Global Market Comments
February 2, 2024
Fiat Lux
Featured Trade:
(Trade Alert - (IBKR) – EXPIRATION)
Expiration of the Interactive Brokers (IBKR) December 2023 $80-$85 at-the-money vertical Bull Call debit spread LEAPS at $5.00
Closing Trade
12-15-2023
expiration date: December 15, 2023
Number of Contracts = 1 contract
Just a reminder that for those who weren’t looking, our position in the Interactive Brokers (IBKR) LEAPS expired at its maximum potential profit on December 15, 2023. I am laying out how this trade worked out because I plan to send out many more trade alerts for LEAPS this year.
As a result, followers got to earn $250 for each contract they owned, bringing in a return of 100% in only 9 months. I am pointing this out now just to educate how profitable LEAPS can be when they work.
The brokerage sector had been beaten like the proverbial red-headed stepchild when we added this position last March, with plunging stock market prices and volumes. However, (IBKR) should be at the core of any long-term LEAPS portfolio.
Traders seem to have put brokerages and regional banks all into the same basket. They were dead wrong.
The best time to pick up this position will be during a market meltdown day and the Volatility Index is over $20.
If you are looking for a lottery ticket, then here is a lottery ticket.
(IBKR) is one of the top online brokers, with a market capitalization of $36.9 billion. That has far and away been one of the most sophisticated and conservative risk control procedures out there. If you don’t believe me, just try and sell a naked put short.
The regional banking crisis pulled forward any recession and therefore the recovery.
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.
To learn more about the company, please visit their website at https://www.interactivebrokers.com/
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.
A lot of people ask me about the appropriate size for LEAPS. Remember, if the stock does NOT rise above the upper strike price by the expiration date, the value of your investment goes to zero.
The way to play this is to buy LEAPS in ten different companies. 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 minuscule 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.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order in the middle market and work it.
This was a bet that Interactive Brokers would not fall below $85 by the December 15, 2023 option expiration in 9 months.
Here are the specific trades you need to close out this position:
Expiration of 1 December 2023 (IBKR) $80 calls at……...…$6.00
Expiration of short 1 December 2023 (IBKR) $85 calls at...$1.00
Net Proceeds:………….……….………..………….….....................$5.00
Profit: $5.00 - $2.50 = $2.50
(1 X 100 X $2.50) = $250 or 100% in 9 months.
Opening Trade
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.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
Mad Hedge Biotech and Healthcare Letter
February 1, 2024
Fiat Lux
Featured Trade:
(STEADY AS SHE GOES)
(JNJ), (WBA), (KVUE)
Today, let’s talk about something that might make dividend enthusiasts a tad uncomfortable — when beloved companies take an axe to dividends. Yeah, it’s a bummer.
Imagine you’re on a steady course, relying on those dividends to keep flowing in, and suddenly, a storm hits. That's what happened when Walgreens Boots Alliance (WBA) rocked the boat by slashing its dividend by a whopping 48%. Ouch, right?
But, let's not dwell on the past. Instead, how about we scout for a stock that’s less likely to leave us in such a pickle?
Spoiler alert: no stock comes with a no-risk guarantee, but sticking with big names sporting robust businesses and hefty moats might just do the trick. And where better to look than the evergreen healthcare sector?
That’s where Johnson & Johnson (JNJ) comes in.
This old-timer isn’t just another name in the pharma game; it’s practically royalty, with a lineage stretching back nearly 140 years.
The year 2023 was a period of change for JNJ, as it waved goodbye to slow movers like Band-Aid and Tylenol by spinning off its consumer health division into Kenvue, netting a cool $13 billion from Kenvue’s (KVUE) market debut.
And yes, JNJ still keeps a watchful eye on Kenvue with a 9.5% stake.
Digging into the numbers, JNJ boasted a hefty $21 billion in sales in the third quarter of 2023 alone, marking a 7% jump from the previous year, with profits tallying up to a cool $4.3 billion.
The pharmaceutical division, with stars like Darzalex and Stelara, brought home the bacon, contributing $14 billion to the total revenue.
Not to be outdone, the medical device division strutted its stuff with a 10% sales hike, raking in $7.5 billion.
