March 2023

Trade Alert - (MS) LEAPS - Buy

BUY the Morgan Stanley (MS) January 2024 $90-$95 at-the-money vertical Bull Call debit spread LEAPS at $2.25 or best

Opening Trade

3-30-2023

expiration date: January 19, 2024

Number of Contracts = 1 contract

The brokerage sector has been beaten like the proverbial red-headed stepchild this year, with plunging stock market prices and volumes. However, it should be at the core of any long-term LEAPS portfolio.

The best time to pick up this position will be during a market meltdown day and the Volatility Index is over $30.

If you are looking for a lottery ticket, then here is a lottery ticket.

While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is 2:1. That is the probability that Morgan Stanley shares will rise by 9.2% over the next nine months.

(MS) is the class act in the global investment banking sector, and CEO James Gorman is the best CEO in the sector. I helped personally build out some of the key fund management and trading infrastructure some 40 years ago and the profits are now kicking in big time.

The regional banking crisis has pulled forward any recession and therefore the recovery. The Fed certainly raised interest rates by 25 basis point because it was already in the mail.

After that, there will be no interest rate rises for a decade. The cuts will start in June and continue rapidly after that. That’s when the economic data catch up with the reality that is happening right now, which is hugely deflationary.

(NVDA) and (TSLA) already know this, which are rising sharply.

And here is the sweet spot. Fears of a recession have knocked $17, or 17% off the recent $101 high in (MS) shares this year. To learn more about the company, please visit their website at https://www.morganstanley.com

I am therefore buying the Morgan Stanley (MS) January 2024 $90-$95 at-the-money vertical Bull Call spread LEAPS at $2.25 or best.

Don’t pay more than $3.00 or you’ll be chasing on a risk/reward basis.

Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.

Let’s say the Morgan Stanley (MS) January 2024 $90-$95 at-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $2.00-$3.00, which is typical. Enter an order for one contract at $2.30, another for $2.40, another for $2.50, and so on.

Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.

A lot of people ask me about the appropriate size. Remember, if this stock does NOT rise by 9.2% in nine months, the value of your investment goes to zero.

The way to play this is to buy LEAPS in ten different names. If one out of ten increases ten times, you break even. If two of ten work you double your money, and if only three of ten work you triple your money.

There is another way to cash in. Let’s say we get half of your double in the next three months, which from these low levels is entirely possible. Then you could earn half of the maximum potential profit in months. Then you can decide whether to keep the fivefold return or go for the full ten bagger. It’s a nice problem to have.

Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.

Look at the math below and you will see that a 9.2% rise in (MS) shares will generate a 122% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 13:1 across the $90-$95 space.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.

This is a bet that Morgan Stanley will not fall below $95 by the January 19, 2024 options expiration in 9 months.

Here are the specific trades you need to execute this position:

Buy 1 January 2024 (MS) $90 calls at………….………$10.00

Sell short 1 January 2024 (MS) $95 calls at……...……$7.75

Net Cost:………………………….………..…………......….....$2.25

Potential Profit: $5.00 - $2.25 = $2.75

(1 X 100 X $2.75) = $275 or 122% in 9 months.

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Quote of the Day - March 30, 2023

Diary, Newsletter, Quote of the Day

“Data is the new oil,” said Dr. Kai-fu Lee, a leading Chinese artificial expert.

March 29, 2023

Tech Letter

Mad Hedge Technology Letter
March 29, 2023
Fiat Lux

Featured Trade:

(THE FORCE MULTIPLIER)
(MSFT), (TSLA), (CHATGPT)

The Force Multiplier

Tech Letter

Is artificial intelligence already on the ropes?

Tesla CEO Elon Musk and a group of artificial intelligence experts have called for a six-month freeze of developing systems that are more powerful versions than the just-released OpenAI GPT-4 system.

GPT-4 quickly impressed early users and has achieved remarkable gains in the short term.

With its ability to simplify coding, rapidly create a website from a simple sketch, and pass exams with high marks takes fractions of a second.

In an open letter, Musk and the experts point to potential risks for society and humanity as a whole.

This would be significantly detrimental to Microsoft’s stock if the development of AI is halted.

No doubt that part of this is Elon Musk not satisfied that his $100 million donation to this “nonprofit” has been parlayed into a Microsoft for-profit smash-and-grab takeover of the asset.

Malfunctioning AI is something that would be a horror story for everyone on the planet.

The creator of OpenAI Sam Altman has also expressed concern about the societal backlash and volume of misinformation that could become one of those nasty unintended side effects.

Some other disruptions include both economic and political disruptions, and researchers are asking developers to work with regulators to create standards for AI development and integration.

