Yes, this is Monday morning's Report.

I don't have much to say about the markets, they are back near the highs and we'll see if they hold tomorrow, not today, as it's Monday and Monday's don't matter.  What we do need to do is bargain-hunt in case it is a real rally and the best way to do that is to look back on past trade ideas and see if we can find some that haven't gone up yet.

We did our last Top Trade Review in April, so it's a good time to do one of those and, as our Members well know, the vast majority of those trades turn positive so, when they're not, it's usually just a matter of time.  As of the April review, we had looked at Top Trades that were initiated through July and, out of 36 trade ideas in 34 weeks, we had 29 winners and 7 losers but 3 of the losers turned around and that left is with 30 wins and 4 losses for a very solid 88.23% winning percentatge.

Our Top Trades are what we think are our best trade ideas of the week with the highest chances of winning andwe send out Alerts to our Members via Text and Emailbut we don't have a specific portfolio for them as they ofen ended up in one of our 5 various Member Portfolios already.

There's a bit of randomness to the reviews in that we check in on trades after roughly 6 months so they are usually in progress and may be randomly up or down at the moment butthat's why these reviews are so great for identifying bargains that simply haven't made a move yet.  These are the Top Trade Ideas from September of 2017:

Wednesday, Sept 6th: Some weeks we have no Top Trade Ideas, some weeks we have lots. On Sept 6th we had 4 because I was going on Money Talk to initiate a Portfolio just for picks made on that show and these are the original trade ideas we dedcied to go with that day:

AAPL – Apple is a stock we ALWAY like to have in our portfolios – still the best of all companies. At the time, we were speculating about the potential sales in the coming cycle and I pointed out that Apple had given good guidance and they were usually conservative so it was likely to be a great year in 2018.  So far, so good on that! Our trade idea was:

This will end Apple's fiscal year with about $228Bn in sales and about $49Bn in profits and on track to hit $250Bn next year with $55Bn in profits which puts a $1Tn valuation ($195/share) firmly in reach as the p/e would be only 18 and, don't forget, AAPL is sitting on $250Bn in cash which, thanks to Trump, it's likely they will be able to bring home from overseas at a very low tax rate, which could lead to a massive dividend distribution or stock buyback.
That being the case, we could play AAPL to certainly stay over $160 with the following spread:

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  • Sell 10 AAPL 2019 $140 puts for $9.10 ($9,100)
  • Buy 20 AAPL 2019 $150 calls for $25.30 ($50,600)
  • Sell 20 AAPL 2019 $165 calls for $17.70 ($35,400)

Your net cash outlay on the spread is $6,100 and the potential upside on the spread is $30,000 if AAPL is just over $165 on expiration day (Jan 18th, 2019) for a gain of $23,900 (392%). Selling 10 puts obligates you to buy 1,000 shares of AAPL at $140 ($140,000) plus the $6,100 cash so $146.10 per share is a $16 discount (10%) to the current price as a worst case. Ordinary margin on the puts is just $10,361 since it's far out of the money so the return on margin is excellent as well.
We are expecting a short-term pullback in Apple and the overall market of perhaps 10% so, it may pay to be patient on this trade. In the very least – it's a good idea to keep hedges in your portfolio.

We did get our pullback, just as expected but, even with the impatient entry, this has been a great spread with the short Jan $140 puts down to $1.60 ($1,600) and the $150/165 spread at net $11.50 ($23,000) so far and that's net net $21,400 for a gain of $15,300 (250%) so far but no reason to think we woun't get the full $30,000 potential out of this spread so it's still good for a potential double – even though you missed the first 250% worth of gains!  

LB – L Brands was our Trade of the Year for 2018 but, by the time it was time to make an official call (Thanksgiving), LB had shot up to $50 so we switched to HanesBrands (HBI) for our actual call but, fortunately, we didn't wait for November to buy LB and we already cashed this one out in Dec and now we're back in again. Still, we'll do the numbers as if we stuck with the original trade:

So the damage is self-inflicted and, going forward, the comps should be much stronger but, at $36.68, the Market Cap has dropped to $10.4Bn for a company with $12Bn in sales that's dropping over $1Bn to the bottom line for a p/e of about 10.  Strong sales, strong profits and an iconic brand at a huge discount makes LB a strong contender for our Trade of the Year for 2018 (if it stays this cheap).
At the moment, our trade idea would be:

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  • Sell 20 LB 2019 $32.50 puts for $4.70 ($9,400)
  • Buy 40 LB 2019 $32.50 calls for $7.50 ($30,000)
  • Sell 40 LB 2019 $40 calls for $4.30 ($17,200)

The net cash outlay on this spread is just $3,400 and the margin requirement is $4,974 while the spread returns up to $30,000 at $40 or better on Jan 18th, 2019 for a net profit of $26,600 (782%).  Worst case is owning 2,000 shares of LB at $32.50 + $1.70 cash lost would be $34.20, about 5% below the current price.

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We're still above the short put line and the Jan $32.50 puts are down to $3.75 ($7,500) while the $32.50/40 spread is down to $2.80 ($11,200) so the net is $7,700 and up $4,300 (126%) despite LB's massive pullback. I would not use this as a new trade as the 2020s are out but the same targets there work out to a net CREDIT of $2,500, so I like that trade very, very much as it's now net $2,474 in margin and returns $32,500 if successful.  I'd call that a TRADE OF THE YEAR!!!

