Mad Hedge Fund Trader

How to Handle the Friday, February 19 Options Expiration

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Followers of the Mad Hedge Fund Trader Alert Services have the good fortune to own no less than 16 deep in-the-money options positions, all of which are profitable.  All but one of these expire in two trading days on Friday, February 19, and I just want to explain to the newbies how to best maximize their profits.

It was time to be aggressive. I was aggressive beyond the pale.

These involve the:

Global Trading Dispatch

  • (TSLA) 2/$650-$700 call spread 20.00%
  • (TSLA) 3/$600-$650 call spread
  • (MS) 2/$55-$60 call spread 10.00%
  • (BA) 2/$150-$160 call spread 10.00%
  • (BLK) 2/$640-$660 call spread 10.00%
  • (GS) 2/$240-$260 call spread 10.00%
  • (AMD) 2/$75-$80 call spread 10.00%
  • (BAC) 2/$28-$30 call spread 10.00%
  • (KO) 2/$44-$47 call spread 10.00%

Mad Hedge Technology Letter

  • NFLX 2/ $510- $515 call spread 10.00%
  • AMZN 2/ $3,095- $3,100 call spread 10.00%
  • AAPL 2/ $126-$129 call spread 10.00%
  • INTU 2/ $340-$345 call spread 10.00%
  • QCOM 2/ $135-$140 call spread 10.00%

Mad Hedge Biotech & Healthcare Letter

  • (AZN) 2/$46.50-$49.50 call spread 10.00%
  • GILD 2/ $57-$60 call spread 10.00%

Provided that we don’t have a huge selloff in the markets or monster rallies in bonds, all 15 of these positions will expire at their maximum profit point.

So far, so good.

I’ll do the math for you on our oldest and least liquid position, the Tesla February 19 $650-$700 vertical bull call spread, which I initiated on January 25, 2021 and will definitely run into expiration. At the Friday high, Tesla shares were at a lowly $816, some $53 lower than the $869.70 that prevailed when I strapped on this trade.

Provided that Tesla doesn’t trade below $700 in two days, we will capture the maximum potential profit in the trade. That’s why I love call spreads. They pay you even when you are wrong on the direction of the stock. All of the money we made was due to time decay and the decline in volatility in Tesla stock.

Your profit can be calculated as follows:

Profit: $50.00 expiration value - $44.00 cost = $6.00 net profit

(4 contracts X 100 contracts per option X $6.00 profit per options)

= $2,400 or 20% in 18 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 February 22 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 machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the 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 understandably disappears, and the spreads substantially widen, when security has only hours, or minutes until expiration on Friday, February 19. 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.”

If for some reason, your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.

If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.

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 month-end.

Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.

Well done, and on to the next trade.

 

 

 

 

 

 

 

Mad Hedge Fund Trader

February 16, 2021

Mad Hedge Biotech & Healthcare Letter
February 16, 2021
Fiat Lux

FEATURED TRADE:

(SHORT-SQUEEZE DRAMA: BIOTECH EDITION)
(SRNE), (NVAX), (AZN), (MRNA), (PFE), (GILD), (GME)

Mad Hedge Fund Trader

Short-Squeeze Drama: Biotech Edition

The fuss over GameStop (GME) has aimed the spotlight on several small- and even mid-cap stocks that hold a high level of short interest.

For quite some time now, retail investors have been identifying others with similar qualities as GME: a short interest standing at more than 20% of the total float, a market capitalization above $1 billion, and a stock price of roughly $20 per share or even less.

Now, these traders have turned their attention to the biotech industry and one stock that caught their attention is Sorrento Therapeutics (SRNE).

In 2020, Sorrento was hailed as one of the hottest COVID-19 stocks as it jumped an impressive 135% since the year started.

However, the hype dissipated quickly, with the stock falling almost 50% by August that same year.

The company’s volatility was expected considering Sorrento’s early entry, but delayed progress in the COVID-19 race.

As 2020 rolled out, investors started ditching the stock in favor of other developers like Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), Novavax (NVAX), and AstraZeneca (AZN).

Come 2021, however, the stock seems to bounce back.