Among the names behind the letter are those of Stability AI CEO Emad Mostake and researchers at Alphabet-owned DeepMind.

The letter comes two days after Europol joined organizations that share ethical and legal concerns about the widespread use of advanced artificial intelligence such as ChatGPT and warn of possible misuse of the system in phishing attempts, disinformation, and cybercrime.

Since its launch last year, ChatGPT has taken the world by storm and has accelerated the development of large-scale language models and companies to integrate generative AI models into their products.

This logically caused a wave of negative comments in addition to positive comments, as a significant part of the scientific community believes that this technology is not yet ready for such widespread use.

Artificial intelligence can cause serious damage, and the big players are increasingly more secretive about what they're doing. That makes it harder to protect the public from any harm that may ever manifest itself.

This news is on the heels of investment bank Goldman Sachs forecasting that as many as 300 million full-time jobs around the world could be automated in some way by the newest wave of artificial intelligence.

They predicted in a recent report that 18% of work globally could be computerized, with the effects felt more deeply in advanced economies than emerging markets.

Fighting the richest man in the world has its drawbacks.

ChatGPT has already destroyed the meaning of going to university for most of the students out there.

Generative AI is the force multiplier that tech has waited for and delaying it with the potential of stopping it would hurt tech shares and put a cap on future returns.

This battle could be the one that defines humanity and is definitely the fight that will define tech market valuations 5 or 10 years from now.

If this technology gets stopped, there is no other force multiplier in the works that could replace something as powerful as this generative artificial intelligence.

Quote of the Day - March 29, 2023

Tech Letter

“Companies don't like uncertainty; travelers don't like uncertainty.” – Said CEO of Uber Dara Khosrowshahi

March 29, 2023

Diary, Newsletter, Summary

Global Market Comments
March 29, 2023
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(Trade Alert - (GS) LEAPS – BUY)

CLICK HERE to download today's position sheet.

Trade Alert - (GS) LEAPS - Buy

Diary, Newsletter

BUY the Goldman Sachs (GS) June 2024 $320-$330 at-the-money vertical Bull Call debit spread LEAPS at $4.50 or best

Opening Trade

3-29-2023

expiration date: June 24, 2024

Number of Contracts = 1 contract

The brokerage sector has been beaten like the proverbial red-headed stepchild this year, with plunging stock market prices and volumes. However, it should be at the core of any long-term LEAPS portfolio.

If you are looking for a lottery ticket, then here is a lottery ticket.

While the chance of winning a real lottery is something like a million to one, this one is more like 10:1 in your favor. And the payoff is 13:1. That is the probability that Goldman Sachs shares will rise by 7.14% over the next nine months.

(GS) is the class act in the global investment banking sector. Net out unrealized losses in its securities portfolio and it has a capital ratio of 14.5%, the highest in the industry. This implies a true leverage of 6.9:1.

The regional banking crisis has pulled forward any recession and therefore the recovery. The Fed had certainly raised interest rates by 25 basis point last week because it was already in the mail.

After that, there will be no interest rate rises for a decade. The cuts will start in June and continue rapidly after that. That’s when the economic data catches up with the reality that is happening right now, which is hugely deflationary.

(NVDA) and (TSLA) already know this, which are rising sharply.

And here is the sweet spot. Fears of a recession have knocked $75, or 19% off the recent $378 high in (GS) shares this year.

To learn more about the company please visit their website at https://www.goldmansachs.com

I am therefore buying the Goldman Sachs (GS) March 2024 $320-$330 at-the-money vertical Bull Call debit spread LEAPS at $4.50 or best.

Don’t pay more than $5.00 or you’ll be chasing on a risk/reward basis.

I stretched out to the June 2024 maturity so I don’t have too much risk bunching up in January of that year.

Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.

Let’s say the Goldman Sachs (GS) March 2024 $320-$330 at-the-money vertical Bull Call debit spread LEAPS are showing a bid/offer spread of $4.00-$5.00, which is typical. Enter an order for one contract at $4.10, another for $4.20, another for $4.30, and so on.

Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.

A lot of people ask me about the appropriate size. Remember, if this stock does NOT rise by 7.14% in 15 months, the value of your investment goes to zero.

The way to play this is to buy LEAPS in ten different names. If one out of ten increases ten times, you break even. If two of ten work, you double your money, and if only three of ten work you triple your money.

There is another way to cash in. Let’s say we get half of your double in the next three months which, from these low levels, is entirely possible. Then you could earn half of the maximum potential profit in months. Then you can decide whether to keep the fivefold return or go for the full ten bagger. It’s a nice problem to have.

Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.

Look at the math below and you will see that a 7.14% rise in (GS) shares will generate a 122% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 13:1 across the $320-$330 space.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.

This is a bet that Goldman Sachs will not fall below $330 by the June 24, 2024 options expiration in 15 months.

Here are the specific trades you need to execute this position:

Buy 1 June 2024 (GS) $320 calls at………….…..…$42.00

Sell short 1 June 2024 (GS) $330 calls at…………$37.50

Net Cost:………………………….………..………….…......$4.50

Potential Profit: $10.00 - $4.50 = $5.50

(1 X 100 X $5.50) = $550 or 122% in 15 months.

To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Quote of the Day - March 29, 2023

Diary, Newsletter, Quote of the Day, Summary

“When a business manufactures and distributes a non-essential consumer product, the customer is the boss,” said Oracle of Omaha Warren Buffet.

March 28, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
March 28, 2023
Fiat Lux

Featured Trade:

(NOWHERE TO GO BUT UP)
(REGN), (SNY), (RHHBY)

Nowhere To Go But Up

Biotech Letter

For any biotechnology company, one of the critical elements of success is the capability to create and develop new and innovative treatments.

That is one requirement Regeneron (REGN) has no trouble meeting.

The latest update from this biotech involves its blockbuster asthma medication, Dupixent. The top-selling drug delivered promising results from a study that aims to expand its indication, signifying the potential for additional billions of dollars in revenue.

According to Regeneron and its co-developer, Sanofi (SNY), the Dupixent trial on current or previous smokers displayed a 30% reduction in moderate or severe acute exacerbations of chronic obstructive pulmonary disease (COPD).

COPD is a lung condition that makes it difficult for air to move in and out of the lungs due to the narrowing of the airways. It's is caused by long-term exposure to irritants such as cigarettes, coal, and other pollutants. It can be fatal and life-threatening. There is no cure for COPD, but treatments may help improve symptoms and slow down the progression of the disease.

The market for COPD is estimated to grow significantly over the next five years due to the increasing prevalence of COPD and related comorbidities, such as asthma, cardiovascular diseases, and diabetes.

Additionally, factors such as continuous growth in the elderly population and the introduction of novel therapies are likely to drive the growth of this market during the forecast period. The global COPD market was valued at $27 billion in 2018 and is expected to reach $50 billion by 2025 with a compound annual growth rate of 8.5%.

Considering Dupixent’s positioning in the market and the competitors for this segment, Regeneron is projected to rake in an additional $4 billion in sales from this expanded COPD indication. Taking all its indications together, this blockbuster drug is estimated to contribute a whopping $19.2 billion in the company’s sales.

Aside from Dupixent, Regeneron has also aggressively expanded the indications for another blockbuster drug, Eylea.

In February, the company submitted its application to the Food and Drug Administration to allow them to administer Eylea in 8-milligram doses.

Eylea is a medication used to treat wet age-related macular degeneration (AMD), diabetic retinopathy, and diabetic macular edema. This treatment is typically administered via an injection into the patient’s eye once every two or four weeks, depending on their condition.

In terms of revenue, the wet AMD market is expected to grow significantly over the following years. This growth is driven by the climbing number of cases and the prevalence of associated comorbidities like diabetes and hypertension. In 2018, the global wet AMD market was valued at $17 billion. This number is anticipated to reach $28 billion by 2025.
Going back to Regeneron, the company’s move to increase the formulation of Eylea from 2 mg to 8 mg is critical. This will enable patients to undergo fewer injections of the treatment from 8-week intervals to 12- and even 16-week intervals, which would be a key selling point.

Another excellent reason behind this move is that Eylea’s patent expires in 2023, making it a target for biosimilar competitors. Regeneron’s decision to switch to a higher dosage formulation is a strategic way to sidestep this impending concern.

On top of blockbusters Eylea and Dupixent, Regeneron is also charging headlong on efforts to expand its immune-oncology franchise. Its top treatment in this field, Libtayo, is slated for multiple clinical trials to expand its indication. In addition, Regeneron has seven or so candidates queued in this lucrative but crowded space.

While Roche (RHHBY) has more candidates than the biotech in the immuno-oncology field, Regeneron’s speed in capitalizing on opportunities in this fast-advancing sector is nothing short of breathtaking. Given that immuno-oncology is a relatively new segment, the company’s ability to deliver promising results enables it to stand out in the biotech world.

Regeneron is a beacon of stability in an otherwise unpredictable industry, steadily ascending since its inception. But the stock’s continued success isn't just luck. Their past successes with their treatments and medicines have placed them on solid ground to continue advancing, while further wins through the widening use of approved drugs have only reinforced that position - setting up Regeneron for continued growth into the future.