.75 $-500 -2.9% $-17,500

Untouched, the above 2023 $20 puts are now $3.35 ($3,350) and the $23/27 spread is $1.12/0.60 ($1,560) so it would cost net $1,790 to close it out and we are down $2,540 on our first position.  I still have faith in GOLD going higher but it's foolish to stick with a spread like this and not take advantage of the dip.  The roll to the 2024 $15s at $5.33 is only net $2.02 per contract ($6,060) to drop $5 in strike (going $3.62 ($10,860) into the money) and rolling the short puts to 10 of the 2024 $25 puts at $8.50 ($8.500) raises your entry strike by $5,000 but puts $5,150 in your pocket.  So, the adjustment to the position uses $910 in cash and we started with $750 so now we're in the new position at net $1,660 – still not bad with the calls $10,860 in the money, right?  

Learning how to turn losing trades into winning trades is a key tool on an option trader's belt but, for the purposes of the Top Trade Review – we just count it as a loss and move on.

Top Trades for Fri, 22 Jan 2021 10:43 – IBM

As a new trade, it's going to be IBM and I'd go this way:

  • Sell 10 IBM 2023 $110 puts at $18.50 ($18,500) 
  • Buy 20 IBM 2023 $100 calls for $25 ($50,000)
  • Sell 20 IBM 2023 $120 calls for $15 ($30,000) 

That's net $1,500 on the $40,000 spread so the upside potential is $38,500 (2,566%) if IBM can claw back to $120 in two years.  The downside risk is owning 1,000 shares of IBM for net $111.50 – and from there we could sell more puts and calls to drop the basis well under $100.  Think or Swim says 10 short IBM 110 puts cost us $7,660 in margin so it's a very margin-efficient trade also.  

As you can see, IBM had a wild ride and, at the moment, we're at $135 – so over our goal and the short puts are $5.85 ($5,850) and the $100/120 spread is $36.50/19.50 ($34,000) so net $28,150 is up $26,650 (1,770%) so far with another $13,350 left to gain in what is now our Stock of the Year.  That's still a nice play – but nowhere near as nice as our net in for $1,500!  

Top Trades for Tue, 02 Feb 2021 13:49 – PFE

PFE/Maya – I'm baffled as clearly they spent a fortune in R&D to develop the vaccine and now they reap the rewards.  As a new trade, I'd go for:

  • Sell 10 PFE 2023 $33 puts for $5.15 ($5,150)
  • Buy 20 PFE 2023 $30 calls for $7 ($14,000) 
  • Sell 20 PFE 2023 $37 calls for $4 ($8,000) 

That's net $850 on the $14,000 spread that's $10,000 in the money to start with $13,150 (1,547%) upside potential if PFE can manage to gain $2 from where it is now over the next two years.  I like those odds!   Worst case is, of course, owning 1,000 shares with a loss of the $8.50 so net $30.85 is still $4 (12%) off the current price.

Well, they left our $37 target in the dust long ago and the puts are down to 0.53 ($530) and the $30/37 spread is $26/19.40 ($13,200) for net $12,670, which is up $11,820 (1,390%) and $2,120 left to gain.

Top Trades for Fri, 05 Feb 2021 11:07 – WU

  • Sell 10 WU 2023 $22 puts for $4.50 ($4,500) 
  • Buy 20 WU 2023 $20 calls for $4.50 ($9,000) 
  • Sell 20 WU 2023 $30 calls for $1.25 ($2,500) 

That's net $2,000 on the $14,000 spread that's $6,000 in the money to start.  The worst-case is owning 1,000 shares at net $24 (assuming our $2,000 is wiped out) and that's only 1/4 of an allocation block – so we have no issue with ownership at about the current price – that's why we can afford to be aggressive with the put sales.  WU is thinly traded so you have to be patient to get your fills.

They hit $26 in April but then collapsed and now the $22 puts are $4.70 ($4,700) and the $20/30 spread is $1.45/0.15 ($2,600) so -$2,100 is down $4,100 (205%) and I don't like WU enough to chase them anymore.

Top Trades for Mon, 08 Feb 2021 11:14 – Inflation Hedges: WPM, GOLD, OIH and VLO

There was a nice dip in the markets that day so we added 4 plays:

  • Sell 5 WPM 2023 $40 puts for $9.25 ($4,625)
  • Buy 10 WPM 2023 $35 calls for $13 ($13,000)
  • Sell 10 WPM 2023 $50 calls for $7.50 ($7,500)

That's net $875 on the $15,000 spread so there's $14,125 (1,614%) of upside potential and the worst-case scenario is owning 500 shares of WPM for net $41.65 – about the current price.  Let's put that in the LTP.

