Our paired Long & Short-Term Portfolios have gained $157,564 since our January Review and that is, of course, ridiculous and reflective of this ridiculous bubble rally. The LTP went up and the loss of the STP went down – even as we increased our hedging. That's because we sell a lot of premium and the premium decays regardless of the market direction. Time is our friend using this strategy.
Also, we have SUBSTANTIAL amounts of CASH!!! across all of our portfolios as we think this entire market is BS and will collapse at some point. At least 2 or 3 days each week I wake up wanting to just cash out and go on vacation – only I can't go on vacation and I'd be bored so we stay invested – but that's a really stupid reason to risk your assets if this is money that is critical to your future.
The S&P 500 is up almost 100% from it's March lows and yes, that was a 35% drop from the February highs but now we're 20% above those (3,393) and it's simply too far, too fast so we're being very careful with our positions and very aggressive with our hedges. In our last STP Review, we determined we had a good $300,000 worth of protection and we only have $551,828 worth of position in our LTP – that is well-covered!
We added new longs however in the LTP on BABA, GOLD, OIH, TOT, VLO, WPM and WU in the past 30 days as we've been enjoying earnings season and the bargains it brings. We still have $1,057,650 of CASH!!! sitting on the sidelines and we've sold very few naked puts so we also have tons of margin to play with. On the whole, we'd love a good crash – so we can go bargain-hunting. I will repeat what I said back on December 16th as the strategy still holds and, after making 10% for the month, perhaps more people will pay attention:
We have 33% less positions, so it's easier to adjust if we do have a correction and we have 33% less longs for our Short-Term Portfolio to protect – lowering our insurance costs as well. Those are the "consequences" we've suffered from "missing out" on a fantastic rally. Certainly it's been a lot more relaxing and I aim to keep it that way into the New Year – just in case.
So next time you feel compelled to trade due to a Fear of Missing Out (FOMO) – keep in mind – missing out on what? We already made FANTASTIC returns for the year – why risk it just to make a tiny bit more?
Every time I've done one of these reviews, since last May, I've been looking to close any LTP position that shows signs of potential weakness and to close any position I wouldn't be THRILLED to double down on if the market drops 40%. Keep that in mind when we're doing this review – these are the survivors – the best of the best under the current market conditions.
Long-Term Portfolio Review (LTP):
By the way, we did an intensive review last month indicating exactly how much each position was scheduled to make ($328,075 in the LTP, $297,000 in the STP) if all goes well and, so far, it has! But you have to recognize when you are making TOO MUCH – we can't keep up this pace as there's a $600,000 limit to our potential gains (not including the new trades) so you have to see which trades are getting ahead of themselves and look at them very critically.
- HMY – We'd love to own them for net $2, so no worries.
- M – Up 80% with a year to go but miles away from risky so we may as well wait and collect the other $3,760.
- OIH – Still good for a new trade. Net $110 entry is our worst case on the Oil Services ETF and they paid us $10,000 to promise to buy 500 shares.
- TOT – Nice profit already but still good for a new trade. More oil as part of our inflation hedges.
- BABA – This one was obvious after AMZN had blow-out earnings. Already up nicely but it's a $75,000 spread and still only net $17,137 so over 300% left to gain if they get to $300 in two years (up 10%). Making $57,863 against $17,137 in cash on a 10% move in the stock is a lot more fun (to me) than chasing after idiotic Momentum Trades. This was a simple, Fundamental Investment based on the outperformance of the competition and the overall Economic Conditions as well as the continuing Macro Trend towards E-Commerce. Very simple, actually. Here's what I wrote in Feb 3rd's PSW Report, pre-market:
Just this morning, for example, the following alert popped up at 6:14:
Ant Said to Reach Agreement with Regulators on Overhaul – Bloomberg
(Street Insider 02/03 06:14:06)
Perhaps that headline by itself isn't helpful but we know that Jack Ma has been out of favor with the Chinese Government and that AliBaba's (BABA) stock price has suffered because of it. We also know Amazon (AMZN) just knocked it out of the park on earnings so BABA should also do well and that means we BUYBUYBUYU on that news.
we can sell 5 2023 $200 puts for $33 (perhaps $30 if we open higher, so call it a $15,000 credit) and then we can buy 15 of the 2023 $250 ($70)/300 ($50) bull call spreads for net $20 ($30,000) in our Long-Term Portfolio (LTP)
If we pay net $15,000 for the spread, we only have to sell $2,500 worth of premium every 100 days to more than pay for the whole thing and then we have a free 2023 $250/300 bull call spread on BABA. Our downside risk is being assigned 500 shares of BABA at net $200 ($100,000) but, fortunately, we already have an FXP spread in our Short-Term Portfolio so we already have a downside hedge on the Chinese market. That coupled with the fact that we recover our investment making just 1/3 sales against our long position makes me REALLY like this trade idea! You know who else is liking my trade idea? Analysts – who are running in like sheep to upgrade BABA this morning – also very easy to find on NewsWatch (part of NewsWare):
INFORMATION – That is how we trade. We don't need to follow the sheep who run into momentum stocks on Reddit boards. We can make good money (400% is good money, right?) by simply using the proper tools (which we PRACTICE using until we are experts) and putting in the real work it takes to consistently make money in the market.
- BRK/B – Well over target so we've turned it into a Butterfly-Type income play.
- CHL – This position is broken and our real bet it Biden will reverse Trump's ban on Chinese stocks. In Hong Kong, our stock is up 10% since it delisted in the US at $27.50.
