Congrats to all who played along!
On December 29th, we sent out a Top Trade Alert to our Members and you can read the whole thing but the gist of it was that this was the first time we went long on TSLA (it had been our favorite short) since it was $50 many years ago. The Trade Idea we had on the stock was a spread that was a bit more aggressive than the 150% Trade Idea we had discussed that Tuesday:
“Speaking of bullish plays: On Tuesday we discussed TSLA but we didn’t make it official. So, for the LTP, let’s:
- Sell 10 2025 $85 puts for $20 ($20,000)
- Buy 30 2025 $100 calls for $57 ($171,000)
- Sell 30 2025 $125 calls for $46.50 ($139,500).
That’s net $11,500 on the $75,000 spread with $63,500 (552%) upside potential at $125. It’s a lot more aggressive than Tuesday’s trade, which paid 150% at $80 but we can always roll down to something like that if things don’t turn around for TSLA.”
We hit the dead bottom on that trade (getting the best prices) and already, not even 30 days later, TSLA is back over $160 after earnings that crushed expectations (not ours) and both trades are on-track to making their full 150% and 552% returns, respectively. In fact, the more aggressive Top Trade is already up $20,000, which is a gain of 172% on our $11,500 outlay in less than a month!
The Tuesday trade was much more conservative and in that trade we committed to buying 1,000 shares of TSLA at $50 ($50,000), rather than $85,000 in the trade above. In this case, we put up more money ($24,000) and took less risk of assignment but the trade-off was less leverage on our cash:
“Let’s say we sold 10 short TSLA 2025 $50 puts (obligating us to own 1,000 shares at $50) for $10,000 and bought 20 of the 2025 $50 ($80)/80 ($63) bull call spreads for net $17 ($34,000). That would be net $24,000 on the $60,000 spread that is 150% in the money to start. If TSLA stays over $80, you make $36,000 (150%). “
Already those short $50 puts are just $3.60 ($3,600) and the $50/80 spread is now $118.50/96.50 (net $22 = $44,000) for net $40,400 on the spread, which is already up $16,400 (68.3%) in exactly one month.
You don’t have to take big risks to make big money with options. Today that trade seems ridiculously conservative (which it was meant to be) but look at the chart – that was UGLY at the time. Of course, as we discussed earlier in the week, we don’t give a damn what the chart looks like – we are Fundamental Investors and we buy a stock when the VALUE is compelling – not the picture.
TSLA is, in fact, the most-traded option in the market, with 3M contracts traded on the average day. That’s more than QQQ! That makes it fun for all sorts of things we like to do, so we’ll be playing with TSLA a lot more in 2023.
Earnings continue to disappoint, on the whole, with 5 beats and 4 misses so far this morning but the misses include CVX, CHTR and AXP and the beats include ALV and CL so – context. I was ranting about CVX yesterday in our Live Member Chat Room, so no need to rehash it here.
Last night was not so terrible, with only 10 (40%) of of 25 of the reporting companies missing but that included Intel (INTC), who are dragging the Nasdaq a bit this morning (see my comments to our Members last night). PACW was also a disaster and earnings, on the whole, have been mostly terrible so far.
Those are the S&P results so far and keep in mind that many in-line reports are the result of financial engineering to hit the number, not so much a sign of a healthy company. Healthy earnings seasons are above 70/30, NOT 62/52!
Also of note, on Monday that chart was 32/23 with 12 in-line – so we’re losing ground as well…
On the whole, we’re having a good earnings season so far as our Long-Term Portfolio (LTP) has greatly improved (up $250,000 since our 1/17 review) and our Short-Term Portfolio is up $100,000 thanks to the declining VIX (we sell a lot of premium). The S&P is up about 150 points (3.8%) since expiration week and the funny thing is – we would have made a lot more money if the market had dropped but it’s not too bad for being wrong (so far) – that’s the power of hedging your portfolio!
The trick is to play the RIGHT longs, not just foolishly follow indexes or ETFs. We pick stocks with good Fundamentals (like TSLA) and then leverage their upside with options so that, if the market does go up and we’re not wrong about our Fundamentals, we get outsized returns, even in small market moves up (like 3.8%).