IMAX – Imax has been on a wild ride since we jumped in but it's now right at our target price of $22 though it closed March below the target so we'll just count that finish for the purpose of this review. In our chat room, we took advantage of the March dip and doubled down into September – a move we also announced on a later episode of Money Talk – it was the first adjustment we ever made to a position in that portfolio…  The original trade was:

IMAX doesn't have 2019 options, they only go out to March so our trade idea for IMAX is:

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Sell 10 IMAX March $20 puts for $2.35 ($2,350)
Buy 20 IMAX March $18 calls for $3.10 ($6,200)
Sell 20 IMAX March $22 calls for $1.30 ($2,600) Here our cash outlay is $1,250 on the $8,000 spread that's $3,000 in the money to start.   The margin is a steep $2,200 because we're selling aggressive puts but the turnaround time is just 6 months if all goes well and we stand to make a potential $6,750 (540%) return on cash if IMAX is over $22 on March 18th.

March options expired on the 16th and IMAX finished the day at $20.75, $1.25 shy of our goal. Fortunately, we had the $18 calls and they finished at $2.75 and 20 of those were $5,500 while the short March $20 puts and the short March $22 calls both expired out of the money so we netted the $5,500 for a gain of $4,250 (340%) – only half of what we'd hoped for in the unadjusted position but, as you can see below, we moved to the Sept spread, which is now up another $3,660 so far.  

WPM – Wheaton Precious Metals was our 2017 trade of the year back when it was called Silver Wheaton. That was our first portfolio trade and it was a big one and is currently up $12,863 (643%) but the trade was already at net $9,100 on Sept 6th, so we'll call it up $3,763 (41.3%) since then and it pays $25,000 if WPM holds $22 for the year so still almost 100% left to gain – even though you missed the first $10,000!  

This is what our Money Talk Portfolio looks like now:

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A 70% gain is not bad for 7 months "hard" work! There's still plenty of gas left in the tank on these trades and we only touch them about once a quarter, when I am invited to the show – this is very much a self-hedging "set and forget" portfolio and these are not particularly aggressive trades nor are they risky companies – you don't need to do that sort of thing to make perfectly good returns in the market. You just have to learn how to Be the House – NOT the Gambler!

Thursday, Sept 14h:  SCO - We though the summer pump in oil would fade out by November but we were totally wrong and this trade was a total wipeout!  The trade idea was:

In the OOP, let's add:

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Buy 20 SCO Nov $33 calls for $4 ($8,000)
Sell 20 SCO Nov $39 calls for $1.80 ($3,600)
Sell 10 SCO Nov $35 puts for $3 ($3,000) That's net $1,400 on the $12,000 spread that makes money as long as oil is under $50 in November.  Upside potential is $10,600 (757%) in 64 days.  That should pay for our Christmas shopping and also makes a nice market hedge.
In the STP, let's do the same spread but with 50 bull call spreads and 25 short puts.

SCO expired in November (17th) at $27.95. We pulled the plug on this one early but, if you didn't, not only did you lose the $1,400 cash portion of the spread but the 10 short $35 puts expired $7.05 in the money for another $7,050 loss bring the net loss to $8,450 (603%) – leverage cuts both ways and that's why it's very important to stay aware of your exposure and cut your losses quickly if you don't intend to work into a larger position. It was a hedge, and hedges are supposed to lose money when the market does well -  but hopefully not that much!  

Tues, Sept 19th: TGT – We already had Target trades in both of our main portfolios (LTP and OOP) and we decided to get more aggressive, the new trade was:

Roll the short 7 2019 $52.50 calls at $9.70 ($6,790) to 12 2020 $65 calls at $5.50 ($6,600)
Buy 12 2020 $50 calls for $12.40 ($14,880)
Roll the 5 short 2019 $45 puts ($1,150) at $2.30 to 8 2020 $52.50 puts at $7 ($5,600)

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So we are pocketing $3,750, which is more than the $3,125 we started with and now we go from a potential (almost certain) $5,625 profit in 16 months to a potential $18,625 profit (still playing conservative) in 28 months.  I think it's worth waiting 12 more months for 3x more money, don't you?
As a new trade (if you're not already in it) – it's simply selling the new 2020 $52.50 puts for $7 and buying 50% more of the 2020 $50/65 spreads for $6.90 and that's net $6.70 and returns $30 for a $13.30 profit on each spread (192%) if TGT is over $65 in Jan 2020.

Target blew through our targets and the 2020 $52.50 puts are now just $3.40 ($2,720) while the $50/65 bull call spread is $9 ($10,800) so net $8,080 is up $5,400 (201%) but it's an $18,000 spread with $11,920 (147%) left to gain if Target holds $65 into Jan 2020. Even if you are not PSW subscriber and are just seeing this for the first time and missed our Members' 200% initial gain - it's still probably the best trade idea you've ever gotten!  

That was it for September. We didn't like any other trades that month enough to make them Top Trades but we did finish the month with 5 winners and just the 1 loser and, although that's 83.33%, it still brings the average down a bit to 35 and 5 or 87.5% through Sept. On the cash side, the winners totaled $33,013 while our $8,450 loss knocked it down to $24,563, which is still a good month for most people.

Getting back to the markets: We still have a lot of earnings this week and it's a very dull data week so expect the focus to be very much on earnings – especially with only a snattering of Fed Speak (4):

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Mondays are meaningless (I retired from Monday's and I'm teaching our Members to enjoy 4-day work-weeks) and tomorrow will be Technical Tuesday, where we'll focus back on the charts – unless Trump does something crazy that causes a crisis – so 50:50….