Sorrento’s shares have been climbing since the year started following the company’s encouraging data on COVI-MSC, which is its entry in the race to find a potent COVID-19 treatment.

COVI-MSC works as a stem cell treatment developed for COVID-19 patients suffering from acute respiratory distress.

Based on its report in January, Sorrento disclosed that the first three individuals who went through their COVI-MSC treatment were discharged from the hospital within only a week.

Meanwhile, the fourth patient, the one who needed mechanical ventilation due to deteriorating respiratory condition, experienced rapid improvement of his condition and was discharged from the hospital the night of his third COVI-MSC infusion.

On a more promising note, none of the patients experienced any adverse effect following their COVI-MSC treatment.

Outside its COVID-19 treatment program, this San Diego-based biotechnology company has been working on therapies for cancer, neurodegenerative, autoimmune, and inflammatory conditions.

It has multiple “shots on goal” particularly in the oncology department, with its non-small cell lung cancer treatment Abivertinib as the leading candidate to date.

Sorrento’s pain management pipeline, which is headlined by Ztildo, is ripe for expansion thanks to its strategic collaboration with SCILEX.

The company also has its hands in other high-growth sectors in the biotech world, paying particular attention to non-opioid pain relief and immunotherapy.

These projects indicate that Sorrento is no one-trick pony.

In fact, even if its COVID-19 program falls flat – a very real possibility considering that COVI-MSC still needs to go through multiple trials – Sorrento has several initiatives to fall back on.

With three shots on goal, namely, its COVID-19 program, its oncology platform, and non-opioid pain treatment, Sorrento has ensured that it’s well-positioned for success.

If approved, Sorrento’s current pipeline comprising diagnostic kits and therapies could generate over $2 billion in short-term sales.

At the moment though, Sorrento’s $4.02 billion market capitalization makes it a tiny biotechnology company compared to its competitors.

Given its robust pipeline, it’s evident that Sorrento still needs to boost its capitalization to push through with all the plans.

For context, its most dominant rival in the COVID-19 treatment market is Gilead Sciences (GILD), which has $84.38 billion in market capitalization, rakes in $800 million each quarter from sales of Remdesivir.

Let’s say Sorrento expands to the vaccine market, it still cannot catch up with the leader in that arena, Moderna (MRNA), which has $70.97 billion in market capitalization.

Looking at Sorrento’s performance, this company remains an underappreciated stock loaded with potential.

From a business perspective, Sorrento offers a solid pipeline of candidates that could present promising results to push the stock price up.

At this point, the positive updates on its COVID-19 program can cause the stock price to rise exponentially, putting short sellers looking in an unfortunate position.

Overall, Sorrento has the potential to double in value. However, bear in mind that it still has a long way to go. Hence, this company is best as a long-term investment.

sorrento

Mad Hedge Fund Trader

February 16, 2021

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Global Market Comments
February 16, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or A RETURN TO IRRATIONAL EXHUBERANCE)
(PLBY), (SPX), ($INDU), (NVDA), (AMD), (MU), (USO)

Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or A Return to Irrational Exuberance

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Playboy is going public.

Its flagship magazine was wiped out by free internet porn last year after a storied 66-year run. During the 1970s, an invitation to a new club opening was the hottest ticket in town.

Of course, I bought the magazine only to read the articles.

Melania Trump as a centerfold? The business possibilities boggle the mind. Of course, it’s going public through a SPAC. Nobody else would touch this with a ten-foot pole. The ticker symbol will be (PLBY).

What this IPO does tell me is how overheated the markets are getting. In 1996, former Fed governor, saxophone player, and Ayn Rand acolyte, the gnomish Alan Greenspan warned the stock market of “irrational exuberance.” Since then, the Dow Average has risen by 5.2 times in 23 years, revisiting the 6,000 low once in 2009.

In fact, let me explain to you why stocks are so cheap.

At the 2000 Dotcom Bubble top, ten-year US Treasury yields stood at 6%. Stocks would have to rise five times more from today’s paltry 1.20% to reach the same relative valuation.

Dow 163,000 anyone?

Similarly, the big FANG stocks would have to triple in value to get us to the 100X price earnings multiple that prevailed in 2000. That gets us at least to Dow 94,500.