- Tuesday’s Top Trade Alert was for Banco Argentina (BBAR) and that is only up 5% since our selection, so still playable.
- On December 6th, we chose Signet Jewelers (SIG) with a net $3,000 outlay on a $40,000 options spread that is already net $5,500, so up $2,500 (83%) so far but still another $34,500 (627%) of upside potential at $80 in 2025 – that doesn’t suck.
- On November 3rd, our Top Trade Alert was for Barrick Gold (GOLD) when they were down at $13.23 and I called the Analysts who had downgraded them “idiots”. That trade idea was net $1,100 on a $14,000 spread and we’re already at net $8,700 so up $7,600 (690%) with another $5,300 (69%) to go. This is the kind of trade we may pull the plug on, as we have better things to do with $7,600 than make 69% over two more years.
How do we call these exact bottoms on stocks? FUNDAMENTALS! Traders don’t like Fundamentals because it’s a lot of work and there’s no pictures to tell you what to do but, unlike TA, Fundamentals are real!
According to Gladwell, it takes 10,000 hours to master a skill. That’s 40 hours a week for 250 weeks (5 years). Trading is a skill and, if you treat it like one – you will be able to master it. A lot of people join our site looking for the “Indicator” or the “Rule” that tells them what to do but it’s just as ridiculous to believe in those things as it would be for a Doctor or Lawyer to ask the same thing so they can skip all that practice and get to work.
It simply doesn’t work that way but, like other professions, trading can be very rewarding if you take the time to learn how to do it correctly.
- On October 27th, our Top Trade Alert was for Facebook (META), who also had an ugly chart. That trade idea was for net $17,500 in cash on a $75,000 spread and, with META back at $147.50 already, the spread is at net $61,000 already (because we aggressively did not fully cover the longs) for a nice, quick $43,500 (248%) profit in 3 months.
- On October 6th, we liked Total Energy (TTE) at $50.63 and they have blasted up 33% to $64.50 already. That one was net $5,750 on a $37,500 spread and it’s already at $23,750, which is up $18,000 (313%) but $13,750 to go (57%) and it looks like a very safe way to make it but… yawn….
- Also on October 6th, we liked Weyerhaeuser (WY) at $29.27 and they are only up to $33.65 but, because we sell a lot of premium (Being the House – NOT the Gambler) and the VIX dropped considerably, we have still turned a net $3,500 investment on the $25,000 spread into net $10,975, which is up $7,475 (213%) so far with almost 150% more to go.
- That brings us back to the first (and final) Top Trade Alert for Q4, which was Tanger Factory Outlets (SKT) on October 4th, which was also looking awful at $14.02. They’ve had a very nice run back to $18.97 as of yesterday’s close and we had two trade ideas for them. One was a dividend play at net $15,040 that is now net $22,940 for a $7,900 profit plus $440 in dividends (10/28) so up $8,340 (55%) in 4 months is just fine for a conservative dividend play. The options trade was net $3,950 on a $21,000 spread and that’s already net $17,000, so we’re up $13,050 (330%) on that one so far.
That’s a net $120,465 gain on our last 3 months of Top Trade Alerts with NO misses! These were not pie-in-the-sky trades and they were no riskier than buying stocks. Although we gave ourselves 2 years to hit our goals on each one – the benefits of good timing gave us great short-term returns anyway.
I’ve put in my 10,000 hours (probably getting closer to 100,000 for me at this point). Stop trading like it’s a hobby and let me guide you through your own 10,000 hours of learning this profession – I promise it will be worth your while!
Have a great weekend,
Good morning people! It’s been a while since I posted here. Super busy at work but still putting my PSW education to work!
Big year for me – turning 60 (like someone else here) and becoming a grandfather! Time flies!
He’s Alive!!! Long time no see. Hope all is well with you.
Yep, just two months for me – yikes!