The $40 puts are now $5.85 ($2,925) and our $35/50 spread is $7.50/2.25 ($5,250) so up $2,325 (265%) out of a potential $15,000 is still good for a nice inflation hedge.  

  • Sell 10 GOLD 2023 $23 puts for $5.15 ($5,150) 
  • Buy 20 GOLD 2023 $20 calls for $5.65 ($11,300)
  • Sell 20 GOLD 2023 $27 calls for $3.25 ($6,500) 

That's a $350 credit on the $14,000 spread so the upside potential is $14,350 (4,100%) and your worst-case scenario is owning 1,000 shares for net $22.65 – about the current price.  Since GOLD has huge short-term premium, let's add them to the Butterfly Portfolio with a double-helping (20/40/40) of the above and then we'll take our net $350 credit and generate this 39-day income:

  • Sell 15 GOLD March $21 puts for 0.54 ($810)
  • Sell 15 GOLD March $25 calls for 0.42 ($630)

That's $1,440 in premium collected in just 39 of the 711 days we have to sell.  Not bad for a boring play!  

GOLD closed at $20.28 on March 19th so the $25 calls went worthless and the $21 puts paid out 0.72 ($1,080) so there was $360 gained on that sale and the $23 puts are $5.60 ($5,600) and the $20/27 spread is $1.85/0.60 ($2,500) so a net loss of $2,390 (682%) from the credit we began with.  The same adjustments as above would apply.  

  • OIH is still cheap at $183 and pays huge on the put side so, for the LTP, let's sell 5 of the 2023 $130 puts for $20 ($10,000) just to generate a bit of income.  If OIH stays over $130, that will pay for all the gas we spend money on for the next two years!  

Those puts are already down to $5.50 ($2,750) so we're up $7,250 (72.5%) so far and our gas is all paid for! 

  • Sell 5 VLO 2023 $50 puts for $9.50 ($4,750)
  • Buy 15 VLO 2023 $60 calls for $13.50 ($20,250)
  • Sell 15 VLO 2023 $80 calls for $7 ($10,500) 

That's net $5,000 on the $30,000 spread so $25,000 (500%) of upside potential on that one where we were a bit more cautious with our put sale.

This one is right on target and the $50 puts are now $1.98 ($990) and the $60/80 bull call spread is $22.50/10.35 ($18,225) for a net gain of $12,235 (245%) but it's a $30,000 spread so a lot still to gain going forward.  

Notice the theme of having big winners and small losers.  It's no accident – we take generally conservative positions in blue-chip stocks that we feel are undervalued and let nature take it's course.  Keep in mind these are UNTOUCHED positions – by making adjustments along the way in our Live Member Chat Room, we can do even better.  

Top Trades for Thu, 25 Feb 2021 10:19 – W (Short)

We almost never make short trades in our Top Trade Alerts but I was outraged by the valuation of Wayfair Furniture, saying:

There is no possible way they can repeat this growth and it's very unlikely they can even sustain what they have once things get back to normal.  So, for the LTP, this is a good short play – our first one.

  • Sell 3 W Aug $300 calls at $45 ($13,500) 
  • Buy  5 W 2023 $340 puts for $134 ($67,000) 
  • Sell 5 W Jan ('22) $240 puts for $47.50 ($23,750)

That's net $29,750 on the $50,000 spread but we have a year advantage and we'll roll the short puts to something much lower, hopefully.  We'll also have 3 more opportunities to sell short calls so, hopefully, by the next cycle, we'll be at net $15,000, etc.  The margin on the short Aug calls is $26,407 so not the most efficient trade but that will decrease if W goes lower and I really can't see $300 holding.

W closed Aug 20th at $290.52, so we collected the full $13,500 and the 2023 $340 puts are now $170 ($85,000 – up $18,000) but, unfortunately, if you never adjusted or stopped out of the Jan $240 puts, those are now $63 for a $7,750 loss so, overall, it's a net $23,750 (79.8%) gain.  

Top Trades for Mon, 01 Mar 2021 11:44 – GILD

As a new trade, I like:

  • Buy 1,000 Shares of GILD at $62.22 ($62,220)
  • Sell 10 GILD 2023 $55 calls for $12 ($12,000) 
  • Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)

That's net $39,720 and you get called away at $55,000 if all goes well with a $15,280 profit (38.5%) plus $2,840 in dividends each year while you wait for another $5,680 (14.3%) so 52.8% profit in two years on a fairly conservative play and the worst-case is owning 2,000 shares at an average cost of $47.02 ($94,040 assuming the dividend continues).