Here’s the deal with JNJ: it’s like that reliable old friend you can count on for the long haul. It’s not just resting on its laurels, though.
JNJ has been on the prowl, having acquired Abiomed, known for the world's smallest heart pump, and eyeing Ambrx Biopharma (AMAM) for future innovations.
Plus, with a 60-year streak of not just paying but boosting its dividend, JNJ is like that steady drummer in a rock band, keeping the beat alive and kicking, having increased its dividend by 80% over the last decade.
Still, nothing is perfect. So, let’s not sugarcoat it — JNJ has its share of headaches. The Inflation Reduction Act is looking to play hardball on drug prices, which could mean thinner pie slices for JNJ’s top sellers.
And then there’s the talc saga, a storm JNJ is still navigating with a $700 million settlement not putting a full stop to the legal drama, considering there are still thousands of personal injury lawsuits pending.
Yet, for all the turbulence, JNJ’s resilience is nothing short of legendary. With an AAA credit rating, it stands more solid than many sovereign states. It’s the kind of ship that keeps its course steady, no matter the weather.
So, what’s the takeaway for those hunting for dividends in the healthcare seas?
With its solid track record, including a Dividend King crown for 61 years of dividend increases, JNJ is a ship built for long voyages.
Founded in 1886, it has shown a remarkable ability to adapt and grow, charting a course for future success. It’s not promising a gold rush overnight, but as a steadfast companion on your investment journey, JNJ is as good as it comes.
Investing in JNJ is like joining a voyage with a seasoned captain at the helm. Sure, there might be choppy waters ahead, but with a history of navigating through just about any storm, JNJ is a ship you’d be wise to board.
And who knows? With its commitment to growth and a knack for bouncing back, JNJ could well be the treasure chest you’ve been searching for in the vast investment seas.
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
TRADE ALERT: CLOSE SQQQ
Hello everyone,
As I expect the markets to go back up after a brief blip, I believe we should close the SQQQ ETF.
There is a firm expectation that the Fed will cut rates in June 2024, and this will drive the markets higher.
Additionally, as 10-year yields start to fall, this will also put a tailwind behind stocks.
Close SQQQ at best price.
Cheers,
Jacquie
Global Market Comments
February 1, 2024
Fiat Lux
Featured Trade:
(THE 16th YEAR ANNIVERSARY OF THE MAD HEDGE FUND TRADER)
The Diary of a Mad Hedge Fund Trader is now celebrating its 16th year of publication.
Last year, I religiously pumped out 3,000 words a day, writing or editing 24 newsletters a week of original, independent-minded, hard-hitting, and often wickedly funny research.
I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.
I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products for 55 years.
You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.
The site now contains over 25 million words or 40 times the length of Tolstoy’s epic War and Peace.
Unfortunately, it feels like I have written on every possible topic at least 100 times over, if you sometimes think you’re getting repeats, you are, it’s just updated.
So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.
Please send any ideas directly to me at support@madhedgefundtrader.com/, and put “RESEARCH IDEA” in the subject line.
The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.
Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +51% a year.
This originally started as a daily email to my hedge fund investors in 2008 giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.
Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.
The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there. Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter the Mad Hedge Biotech & Health Care Letter, Jacquie’s Post, and Mad Hedge AI also have substantial followings. And Mad Hedge Hot Tips is one of the most widely-read publications in the financial industry.
I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.
One can only hope.
If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.
It urged readers to buy gold at $950 (it soared to $2,175), and buy the Euro at $1.50 (it went to $1.65).
Now you know why this letter has become so outrageously popular.
I always get asked how long will I keep doing this.
I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 93, so that seems like a realistic goal.
Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who does it is me.
The harsh truth is that I don’t know how to NOT work. Never tried it, and never will.
This year I received a new reminder of my indestructibility. While observing a Ukrainian HIMARS missile attack on Crimea, a Russian missile landed 100 feet away from me. It was a dud and didn’t go off. If it exploded it would have killed us all. Later that day, a Russian bullet fired across the Dnieper River hit me in my right hip, caught by my body armor. If that isn’t a message from above, I don’t know what is.
The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).
Given the absolute blast I have doing this job I would be Mad to actually retire.
Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here)
In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.
Fiat Lux (Let there be light).