I still think like I’m 18 – I was just watching a video of these guys flying in wingsuits and I’m thinking to myself how I can talk the girls into doing that with me and then I remember I’m not 20 and would probably die. 😪
In my head I’m one of those guys jumping out of a helicopter but, in reality, I’m the guy asking if there’s an elevator to the 2nd floor…
“I’ve put in my 10,000 hours (probably getting closer to 100,000 for me at this point). Stop trading like it’s a hobby and let me guide you through your own 10,000 hours of learning this profession – I promise it will be worth your while!
Have a great weekend,
I’ve been a subscriber to your site since 2010. Not to be a suck-up, but thank you for taking the time to teach all of your subscribers the tools necessary to be successful! I have learned so much from you over the last 13+ years, that I am forever grateful for your dedication and passion for your approach.
Thanks Dig and you are very much welcome – this is why I started the site in the first place. Nothing I like more than chatting about the markets all day – it’s the greatest show on Earth!
Phil, awesome TSLA trade. As for /CL, fearless leader, are we sticking with it?
I am. I hate to say “we” because these are very risky trades and not for most people – you never know what will happen over a weekend. In my opinion, bulls are hanging their hats on OPEC doing something to keep prices up but that would not play well with the war on and this China Open story is getting played out as well. China was open when oil was $40 too.
Look what happened to /NG. I was on the wrong side of that but I hope to be on the right side if that happens to /CL.
Don’t worry, your advice, my risk. I know futures trading is risky. Back to the oil, I sort of agree with what you said, I just keep wondering how much effect the end of SPR release might have on the price. You believe, on balance, that the end of the SPR release, isn’t likely to goose the price much?
There has been no release for the last two weeks and we’ve had substantial builds. The SPR release, as I’ve noted, wasn’t really for us, it was for our allies who were being affected by the Russian Oil situation. Tankers that would have been delivering Russian oil were cut off and couldn’t complete (to our allies, the oil went elsewhere) and that disrupted a massive supply for a while but, in the end, the supply is fungible and the oil that came from Russia and was rejected by Germany ended up going to China and the oil from Ethiopia that was going to go to China went to Germany – all that happened is the supply chain got disrupted for a couple of weeks while deliveries moved around.
WASHINGTON—The U.S. and its allies are preparing their next round of sanctions on Russia’s oil industry, aiming to cap the sales prices of Russian exports of refined petroleum products in an expansion of novel penalties the West has imposed on the country’s crude.
In meetings across Europe this week, Treasury officials are discussing the details of the coming sanctions on Russian oil products, which are set to go into effect Feb. 5. The penalties will set two price limits on Russian refined products: one on high-value exports such as diesel and another on low-value ones such as fuel oil, according to people familiar with the plans.
The run-up into the first round of sanctions crashed as well but still, I have 4 long /NG and 2 short /CL so I’m more rooting for /NG to recover and I’ll easily cover any /CL gains with that.
Really appreciate it. Thanks.
wow, it’s possible sanctions cap the price but do nothing to the supply. maybe sanctions actually counterintuitively push it in our favor, down that is.
$82.50 on /CL again in case you missed shorting it yesterday.
/ES is 4,065 and Personal Income/Spending and PCE were so flat they weren’t worth mentioning above.
Income up 0.2% (still not cooled off but was 0.3%), Spending 0.2% for Dec vs -0.1% in Nov but if people aren’t spending at Christmas – we’re really screwed! On the whole, nothing to write home about.
By the way, do any other people have Moms who ask what you did at work today and it’s so complex you can’t even figure out how to describe it? I guess she’s used to asking my Dad and now she asks me and I try to find something she’ll be able to relate to but then she starts telling me about lunch with the girls and whose dog is fighting with whose… We have very different days.
Look at that intolerable rise in income – it had to be stopped before the peasants actually had some money! Thank you Fed.
Hi Phil – couple of questions:
BBAR – I am not familiar with that bank. Are their holdings all in USD? My concern is about another Argentinian financial crisis – so maybe a smaller position for me 🙂
SPWR – You had a couple of prices for the $15-25 BCS and $20-30 BCS where you were willing to pull the trigger. And I cannot find those now. My current position is a bunch of shares that i was assigned that I have sold calls against (and I previously exited my calls for a good profit) – what would be a good time to enter another BCS.
