Happy Holidays Top Traders!
In case you missed the memo, PSW is taking all of it's portfolios back to CASH!!! because we feel the broad markets are grossly overbought and we are concerned there will be few buyers for our positions if the market does start to turn down (low liquidity).
So, better safe than sorry and that includes all of our positions, even the Top Trades.
- Just Another Manic Monday – Tax Free Edition
- Tempting Tuesday – Stop Buying that Dip and GET OUT!!!
- Weakening Wednesday – How Nice to Watch from the Sidelines
We will continue to pick individual trades, like the one below, and there's nothing wrong with keeping good positions if you feel you are well-hedged and don't mind riding out a 20% correction.
My attitude about that is that, if you have $130 now after starting 2017 with $100 and the market falls 20%, then you'll have $104 and, when the market comes back, you'll have $120 again.
We, on the other hand, if we are right, will still have $130 when the market pulls back and $150+ when it comes back as our new positions make all the gains your old ones will. On the downside, if the market rallies 10% more, you'll have $143 and we'll have $130.
On the whole, it's a risk/reward game and I'd rather miss gaining $13 than losing $26 as I can always make another $13 with $130 but making $26 with $104 is tricky!
From our chat room:
Portfolio/Pat – LOL, would you like to send me more information. I guess I can get into the business of doing individual reviews for people who don't even bother subscribing. Actually I can't – I'm not a financial adviser and that's simply not a good thing to do! In GENERAL, you have to use your head and look at each position and think about how you feel about it – especially how you WILL feel if the broad market goes down 20% and your positions are down 10%-40%. Which ones do you want then?
If you have "good" gains that can be offset with "good" losses, why not start there and begin to lighten up so at least you are more flexible (and have a lower cost of hedging) and then pick out some sensible hedges to go through the holidays.
Speaking of hedges. TNA is the ultra-long Russell ETF at $67.87, well off the highs at $73.50. If you think you will regret going to CASH!!! then you can take an upside hedge using something like this, which will give you great gains if the rally continues (or Santa Clause comes to town).
Just like any play, a bull call spread will keep you from losing too much and the longer spreads have a lower net delta and that means you won't get too burned on the downside. So, for example, we are cashing in the OOP (the SA people voted yes too) at $300,000ish and usually we make about $10,000/month so, if we think we'll miss out $20,000 in gains during December and Jan, we can:
- Buy 20 TNA April $60 calls for $12 ($24,000)
- Sell 20 TNA April $70 calls for $6.50 ($13,000)
- Sell 3 TSLA April $330 calls for $19 ($5,700)
The net cost of the trade is $5,300 and it returns $20,000 if TNA is simply over $70 in April so you'll capture $14,700 (277%) in profits if all goes well. If not, unless TSLA has a major rally, you will only lose $5,300 at most but, more likely, you'll be able to salvage half of that by closing out the bull spread if the market is heading lower – as we expect it will.
You can, of course, use anything to offset the bull spread but I feel pretty good about shorting TSLA, rally or no rally!
Oops, forgot about oil (I got out yesterday) – down big on net build in stocks:
- EIA Petroleum Inventories: Crude -5.6M barrels vs. -3.4M consensus, -3.4M last week.
- Gasoline +6.8M barrels vs. +1.7M consensus, +3.6M last week.
- Distillates +1.7M barrels vs. +1.0M consensus, +2.7M last week.
- Futures -1.23% to $56.91.
The headline draw in Crude is wiped out by the bigger builds in Distillates and Gasoline and they signal weak demand so $55, here we come!
/SI/Japar – 2 long at $16.04, looking to add 2 more at $15.96 as we discussed yesterday (well off by a penny as I didn't get my $16.03 on 2).
