Wheeee!
That was fun yesterday, where, in the Morning Report, I said:
“Russian Crude currently trades at $50 and Putin has threatened to unilaterally cut production if the caps are enforced but first Brent Crude, now $87.50, would have to be back over $100 and that’s not very likely so it’s all a lot of hot air and is no reason for WTIC (/CL) to be at $82.50 this morning. Still, it’s a dangerous short (last week was obvious) and I’d be very careful playing it – with very tight stops above $82.50.”
As you can see, that worked out very well, paying $5,500 at yesterday’s close and another $1,000 this morning as oil prices collapsed under the weight of their own BS. We are officially done with the shorts now – as that was a huge drop and we are not greedy (You’re welcome!).
Futures are nothing to be feared and they make a great tool in our investing toolbelt – IF we know how to use them properly – and that is: Only once in a while and with great care – like a chainsaw…
We wait, PATIENTLY, for opportunities when there is significant resistance AND clear Fundamental evidence showing us a reversal is in order – like Natural Gas this morning, which is too low under $5.50 – so /NG is a good long the way /CL was a good short yesterday.
Oil (/CL) is probably oversold too and can be played for a bounce but the issue there is I wouldn’t have conviction playing oil long and I’d be very quick to stop out if it fails $76 again but /NG I believe is way underpriced at $5.50 for the long haul. In fact, if you want to play it with options instead of stocks, our UNG play in the Short-Term Portfolio is back to where it started at net $2 for the Jan $15/20 bull call spread. If all goes well and /NG is back over $7 in January, the spread will return $5 for a 150% gain in a month.
We’re seeing stock plays too but we’re generally being cautious into the Holidays. Yesterday, in our Live Member Chat Room, we found a Top Trade-worthy play for META but we just did a Top Trade Alert on them on October 27th – so no need to be redundant but still a good trade idea, nonetheless.
We also reviewed our hedges yesterday as I’m not seeing a lot of data to convince me that we’re not heading into a Global Recession next year. As I said on Bloomberg last week, I think it will be mild for the US and Canada but we’re Global Citizens too and we’re not going to get through this unscathed – hence our heavy CASH!!! positions and abundance of hedging.
The S&P did pretty much what we expected – testing and failing the 200-day moving average and it’s a big concern how easily we fell back below 4,000 – even with the much-weaker Dollar (now 105). The Dollar was at 107.50 into Thanksgiving so we have a 2.3% currency advantage now and we still can’t close the deal – that’s bad!
In our slower-moving Nasdaq weekly chart, we failed 12,000 exactly as expected and, sadly, that’s the 200 WEEK moving average that has to get over 12,000 and it’s taken over 3 months to get halfway from 11,000 – so it’s not going to save us now. The 50-week moving average, however, is 850 points away from failing 12,000 and that would be very bearish. We’re at 11,700 and it’s at 12,868 so 1,168 points and we have fallen that much since 13,000 in August (4 months) – so things are really going to be hitting the fan at the end of Q1!
Have I mentioned how much I’m loving our hedges lately?
Good Morning.
Good morning!
Indexes resuming their downfall.
If oil stays down, the energy sector is due for a nice crash.
Hi Phil
A couple of questions:
– Vix is actually low around 20. During this year Vix showed a tendency to bounce back up any time it was around this value.
What do you think about a short position buying some vix call? What spread would you suggest?
– AMZN is around covid low, even do it is not one of your favorites may be actual prices offer an opportunity for a good trade.
Something like:
BC 2025 80 AT 30.5
SC 2025 110 AT 16.5
SP 2025 80 AT 11.5
SP 2024 JUN 80 AT 6
SC 2024 JUN AT 5
If this is not a compelling valuation for Amazon (even do i remember we had a position in Amazon in the Batterfly portfolio) what valuation are you looking for to start a position?
thanks
The VIX is very tricky to play as it’s like a horse race – you are betting on where it will be on the specific day of expiration, not in between. Also like a horse-race, it’s parimutuel betting, where your betting against other bettors sets the price and the exchange is just a bookie making sure everyone loses on the rake.
We used to play it but decided you may as well play craps – it’s more fun.
As to AMZN, there’s a reason we are playing it in the Butterfly Portfolio – we don’t see them making much of a bounce. You’re setting up the 2025 $80/110 spread for $14 or $3 if you are fully selling the puts, which is fine if you have the margin and ability to buy and won’t be forced to sell if AMZN drops 30% to $60 – but don’t do it otherwise.
Then you are selling puts and calls against that but going a year out – again, you are taking a huge chance against a market crash.
Our AMZN position in the Butterfly Portfolio is 60 June 2024 $125/145 bull call spreads from 5/18 and, unfortunately, we sold 20 Jan $115 puts at $6.50 on 9/14 that are not working out – now $26. back in May, AMZN was at $105 and we took the $125/145 spread – NOT because we thought AMZN would go to $145 but simply to be a buffer for our short call selling – in case we were wrong.