To lay out less money:

  • Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)
  • Buy 25 GILD 2023 $60 calls for $9.30 ($23,250) 
  • Sell 25 GILD 2023 $72.50 calls for $5.00 ($12,500)

That one is net $250 on the $31,250 spread so $31,000 (12,400%) of upside potential at $72.50 seems very reasonable and the worst case is owning 1,000 shares at net $60.025 – a bit less than it is now and then we flip to the ownership plan above.

In the first trade, GILD is now $71.78, so we're up $9,560 on the stock but the $55 calls are $17.30 ($17,300) and the $60 puts are $3.30 ($3,300) so net $51,180 is up $11,460 plus 4 dividends of $710 is another $2,840 so net gain of $14,300 (36%) is very nice for a boring dividend play with a very conservative target.  

On the options spread it's the same $3,300 left on the short puts and the $60/72.50 spread is now $13.30/6 ($18,250) so up net $14,950 (5,980%) is about the same monetary gain but a blowout winner as a return on cash.  

Top Trades for Tue, 09 Mar 2021 09:59 – PFE

A month later it was still cheap and, since it was stupidly cheap – I picked it again – but with a new dividend play:

We have a similar spread in our Money Talk Portfolio and, like the LTP, we're going to leave it alone for now but, in our Dividends Portfolio, we don't have PFE – even though they pay a nice $1.56 (4.54%) dividend – and we know how to enhance that with a simple options strategy.  So, for the Dividend Portfolio, let's add:  

  • Buy 1,000 Shares of PFE for $34.35 ($34,500) 
  • Sell 10 PFE 2023 $30 calls for $6 ($6,000)
  • Sell 10 PFE 2023 $33 puts for $4.50 ($4,500) 

That drops our net entry to $24,000 or just $24 per share.  If we are assigned 1,000 more at $33, our average cost per share would be $28.50, still 17% below the current price.  That makes the $1,560 dividend we expect to collect a very nice 6.5% dividend while we wait to be called away with a $6,000 (25% profit) but, of course, we intend to roll our short puts and calls and keep the stock for the long run.  

And also:

We already have a play on PFE in our Long-Term Portfolio and, frankly, it's not doing well so far:

PFE Long Call 2023 20-JAN 30.00 CALL [PFE @ $34.35 $-0.04] 50 9/28/2020 (682) $40,000 $8.00 $-1.95 $8.00     $6.05 $0.38 $-9,750 -24.4% $30,250
PFE Short Call 2023 20-JAN 37.00 CALL [PFE @ $34.35 $-0.04] -50 9/28/2020 (682) $-23,000 $4.60 $-1.25     $3.35 $0.37 $6,250 27.2% $-16,750
PFE Short Put 2022 16-SEP 35.00 PUT [PFE @ $34.35 $-0.04] -15 9/28/2020 (556) $-9,900 $6.60 $-0.85     $5.75 $1,275 12.9% $-8,625

We invested net $7,100 in that $35,000 spread and we're down $2,225 but that means, as a new trade, it's only net $4,875 for the $35,000 spead with $31,125 (638%) upside potential if PFE can get back to $37 by 2023 and the worst case is you end up owning 1,500 shares at $35 ($52,500) plust the $4,875 invested comes out to about $38/share but those are only Sepember puts and they are now $5.75 and mostly premium and the 2023 $33 puts are $4.50 so we'd lower our basis by rolling them if we have to.   The margin on the short puts is just $5,379, so it's a very efficient way to make $31,125.  

With the stock at $57, we have $57,000 on our 1,000 shares but we sold $30 calls, which are now $27.10 ($27,100) and the $33 puts are 0.53 ($530) so net $29,370 + $1,560 in dividends less $24,000 we put in is a net $6,930 profit (28.8%), which is not bad on a "sure" thing over less than 12 months – it only seems dull next to our usual trades.  

The other trade did so well we cashed it out in the LTP and we have a $35/45 spread that's also deep in the money now.  The Sept puts expired worthless and the $30/37 bull call spread is $27.10/20.40 ($33,500) for a net gain of $26,400 (371%) from our original but even better from when we made it a Top Trade.  

Either way – options are fun!  

Top Trades for Wed, 17 Mar 2021 12:47 – FB

With options, we don't have to regret not buying them for $200, we can still buy them in the LTP for $200 by selling 3 2023 $230 puts for $28.50 ($8,550) and that puts nice money in our pocket and I want to buy 5 2023 $260 ($65)/300 ($47) bull call spreads at $18 ($8,000) and sell 2 June $310 calls for $9 ($1,800) so the whole thing is a net $2,350 credit on the $20,000 spread and our worst case is owning 300 shares at net $225.30 ($67,590), which is a 20% discount to the current price.