Thanks! (and agree with the 10,000 hours. Though it took me more than that to understand my own specialization).
Phil– piggybacking rn- is BBAR an earnings play or can I play it long term.
Well you should never get into positions you don’t 100% agree with. These are Trade Ideas – not orders! BBAR is a private bank in Buenes Aires, very well-known down there. They are under the wing of BBVA, which is one of the largest financial institutions in the World but your knee-jerk distrust of “Argentina” is exactly why BBAR can be this cheap on the US exchange.
On SPWR, I don’t remember but I bet it was $3.50. Now is likely as good as it will get at $16.70. Good time for another Top Trade, in fact:
Phil / TSLA / META,
For stocks that have run up a lot in the short term and gone way beyond the range of the spread, what would be you strategy? Would you extend the range of the spread by rolling over the short calls to a higher strike, sell more short term calls or just wait and watch?
Well, in our current situation, where we are swimming in cash – even if the spread only has 20% left to go, it’s better than sitting in cash so there’s no reason to do anything.
Usually it gets to a point where I think the return is not worth the wait or, if we do see a sensible roll, we might do that but I don’t like to chase things – there’s usually another stock we can find that hasn’t popped yet (like SPWR).
I liked TSLA at $50 in 2020 and then it went to $150 and we sold it and then it went to $250 and we shorted it (got burned at first) and then around $350 we shorted it again and made a fortune and now it hit $100 and I decided to buy it. My opinion on the stock hasn’t changed – I thought they were worth $50 in 2020 and I think they’ve grown enough to justify $100 now but that doesn’t mean I want to buy more at $166 – it was the $100 that I liked.
Another day for insane gyrations in the indexes. I don’t like this as they spike it up and then sell the hell out of it – seems like the pros are playing with the retailers to unload stock (and remember that report on record Nasdaq outflows).
Consumer Sentiment 64.9 vs 65 expected and 64.6 last month. At least it’s not getting worse…
Wheee! on Oil!
And already $80 is failing so we get back on the shorts with tight stops over the $80 line.
I’m thinking about how I think about this and it’s like there’s a $2.50 profit ($2,500) from $82.50 to $80 and I would have rode it out for the weak bounce to $80.50 ($2,000) so I have $500 to play with and that then dictates my stops when I re-enter.
I just lost 0.10 on the re-entry so now I have 0.40 left to lose before I should stop playing with it for the day. Now I’m less inclined to jump in unless we fail $80 coming up from below or if we hit the weak bounce at $80.50, I would give that a toss (tight stops) to see if it fails.
Phil – What’s the email address for billing/membership questions?
Finally got that drop in /CL. See what I mean about testing $80 from below? That’s when you know it’s going to finally fail.
are the warning signs that prices are falling in your city.
• Hedge Fund That Got China Right Sees Risk in US Credit, Stocks: Vantage CIO warns against ignoring drop in new factory orders Ferres sees red flag in tight spreads for US high-yield credit. (Bloomberg)
• These Days, Institutional Investors Eye China Warily: U.S. and Canadian allocators no longer pile into Chinese assets. (Chief Investment Officer)
• Why Invest in Stocks When Bond Yields Are Higher? In the fall of 1981 the yield on 30 year U.S. Treasury bonds hit 15%. That was the bond buying opportunity of a lifetime. Those are the kinds of yields where you can go to the beach and live off the interest…and no one wanted them. (A Wealth of Common Sense)
• Rich Customers Pull Money From Banks Offering Paltry Interest Rates: Wealth-management clients are moving deposits into higher-yielding Treasurys and money-market funds (Wall Street Journal)
Housing Market Predictions for the Next 5 Years Promise Lots of Surprises: Fasten your seatbelt: The housing market is in for a bumpy five-year ride. (US News)
• For Tech Companies, Years of Easy Money Yield to Hard Times: Rock-bottom rates were the secret engine fueling $1 billion start-ups and virtual attempts to conquer the physical world. But in 2023, reality bites. (New York Times)
• Long Covid’s Effects Go Beyond Respiratory Issues: The coronavirus can attack multiple organs and weaken overall immunity for months. Its impacts are evident in global death rates that remain high. (Businessweek)
• Long Covid Is Keeping Significant Numbers of People Out of Work, Study Finds: An analysis of workers’ compensation claims in New York found that 71 percent of claimants with long Covid needed continuing medical treatment or were unable to work for six months or more. (New York Times)
• One Hundred Years of Certitude: We thought we knew how often heavy storms were supposed to occur. We were wrong. (Slate)
• What Microsoft gets from betting billions on the maker of ChatGPT: The reported $10 billion investment in OpenAI will keep the hottest AI company on Microsoft’s Azure cloud platform. (Vox)
Phil, any advice for folks that can’t access portfolio margin? My margin requirement skyrockets whenever I try to add the “sell naked puts” portion of your recommended options strategies, which greatly reduces the potential returns.