You are making a very bullish bet on AMZN – that’s very different from our strategy.
Assuming AMZN does not recover into Jan, we’ll roll our 20 short puts to 20 of the 2025 $105 puts, now $25 and HOPE they can at least get back to that. We’ll probably roll down our net $3.50 spread to the 2025 $100 ($19.50)/120 ($13) bull call spread at $6, probably 40 of them so as not to spend too much money and then we can sell 20 of the March $100 calls for $4.50 ($9,000) and 10 March $85 puts for $6 ($3,000) and, if we’re collecting $12,000 per quarter for 8 quarters – we’ll still do fabulously well on the spread, which originally cost us about $17,000.
When you initiate plays like this it’s a BUSINESS – you have to have a very clear idea of what your cost is and what your potential income is and you need to constantly assess whether or not your goals are realistic. A $17,000 outlay (and we’ve already cashed in other profits) and another $10,000 spent on the roll is $27,000 but we see that we can collect $96,000 – so we have a good chance of success and we have (with 40 spreads), $80,000 of upside protection over $100 against the short calls going in the money.
You have to know EXACTLY what the risks are and what the profit potential is and make sure you keep it balanced at all times. If you are new to this, starting with AMZN is like getting on the biggest bull at the rodeo for your first ride – you’ll probably get smashed around quite a bit – maybe a few holes….
loving the answer
thanks a lot
No bull rides for me
thanks
Starting vision therapy today, hopefully I can follow posts and comments here without headaches then.
Phil – I am thinking of finally entering META using yesterday’s suggestion, but hold off on selling the March 130 calls? Or should I roll all the strikes down by $10
Note the EU issues above on META – they are likely to pull back so be patient.
Hope the eyes go well.
The wheels are coming off the bus here as well:
Putin Grips Economy Tighter to Supply Russian War Machine
Russia has commandeered private enterprise to keep the military armed in fight against Ukraine but faces labor and tech shortages.
Keep in mind that we have been goaded into spending tens of Trillions of Dollars on Defense over fears of Russia’s military and they can’t even beat a neighbor that’s 1/30th their size! Such BS we are fed by the Military Industrial Complex!
Blinken Warns Against Phony Off-Ramp in Ukraine War
Secretary of State Antony Blinken said Russia may be looking for a way to step back from Ukraine without negotiating a lasting peace agreement. Follow live coverage of the annual summit here.
Ron Klain: ‘Catastrophic’ to Not Raise Debt Ceiling
Commercial-Property Funds Face Withdrawals
Supreme Court to Hear Arguments on Far-Reaching Elections Case
In a North Carolina case, the court is being asked to decide whether to expand the authority that state legislatures have over election maps and voting laws.
Not good news flow today…
Man PSW members are sure doing their darndest to keep the (broken) healthcare system afloat.
We are an aging bunch… 😅
So high end and low-end shoppers are squeezed – that doesn’t sound good, does it?
TSLA needs to find a CEO who shows up for work:
$176 is $576Bn down from $1.4Tn ($375) in April – which was nuts. TSLA makes $14Bn and expects $19Bn next year so almost getting realistic but I think they get margin-squeezed as more and more competition rolls out and they need to get to $30Bn to justify that market cap so a good 3 years out is too long for me to wait.
Speaking of annoying health stuff. Traveled to meet my Son in Vermont over Thanksgiving. Caught my first cold in 3 years. Tested Positive for Influenza at Urgent Care , put on Combo of inhalers and Guaifen/Codeine Cough medicine. Only the family members that flew got sick. Decent retail activity in the quant towns of Vermont- Woodstock and Quechee. Always amazed at how rural things are there. I love the 24 hour pay be honor system cash, check Venmo Farm Store near my Son’s place! Kissthecowfarm.com/farm-store.html
I love Vermont, had a place up in Killington for 40 years.
Another ugly day. Off to the Doctor’s – will check in later when I get back.
Oil and /NG failing along with everything else – hope you weren’t greedy!
Don’t blame the Dollar – barely over 105 – this is just regular fear and weakness.
Ouch!
SIG/Phil: what are your thoughts on SIG, we’ve played them in the past. Big pop today, but valuation looks reasonable, and no debt.
The reason SIG was rejected for a Trade of the Year finalist was my concern that the Recession would hurt them. Also, GS and other Banksters have stated bonuses will be lower this year – and those guys are a significant amount of Q4 clients.
Still, a lot of pent-up wedding business helps and they are a good buy at $69, which is only $2.7Bn and they make $550M and should do a bit better when things steady out. $700M in cash over debt means you’re really buying them for $2Bn and the P/E is 4 – all good stuff.
/NG think we’ll touch $5.00?
I hope so but no, I don’t think so.
No improvement I see.