Thursday Thoughts - Have I Mentioned How Much I Like CASH!!! Lately?


It's almost a joke how many times I said that last quarter to our Members and in our morning posts.  I have said "CASH!!!" (with the exclamation points) 210 times in the past 90 days in our Live Member Chat Room in answer to various questions about what I thought would be a good position to be in into the end of 2015.  Our Member Portfolio are over 80% CASH so we are able to enjoy this little correction and, in fact, today we'll be doing a bit of early bargain-hunting using our famous "How to Buy Stocks for a 15-20% Discount" strategy.

While we're not sure the market is done going down (see chart below), we are sure that we can give ourselves 20% additional discounts to the current prices (like our AAPL trade idea yesterday) and, with the S&P already down around 1,940, 20% further down is 1,552 - and that's a level we feel strongly would be good long-term support (1,850 is our target low).  So 1,940 is close enough for us to dip our toes in and commit perhaps 10% more of our cash.  

Of course, we also have our hedges.  In fact the SDS hedge we featured back on Dec 4th is 100% in the money and on the way to pay back the full 477% on cash as we move towards January expirations.  I won't even tell you how much money our Futures short ideas from that same post are now up - if you weren't in them you will just cry.  Even our long idea from that post: WYNN, which was picked for our institutional clients is actually up from that day - despite the poor market surrounding it.  In fact, the short sale of 1,000 2018 $45 puts for $9.30 is up $90,000 already as the puts dropped to $8.40 - not bad for a month's work.

That's just a play using our simple "discount" strategy and I mentioned at the time that we had put together a Buy List for 2016 and now those stocks are finally coming down to levels where we're willing to pull the trigger on a few.  Boy, that was a great post!   It's also a good time to re-read:  "The Joke's On You If You Are Buying This 'Rally'" from 12/15 - so you'll know what I mean next time I tell you a rally is FAKE!!!   Also good reading is Thanksgiving's: "How Are Fantasy Sports Like Our Fantasy Stock Markets?" and, yes, I am my favorite author!  8-) 

Ah, here's why I was looking at old posts:  "Hedging for Disaster – 3 Ways to Save Your Assets in a Market Collapse- that's the one I want to go over because you need to see how these things work so that NEXT time, when you get one of our little warnings in your inbox - you don't delete it and move on to the next funny cat picture!  In the header for that post on Seeking Alpha, my summary was:

We've made a call to get to cash - we just don't like the current market enough to stay in.

For those who can't, or won't, go to cash - we have some great hedging ideas.

And I opened the post with:

And we're out!

That's right, we've had enough of these idiotic market moves and, after discussing the idea with our Members all week, I sent out Alerts this morning that we will be cashing out our main Virtual Tracking Portfolios ahead of what we consider market conditions that are simply too unsafe to hold large, bullish positions in.

Two of the 3 hedges were short-term and quickly cashed out when the market dipped in late September (sending SDS over $24), but the main hedge is still in play and that was:

  • Buying 30 SDS March $23 calls at $3 ($9,000)
  • Selling 30 SDS March $28 calls at $2 ($6,000)
  • Selling 5 AAPL 2017 $70 puts for $4.35 ($2,175)

SDS has taken quite a dive since then, now down at $21 but the March $23 calls are 0.89 ($2,670) while the March $28 calls are $0.30 ($900) and the AAPL 2017 $70 puts are $2.42 ($1,210) for net $560, down just $265 after 4 months and still providing up to $15,000 of protection should the S&P drop 20% from here.  

That's why we love these hedges, the cost of our 6-month, $15,000 insurance policy was, at most, $825 in cash - and that allowed us to keep some of our long positions, despite our concerns.  Our worst-case on the trade was that we'd end up owning 500 shares of AAPL at $70 - not something we wouldn't enjoy!  So, when I say we will be adding new long positions - we will, of course, be doing so in the context of adding new hedges as well - so that we don't have any unpleasant surprises when the market takes a nasty turn.  

As to our existing hedges:  

  • In our Options Opportunities Portfolio, we already cashed out our long SQQQ March $15 calls at $5.44 (too early, it seems).  
  • Our Long-Term Portfolio has 20 short NFLX Jan $105.71 calls we sold for $18.45 they were as low as $4 but now back to $13 and we'll watch those closely to make sure we make at least $10,000 on those.

In our Short-Term Portfolio, which is where we do most of our hedging, we have:

  • 100 SDS March $19 calls at $1.75 (10/29) - These are now in the money by almost $3 and we will take a 100% gain off the table ($17,500) 
  • 20 TZA April $40 calls at $9.85 (10/8) - We'll cash these at $15+ for a $10,000 gain.  
  • 5 BWLD 2017 $150 puts at $10.45 (9/8) - If $150 holds up, we'll take the money ($20+) for a $5,000 gain
  • 50 SQQQ March $15 calls at $4.30 (10/29) - We'll look to take $6+ off the table for a $10,000 gain.

So cashing in those hedges will put about $42,000 CASH!!! back in our pockets which we can then turn around and use to buy some bargain stocks.  Then we buy some new longer-term hedges to protect our new positions and THAT, my friends, is what a balanced portfolio strategy is all about - we AUTOMATICALLY get paid CASH!!! to go shopping with when the market takes a dip!  

In our Live Member Chat Room, we already called a bottom in the Futures earlier this morning (this is how we lock in our short option gains pre-market) and our favorites were Nikkei (/NKD) 17,500, Nasdaq (/NQ) 4,300 and S&P (/ES) 1,940 along with Gold (/YG) $1,100, Silver (/SI) $14 and Gasoline (/RB) $1.14.  

As we did yesterday, we'll be looking for weak then strong bounces but another failure at the weak bounce lines, like we had yesterday, is going to have us scrambling to put back some aggressive hedges.  

Be careful out there!