When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
March 17, 2020
Fiat Lux
Featured Trade:
(LONG TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN)
(HOW TO HANDLE THE FRIDAY, MARCH 20 OPTIONS EXPIRATION),
(AAPL), (AMZN), (MSFT)
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is breaking down the front door with alarming speed. In short: the future is happening fast, very fast, and with coronavirus, people are understanding wondering about economic effects long term.
To a large extent, long term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind will be minimized. I’ll tick off some of the more obvious.
You may think I’m nuts. But all San Francisco Bay Area counties have been given a “shelter in place” order. All travel is banned except to gain essential necessities. In any case, the grocery stores are now empty, unless you have a taste for chickpea-based pasta.
Let me clarify first that it is highly unlikely that you will get the Corona virus. If China peaks at the current 90,000 cases and 4,000 deaths, that means there is one chance in 325,000 you will die of the Corona virus. If the number of cases doubles, that drops to one chance in 175,000. In other words, you are more likely to win the lottery than die of Corona virus.
However, that is logic speaking. Fear is what is firmly in the driver’s seat right now. The only data point that counts now is the number of new Corona cases. You can find that figure here.
In the meantime, you better get used to your new life. You know that home office of yours? It is about to gain a full-time occupant, i.e. you. Most large companies already migrated to four, or even three-day work weeks, with the remainder to be spent at home.
One email, and that has suddenly become a five-day week at home. Many of these employees are never coming back, preferring to avoid horrendous commutes, lower costs, and yes, future pandemic viruses. We are already using GoToMeeting (LOGM) and Zoom (ZM) for many meetings. That simply becomes a full-time enterprise.
Commerce will change beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on. Amazon just announced the hiring of 100,000 new distribution and delivery people today to handle the surge in business. The pandemic is really going to be the death knell of the mall, where a potentially fatal disease is only a sneeze away. Avoid mall REITs (SPG) like the plague, no matter how much they promise to pay you in yield.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitter of disease is? That would be US dollar bills. Take paper money in change and you are not only getting contact from the salesclerk, but the last dozen people who handled the money.
Contactless payments deal with this nicely. People may be swiping their iPhone wallet, or are simply scanned when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences? A thing of the past. All of my public speaking events around the world over the next three months have been cancelled. In their place will be webinars. They offer lower conversion rates but include cheaper costs as well. At least I won’t have 18 hours of jet lag to deal with anymore. I’m sure Quantas will miss those first-class ticket purchases and I’ll miss the Champaign.
Entertainment is also morphing beyond all recognition. Comcast just announced that newly released movies will be available for a $20 rental. Clearly, they are assuming that theater attendance will go to zero. Again, this has been a long time coming and the other major movie producers will soon follow suit.
With the president banning assemblies of more than ten people today that’s a safe bet. Regal has announced that it is closing all 542 of its theaters. Stay away from AMC Entertainment Holdings (AMC), although its already almost gone to zero, down 75% this year.
Exercise is changing overnight. All gyms and health clubs are now closed, so working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so piece of cake here. Friends with yoga classes are now doing them in the living room, streaming their instructors online.
That's just a snapshot of some of the long term economic effects of coronavirus.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow in Contagion. Is has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic which we may now be facing.
It is bone-chilling.
As for me, I have my stockpile of food and will be self-quarantining for the foreseeable future.
Stay healthy.
Followers of the Global Trading Dispatch have the good fortune to own a deep in-the-money options position that expires on Friday, and I just want to explain to the newbies how to best maximize their profits on that March 20 expiration.
This involves the:
Apple (AAPL) March 2020 $220-$230 in-the-money vertical BULL CALL spread
Microsoft (MSFT) March 2020 $120-$125 in-the-money vertical BULL CALL spread
Amazon (AMZN) March 2020 $1,350-$1,400 in-the-money vertical BULL CALL spread
Provided that we don’t have another 3,000 point move down in the market this week, these positions should expire at their maximum profit points. So far, so good.
I’ll do the math for you on the Apple (AAPL) position. Your profit can be calculated as follows:
Profit: $10.00 - $8.80 = $1.20
(11 contracts X 100 contracts per option X $1.20 profit per options)
= $1,320 or 13.63% in 7 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning March 23 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally mistakes do occur. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the options position before the March 20 expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market disappears and the spreads substantially widen when a security has only hours, or minutes until expiration on Friday. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next quarter end.
Take your winnings and go out and buy yourself a well-earned dinner. Or use it to put a down payment on a long cruise.
Well done and on to the next trade.
"Interest rates are gravity. When they are zero, share prices can go to infinity. When they are high, as they were during the early 1980s, the gravitational pull can be very strong," said Oracle of Omaha, Warren Buffett.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
As I look around the carnage that this virus has done to the financial markets and try and find opportunities, there are a few stocks standing out.
And most of them are high-yielding stocks.
And today I would like to make a suggestion on one of them.
That company is AGNC Investment Corp. (AGNC).
AGNC is trading right at its lower band on the daily chart and it pays a hefty 16 cents per share dividend.
Based on where it is trading now, which is $13.19, the annual return works out to 14.5%.
And AGNC does have weekly options. And with the volatility in the markets at the moment, they now carry a decent premium.
My suggestion today is to buy AGNC at the market, which is $13.19.
Then Sell to Open (1) March 20th, $13.50 call for every 100 shares you buy.
The March 13th - $13.50 call can be sold for $0.40. And I suggest you collect the premium.
If these calls area assigned this Friday, the return will be 5.4% for 5 days.
Because of the panic in this market, limit the position to 300 shares or 3.9% of the portfolio.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more