And this is what people don’t get about liquidity-driven bull markets. They go on far, far longer than anyone imagines possible. You had to be in Tokyo in 1989 to understand this.

If you’re really and truly worried about stocks, take a look at the chart below and how they reacted to the last catastrophic selloff that took place during 2007-2009.

After an initial, frenetic move, they rose by, you guessed it, 5.2 times.

The Global Chip Shortage is spreading beyond cars to phones and electronics. High prices beckon across the board. Could this be the black swan that heads off the recovery? It’s all a screaming BUY for (NVDA), (AMD), and (MU). I can’t believe these haven’t moved yet.

Biden created a Bull Market in Oil (USO) when he banned new leases on federal lands. The move took 3 million barrels a day off the market, taking a bite out of the 10 million barrels a day oversupply. And economic recovery should soak up the remaining 7 million barrels, 2021 forecasts for Texas tea are now reaching as high as $80.

Space X is taking pre-orders for Starlink, Elon Musk’s Global satellite WIFI network. Another industry disrupted. For a $99 deposit, you can access 500 megabytes a second, faster than available for most of the US. The goal is to launch 11,943 satellites by 2024. If it works, AT&T (T), Comcast (CMCSA), and Verizon (V) could be in big trouble. When you own your own rocket company, it’s easy to undercut the competition.

Weekly Jobless Claims are still weak, at 793,000, far higher than expected, but less than last week. Total jobless claims have it an unbelievable 20.44 million, just short of the 1930’s Great Depression high. Perhaps 20% of the country is living on government handouts.

The Pandemic Property Boom continues, posting the hottest numbers since 2005.  The National Association of Realtors says the price of a single-family home rose by a staggering 14.9% in Q4. The Northeast was the leader at a 21% gain. The market keeps going from strength to strength.

Will the Dow double in a year? We only have 4,500 points to go for a 100% gain from the last March 20 low. We have already seen the sharpest gain in history, beginning when Biden took the lead in the primaries. Will passage of the $1.9 trillion rescue package take us over the finish line? And are we setting up for a “Buy the rumor, sell the news? We’ll know in a month. I bet you’ve just made more money in stocks than you’ve ever imagined possible. Take short-term profits in everything.

Bonds hit new lows, taking the ten-year US Treasury yield up to 1.20%. The Feds hit the markets for a massive $120 million in debt this week and buyers are obviously glutted. Keep selling those rallies in the (TLT). Maybe you should start selling dips, too. Use bond selloffs for your stock market timing. They’re about to become “certificates of confiscation” again.

No hint of rising rates soon, hints Fed governor Jay Powell. Recovery is the only goal, damn the inflation torpedoes.

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch earned an amazing 16.48% so far in February after a blockbuster 10.21% in January. The Dow Average is up a trifling 2.80% so far in 2021.

This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 26.69%. There are only four trading days left until the February 19 option expiration, when I automatically go into 80% cash. That’s convenient!

That brings my 11-year total return to 449.24%, some 2.04 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an Everest-like new high of 40.29%.

My trailing one-year return exploded to 90.96%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 108.63% since the March 20, 2020 low.

We need to keep an eye on the number of US Coronavirus cases at 27.7 million and deaths approaching 500,000, which you can find here. We are now running at a heartbreaking 3,000 deaths a day. But that is down 35% from the recent high.

The coming week will be a boring one on the data front.

On Monday, February 15, markets are closed for Presidents Day.

On Tuesday, February 16 at 8:30 AM EST, the NY Empire State Manufacturing Index is out. CVS (CVS) and Zoetis report.

On Wednesday, February 17 at 8:30 AM, US Retail Sales for January are published. At 2;00 PM, we learn the Fed Open Market Committee minutes from the last meeting. Shopify and Twilio report.

On Thursday, February 18 at 9:30 AM, Weekly Jobless Claims are printed. Barrick Gold (GOLD) and Roku (ROKU) report.

On Friday, February 19 at 10:00 AM, Existing Home Sales for January are released. We learn the Baker-Hughes Rig Count. As we have a three-day weekend following, option volatility should collapse. John Deere (DE) reports.

As for me, let me tell you what the last weeks of the great Japanese bull market were like at the end of 1989.