The $230 puts are down to $10.50 ($3,150), so that's a good start.  The $260/300 spread is $88/61.50 ($13,250) but FB expired at $329.66 on June 18th which cost us $2,132.   So net $7,986 is up net $10,318 (439%) thanks to the net credit we begain with and we're halfway to goal.  

Top Trades for Wed, 24 Mar 2021 10:03 – QSR

These guys are not terribly expensive here.  I do believe in their Asian expansion and I love Popeyes and Horton's can be fixed – it's just not playing well in the US (huge in Canada).  They also own Burger King.  $65 is $20Bn and they made $500M last year but should make $1.2Bn this year so nothing crazy about $65 with good growth potential.  In the LTP:

  • Sell 10 QSR 2023 $50 puts for $5 ($5,000)
  • Buy 15 QSR 2023 $60 calls for $11.50 ($17,250)
  • Sell 15 QSR 2023 $72.50 calls for $6.50 ($9,750)

That's net $2,500 for the $18,750 spread that's $7,500 in the money to start so the upside potential is $16,250 (650%) and our worst case is owning 1,000 shares at net $52.50 – about 20% below the current price.  Margin is just $2,426 so it's an efficient way to make money but it will increase if QSR drops – so don't take it lightly.

As with any short put – as long as you REALLY want to own 1,000 shares of QSR for $52.50 – there's no harm in selling the puts.    

They were off to a strong start at $70 but then faded so currently we have $5/1.35 ($5,475) on the spread and $3 ($3,000) on the puts is net $2,475 and that's a loss of $25 (1%) unfortunately.  I still love these guys but a 2024 spread would be better at this point. 

Top Trades for Mon, 29 Mar 2021 10:27 – DISCA and VIAC

VIAC all by itself lost $30Bn in market cap last week and now it's at $30Bn at $48.50/share for a company making $2.5Bn a year – it's a great time to jump into this blue chip holding and, for our Long-Term Portfolio, we're going to play it this way:

  • Sell 10 VIAC 2023 $40 put for $12 ($12,000) 
  • Buy 15 VIAC 2023 $40 calls for $18.50 ($27,750) 
  • Sell 10 VIAC Jan ('22) $60 calls for $7.50 ($7,500) 

This is an aggressive net $8,000 into what is technically a $30,000 spread but we can easily sell 5 more short calls to recoup 1/2 of our cash but, more importantly, we can roll the 2022 $60 calls out to 2023 $80 calls (for example), which are $7.50 too and sell 5 more and we'd drop our basis to about $4,000 on a $60,000 spread that would be at least half in the money or we wouldn't have rollled it.  That's our plan if VIAC goes higer and, if it's flat, we'lll sell the 2023 $60 calls for another $7,500 and engineer a free spread and, if it's lower, we're very happy to add to the position as our worst-case scenario is being forced to own 1,000 shares of VIAC at net $48 – the current price.

VIAC has been killing us all year, unfortunately.  I still love them but they don't love us and this is a huge loser without the adjustments we made in Member Chat.   The $40 puts are $9.30 ($9,300 – thank goodness for time decay!) and the $40 calls are $4 ($6,000) and the Jan $60 calls are worthless so net -$3,300 is an $11,300 (141%) loss at the moment.   I would roll the $40 calls to the 2024 $25 calls at $13 ($19,500) and cover with the 2024 $37.50 calls at $8 for net $7,500 so only spending $1,500 more to be in the $18,750 spread.  

  • Sell 5 DISCA 2023 $40 puts for $12 ($6,000)

We are collecting $6,000 in exchange for our promise to buy 500 shares of DISCA for $40 so our net entry would be $14,000 or $28 per share – a 33% discount to the current price is our worst case and, if DISCA stays over $40, we simply keep the $6,000.   On the whole, we'd almost rather it go lower so we can have a cheap stock for the long-haul! 

We thought they had come down far enough but they haven't and now the puts are $16 for a $2,000 (33.33%) loss.  The 2024 $30 puts are $9 – better off selling those now for a net $21 entry.  

Not a good start to the year with 6 losing trades out of 17 for just a 64.7% winning percentage but, as noted above, since we tend to win big and lose small, the net gain on those 17 trade ideas is (so far) $132,248 and that's pretty good for trades we set up and ignore for a year.  

In our Member Chat Room, we are very well-hedged at the moment and expecting a bit of a sell-off so please be sure you are protected if all you are doing is following the Top Trade Alerts.  

 

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