Simple when you sell a put on a stock you should have the same amount of cash on hand to cover the put. Sell a 20 strike put you need 2000 US $
Thank you! So on Phil’s new top trade today:
Net cash outlay = $1,700. My broker (IB Canada) requires an initial margin of $25K and a maintenance margin of approx $16K. If SPWR is $20 at expiration, the return on this trade would be $20,000-$1,700 = $18,200/$16,000 = 114% over 2 years, or 57% per year. How does that compare with a trade w/ portfolio margin?
You will cry, PM is $924.05 on those puts.
The solution is either you REALLY want to buy 1,000 shares of SPWR for $20 so the $20,000 margin doesn’t matter or you simply sell less or none of the $20 puts and then you are in a $20,000 spread for net $8,700 with no margin requirement at all.
Still the upside of $11,300 is 129% in two years and, as noted above, that’s as good as the World’s best Hedge Fund manager – the rest is just gravy.
Now you could set up a cash (non-retirement) account that has PM and only do your short put trades there and the rest in the non-PM account.
Again, we’re not really option traders, we’re Fundamental traders using options as leverage so the key is we think SPWR goes over $20 and, from that, there are various ways to profit and some people can do the whole trade and some people can only do the spread but if you pull in 65% a year from spreads like that with no margin – you’ll do very, very well over a 10-year period.
$100,000 at 65% over 10 years is $14.9M, for example. You just have to be patient enough at the beginning to let it build.
Thanks Phil. Appreciate your thoughts on this matter. No PM in Canada. 😭
Start a family office in the US
Looks like we have another opportunity to buy SQQQ for a hedge, unless you have a better suggestion.
I don’t. We’ve tried other things, SQQQ is giving us the most bang for our buck and the Nasdaq is most likely to lead a collapse too.
Regarding hedge fund performance chart (1:42), any idea how their (Citadel, Bridgewater, for instance) performance translates into percentage gains for comparison purposes say with SPX, NDX, etc ?
The indexes, though wildly swinging recently, average about 8-10%. The reason Buffett isn’t on the list is because he averages 16.5% but the reason he’s richer than all of them is because he doesn’t have a down year (few and slight). Not losing money is far more important than making more of it.
phil, i just rolled 30 Jan 2025 SQQQ $40 Calls to 30 Jan 2025 SQQQ $30 Calls. i dumped the $40s for $14 and bought the $30s for $16.85. was this wise?
SQQQ is at $38.30 so you went $8.30 in the money for $2.85 – that makes sense but I would look to get my $2.85 back by selling some shorter-term calls like April $50 calls at $2.45, if you sell just 8 (1/3) of those it’s $1,960 back of the $8,550 you spent and you are 3 more sales away from a free roll.
Another to reduce margin is to buy a lower priced put and make it a spread. Then you only need to have the total of the spread minus the premium received. I do that in IRA accounts.
That’s a great suggestion. Thank you!
Well that was a fun week and we finished strong so a good buffer for the indexes into the Fed next week.
Companies to check out:
Biotech: BLFS, REGN, IMGN, SGEN
This is fun to play with: