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
Global Market Comments
June 2, 2023
Fiat Lux
Featured Trades:
(HOW TO HANDLE THE FRIDAY, JUNE 16 OPTIONS EXPIRATION),
(TSLA)
CLICK HERE to download today's position sheet.
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
Followers of the Mad Hedge Fund Trader alert service have the good fortune to own a deep in-the-money options position that expires on Friday, June 16, and I just want to explain to the newbies how to best maximize their profits.
This involves the Tesla (TSLA) June 2023 $120-$130 in-the-money vertical bull call debit spread.
Provided that we don’t have another 80-point move down in Tesla in ten trading days, this position should expire at its maximum profit point.
So far, so good.
Your profit can be calculated as follows:
Profit: $10.00 expiration value - $8.80 cost = $1.20 net profit
(12 contracts X 100 contracts per option X $1.20 profit per option)
= $1,440 or 13.63% in 25 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, June 19 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 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. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
Mad Hedge Biotech and Healthcare Letter
June 1, 2023
Fiat Lux
Featured Trade:
(A PRESCRIPTION FOR LONG-TERM GROWTH)
(JNJ), (LLY), (NVO), (AZN), (KVUE)
If you share Warren Buffett's investment philosophy of favoring enduring companies that deliver long-term performance and passive income to investors, then you'll find yourself drawn to a compelling opportunity that aligns with his principles.
Now, an opportunity presents itself for fans of Buffett's approach.
Johnson & Johnson (JNJ), a favorite of Buffett's, has recently experienced a decline of approximately 13.38% in its share price since the start of 2023, performing noticeably worse than its primary competitors in the healthcare sector, including Eli Lilly (LLY), Novo Nordisk (NVO), and AstraZeneca (AZN).
However, despite this short-term setback, the long-term outlook for Johnson & Johnson remains exceedingly promising.
Actually, J&J has reached a significant turning point as it undertakes a transformative step. The renowned pharmaceutical giant is embarking on a spin-off of its consumer health business into a distinct entity known as Kenvue (KVUE).
While consumer health products like Tylenol painkillers and Band-Aid bandages have become familiar household names, they represent a relatively small portion of J&J's revenue compared to its pharmaceuticals and medtech divisions.
By separating the consumer health business, J&J can strategically focus on bolstering its revenue growth. This move allows the company to prioritize its pharmaceuticals and medtech segments, which have shown robust performance and hold greater potential for expansion.
Consumer health, while essential in everyday life, has experienced slower growth compared to the other two sectors.
In the pharmaceutical arena, J&J boasts an impressive pipeline with over 100 candidates in development.
With the combined strength of its existing blockbusters and promising new products, J&J anticipates a substantial surge in pharmaceutical revenue.
The company aims to elevate its pharmaceutical revenue from the current $52 billion to approximately $60 billion in the coming years, demonstrating a proactive approach to driving growth.
Simultaneously, J&J is actively pursuing opportunities to enhance its medtech division. It recently completed the acquisition of Abiomed, a specialist in heart pumps.
This strategic move now positions J&J with 12 robust medtech platforms, each generating annual sales exceeding $1 billion. Such acquisitions signify J&J's commitment to expanding its medtech portfolio and staying at the forefront of innovation in this vital sector.
Evidently, J&J's decision to spin off its consumer health business into Kenvue reflects a well-informed strategy to optimize revenue growth. With a renewed focus on pharmaceuticals and medtech, supported by a robust pipeline, blockbuster products, and strategic acquisitions, J&J is poised to propel its business to new heights in the evolving healthcare landscape.
Moreover, investors will undoubtedly appreciate Johnson & Johnson (J&J) for its remarkable status as a Dividend King, marking an uninterrupted streak of more than 50 years of dividend increases.
With the stock experiencing an 11% decline this year, a prime opportunity arises to seize passive income and capitalize on the promising growth potential that lies ahead.
Overall, J&J exhibits unwavering financial stability, consistently generating revenue, profits, and free cash flow. This financial resilience is a crucial determinant for sustainable dividend increases over the long term.
Furthermore, the company's impressive AAA rating stands as a testament to its robust balance sheet, reinforcing its ability to weather potential economic downturns, even if the forecasted recession materializes before year-end.
While J&J has faced legal battles in recent years concerning opioids and talc-based baby powder, these challenges will ultimately run their course. The company has proven its resilience time and again, triumphing over adversities throughout its extensive history.
As a Dividend King, the pharmaceutical giant is currently celebrating its 60th consecutive year of dividend increases—a rare accomplishment in the corporate landscape. Presently, the company's dividend yield of 3.03% surpasses that of the S&P 500 at 1.66%.
Although the cash payout ratio of 73% may seem substantial, J&J possesses the necessary tools to sustain its long-standing approach of gradual and steady dividend growth. Investors can find solace in the security of J&J’s payouts, allowing for a good night's sleep as they navigate the markets.
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
Global Market Comments
June 1, 2023
Fiat Lux
Featured Trades:
(WHEN ARTIFICIAL INTELLIGENCE SAYS, “TAKE A VACATION”
or HOW TO BUY 90-DAY T-BILLS)
(US-T)
CLICK HERE to download today's position sheet.
I now have access to the most powerful artificial intelligence trading application in the world, which you will be able to access through the soon-to-be-launched Mad Hedge AI.
Not finding any good low-risk/high-return trades on my own, I hit the mainframes for inspiration. I asked for a list of stocks that have a 90% or better probability of rising over the next 15 days into the June 15 quadruple witching option expiration.
After examining every tick for 3,000 stocks over the last 30 years, guess how many names AI came back with?
Absolutely none.
I guess when AI tells you to do nothing at a market top, that’s a good thing.
That means it is now the time to explore the wonderful world of 90-day Treasury bills, whose yields are now ticked 5.22% yesterday. That’s pretty competitive in a world where stocks yield only 2% and the potential principal risk is real. You are being paid a lot to be a wimp and sit on the sidelines right now.
T-bills are issued every Wednesday with 17-week maturities and are backed by the full faith and credit of the United States government. The ticker symbol is (US-T). It’s as close to safety and a guaranteed return you will ever get, short of hiding gold bars under your bed. But gold bars don’t pay any interest, can always get stolen, and at 400 troy ounces are heavy (27.28 pounds).
You buy T-bills at a discount, and they mature at par. So the August 31, 2023 T-bills I bought yesterday at $98.69574 will pay an annualized yield of 5.22%. They trade in $100,000-round lots, but you can buy odd lots for as little as $1,000 if you are willing to pay a slightly higher price and accept a slightly lower yield.
You can buy these directly from the US Treasury, from your local banks, or your own online broker.
Brokers never recommend T-bills because the commission is nil. They want you instead to rapidly trade short-dated options where the commissions for them are enormous. Better yet, they want you to keep your money in their bank which might pay 1%....or nothing at all and involve real credit risk.
If your broker does go bankrupt, and anything is possible, simply ask to have your 90-day T-bills delivered to another broker or bank. They are not allowed to keep them. Cash deposits get tied up in any bankruptcy proceeds. Just ask former MF Global customers who had to wait three years to get their money back.
Don’t expect to get an elaborately embellished bond in the mail like you used to. All government securities have been digital since 2011 to save money. To learn more about T-bills, please click here.
Old School Treasury Bills