The big thing then was to eat sushi salted with flecks of pure gold. Any foreigner who could speak Japanese was worth hundreds of thousands of dollars a year.

The brokers would hire anyone. Kids went from running sandwich shops to trading desks at Morgan Stanley. Others upgraded from bicycles to Porsche Carrera’s and used to race on Tokyo’s abandoned freeway system in the middle of the night.

And you know what? Someone offered me a piece of gold-flecked sushi just the other day!

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

Stock Gains Since Greenspan’s “Irrational Exuberance” Comment

 

 

 

 

 

Mad Hedge Fund Trader

Trade Alert - (CRWD) February 16, 2021 - SELL-TAKE PROFITS

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

Mad Hedge Fund Trader

Trade Alert - (CRWD) February 16, 2021 - SELL-STOP LOSS

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

Mad Hedge Fund Trader

February 12, 2021

Mad Hedge Technology Letter
February 10, 2021
Fiat Lux

Featured Trade:

(UBER GETS ANOTHER MULLIGAN)
(UBER)

Mad Hedge Fund Trader

Uber Gets Another Mulligan

Great news for tech investors – Uber (UBER) is getting a pass on its almost historic loss-making 2020!

A highly bullish indicator is the broader tech market able to absorb an almost $7 billion annual loss with ease.

This all bodes well for the health of the tech market in 2021 – we should finish this year clearly higher than we are now today albeit with no black swans.

The tech market is iron clad right now with multiple external forces pushing up multiples to historic levels.

Imagine there are copious amounts of better tech companies out there that are actually turning a profit and are even at the vanguard of all the latest tech trends, and Uber definitely isn’t one of them.

Yet, I believe Uber shares will roar higher!

A Nasdaq index brimming with liquidity is the one way to explain this phenomenon because the bar has been set so low for tech companies to jump over that unless there is a bankruptcy or systemic risk, shares will rip higher.

Remove the liquidity subsidy and Uber shares would be headed into the gutter in a flinch.

But here we sit with tech shares going parabolic after a robust breakout.

If this carries on, we will see more abnormal side-effects and I believe the GameStop phenomenon was precisely the precursor to much weirder activity that is about to happen.

I must divulge that part of the narrative driving firms like Uber is the re-opening theme of increased consumer behavior if the population is theoretically inoculated driving a surge in economic activity.

The boom in outdoor consumerism would catapult Uber’s loss-making ride share division which performed poorly grossing only $6.79 billion, down 50% from a year ago.

As many might have guessed, Uber’s pitiful performance in ridesharing in a pandemic was met conversely by heightened food delivery gross volume of $10.05 billion, up 130% from a year ago.

What does this mean?

Uber is turning into a loss-making food deliverer from a loss-making ridesharing company and are still losing vast sums of money.

Their strategy of acquiring other food deliverers like alcohol delivery app Drizly for a deal valued at $1.1 billion in stock and cash combined will scale well and offer cost savings but is no panacea.

They also sealed a deal for a $2.65 billion acquisition of delivery service competitor Postmates in December to help build out its delivery capabilities.

However, where is the light at the end of the tunnel?

Where is that iPhone or YouTube – that game-changing asset?

There is no growth asset here and I still see no proprietary technology other than an app that matches drivers to passengers and a food delivery app that gets a car to its hungry customers.

To Uber’s credit, they revealed 20% improvement in net losses amounting to $6.77 billion, from a jaw-dropping $8.51 billion loss in 2019, and I will agree there is headway to make with such lousy numbers.

As long as Uber is afforded such a long leash and incentivized to perform badly, they can incrementally reign in the net losses and still claim victory.

But I scratch my head thinking how they will finally overcome that “last mile” problem of making this company a true tech giant and not one just brandishing below-average intellectual property and partying for losses that aren’t as bad as expected type of model.

At the end of the day, we can only trade the market we have, and not the one we want.

The broader tech market has given its implicit nod to Uber and this company remains an attractive buy on the dip tech growth company even though I listed a myriad of risks and concerns about its underlying model.

 

uber

Mad Hedge Fund Trader

February 12, 2021 - Quote of the Day

“My goal was never to make Facebook cool. I am not a cool person.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg

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