- CSCO – How obvious was this one? On track.
- FL – Miles in the money.
- GILD – We liked it so much we played it twice and it's at goal already.
- IBM – Was our Stock of the Year 4 years ago and yes, I'm a boring guy who keeps liking the same excellent companies when they are cheap – sorry. They have 2 years to make $5 more and we collect $50,000 and it's currently net $17,000, so that's a keeper…
- IMAX – This is the thing about Fundamental Investing, we don't know WHEN it's going to take off so we simply plant our flag at a good bottom and keep accumulating until the rest of the traders finally realize what a value the stock is. With IMAX, we have a $25,000 spread and an $18,800 credit and it's currently net $6,750 so plenty left to gain and the $18,800 is in our pocket. Life is good!
- INTC – Our 2021 Stock of the Year! This is a $75,000 spread at net $42,855 so again, a spread with returns most traders would love to have – even if they didn't get our net $15,750 entry.
- MMM – They make masks! How Fundamental is that? Big yawn now as we wait for our $45,000 at net $33,037. 50% returns seem realy dull, don't they? And this one is for just 10 months…
- PAA – Good, solid pipeline play and we're in it for the dividends.
- PFE – Another obvious virus play. I can't believe it's still only $35. It's a $35,000 spread at net $7,712. We should probably just put the entire portfolio into this trade and take the next two years off as $27,288 in profit would be 353%. Will be is more like it…
SKT – This I'm very proud of from our Live Member Chat Room on January 27th:
Meanhwhile SKT BABY!!!
I'm going to make an exception this time: I TOLD YOU SO!
Earnings aren't even until 2/17. They just put in a new CEO but $20 is time to cover. We 1/2 covered at $10 so we'll sell 40 more SKT 2023 $17 calls in the LTP for $7 ($28,000) because it would be insane to turn that down (see how we make $28,000/week?). In the Dividend Portfolio we were too conservative with a full cover – not much to do about that.
- The Fundamental door swings both ways – you have to know when a stock you like is too expensive, as well as when it's too cheap. We had a silly run-up and some idiot was offering to buy our stock for net $24 – so we locked in the price by selling the calls. Now we are covered and we just sit back and enjoy the dividend, if they ever reinstate it.
- SPWR – Runaway stock! We have no reason to sell it because there's money left to collect and negligible risk.
- T – Another stock that's still way too low. We're aggressively long here and looking for $80,000+ on the net $37,900 spreadd and we'll also sell calls along the way (like SKT, when it has a nice run) to further reduce our basis. For instance, we could sell 25 of the April $30 calls for 0.75 to pocket $1,875 and it doesn't seem like much but it's only using 57 of our 701 trading days so 14 sales like that would net us an extra $26,250 but, at the moment, $30 is too low so we'd rather wait.
- VLO – Brand new and already up $2,700 on the net $5,000 spread so that's a quick 54% in 10 days. Aren't options fun?
- WBA – Yet another stock I love. Who says there aren't great bargains in this market? We hit our $50 goal and fully covered so it's officially a $75,000 spread at net $40,950 but we've already made $40,450 since we bought it when nobody liked it (and doubled down when it went lower).
- WPM – Yet another former Stock of the Year (5 years back!). Brand new so still playable. You know the only Stock of the Year of the past 5 years we don't have in our portfolio:
We missed the re-entry on LB, unfortunately, and it never pulled back again.
- WU – Another new trade that's only up a little. $20,000 potential at net $4,300! Aren't options fun? All we're doing here is promising to buy 1,000 shares at $22 and it's $23.87 now. If we lose all of the $4,300, then our net is $28.17 – that is the absolute worst case. Meanwhile, all WU has to do is hit $30 and we make $15,700 (365%) in two years.
Short-Term Portfolio Review (STP): We made some nice improvements since our 1/14 Review, when we made quite a few changes and we're up 5% already this morning as it doesn't take much to improve all these ultra-short positions. There's really not much to do now – other than watch and wait to see if the indexes can hold up into next week, as earnings season winds down.
- TQQQ – $60,000 spread at net $26,050 and it's out intention to sell short-term short puts to knock that lower (if we ever get a proper dip).
- CMG – Big wild card and we don't like to see those short calls in the money. Costs are up and the company raised prices but I don't see it helping and they did not provide Q1 guidance – probably a bad sign (for them, great for us). We sold the March $1,400 calls for $120 and they are currently $49 in the money. If they expire worthless we make $43,900 and we get to do it again. If we hit the spread, that pays $180,000+ if CMG is below $1,100 in a year.
- FXP – China has been very resiliant so far and March is coming up fast so let's roll our 40 March $25 calls at $1.20 ($4,800) to Sept $30 calls at $2 ($8,000). It's like playing leap-frog with your contracts.
- SCO – Big failure so far. Just have to wait and see.
- SQQQ – Still our primary hedge that can pay $200,000 at $30 and it's about net $0 so nice potential gain. We'll roll the March puts along and see what happens.
- TSLA – Now this one is fun as we make another $3,940 if TSLA stays below $900 for another month but we already made $15,660 so a stop on the short March $900 calls at $20 – just in case. It's an $80,000 put spread if they fall to $600 but we're in the spread for net $67,245 so the upside is in the constant short-term sales more so than the spread itself – don't forget that.
TZA – Our other main hedge is good for about $70,000 at most (at $7.50) but at least it's only net $13,000 so kind of nice for a new play. If TZA doesn't come down soon, we can expect a reverse-split.