Global Market Comments
March 29, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(TLT), (FCX), (XOM), (OXY), (WPM), (TSLA) (FCX)
Occasionally I get a call from Concierge members asking what to do when their short positions options were assigned or called away. The answer was very simple: fall on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have SEVEN spreads that are deep in the money going into the APRIL 19 option expiration. They include:
(TLT) 4/$87-$90 call spread
(FCX) 4/$37-$40 call spread
(XOM) 4/$100-$105 call spread
(OXY) 4/$59-$62 call spread
(WPM) 4/$39-$42 call spread
(TSLA) 4/$140-$150 calls spread
(FCX) 4/48-$51 put spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit spread.
What the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!
All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.
Sounds like a good trade to me.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (FCX) position after the close, and exercising his long April $40 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Mad Hedge Biotech and Healthcare Letter
March 28, 2024
Fiat Lux
Featured Trade:
(WALL STREET'S NEW HAPPY PILL)
(JNJ), (SEEL), (NUMI), (AITAI)
Who would've thought a drug that was once the go-to for keeping soldiers from feeling their limbs getting stitched up in 'Nam would find itself in the limelight, decades later, for something entirely different?
And who's the reason behind this resurgence? None other than Mr. Elon Musk, alongside memories of Matthew Perry, and a growing chorus of folks battling the blues.
Musk, in one of his late-night (or is it early morning?) tweet-a-thons and in a recent interview with Don Lemon, drops that he's dabbling in ketamine — not for kicks, but for a "negative chemical state," doctor's orders, of course. Once every couple of weeks, a small dose.
This coming from a guy who's brainstorming how to send us to Mars while running a social media circus.
Now, before we dive deeper, here's a quick primer on ketamine.
Born in the labs of Parke Davis in the 60s and tested on unsuspecting prisoners (yikes), it was the anesthetic dream.
By 1970, ketamine earns the FDA's gold star as a trusty anesthetic. But here's where it gets interesting – patients start raving about feeling surprisingly chipper after surgery. Scientists, naturally, get that “wait a minute, that's not supposed to happen” look on their faces.
By the time the 90s rolled in, scientists had discovered that this battleground drug might be a secret weapon against depression.
All those positive patient reports sparked a firestorm of studies, and suddenly ketamine's the underdog superhero taking on treatment-resistant depression, PTSD, and more.
Fast forward to 2019, and the FDA green-lights a derivative, esketamine, delivered via nasal spray, marking a new era in the treatment of severe depression.
Interestingly, despite esketamine’s presence in the market, doctors are still heavily prescribing the original stuff. Why?
Because it works, undeniably so, and those prescriptions are through the roof – up fivefold since 2017.
Actually, despite being a bit player compared to the heavyweight category of cancer research, mental health is a quietly exploding segment.
In fact, the market for ketamine's mental health revolution is massive, and that's not just feel-good talk. We're looking at over 264 million people globally battling depression alone.
Add to that the millions more struggling with PTSD, OCD, and a growing list of treatment-resistant conditions – it's a staggering potential patient base.
With mental health taking center stage these days, analysts predict the ketamine market could explode to $1.05 billion by 2027. That translates to a CAGR of 16.5% from 2020 – not just growth, but a serious acceleration.
Naturally, this has companies salivating. Big pharma like Johnson & Johnson (JNJ) is in the game – their Spravato spray raked in $164 million in 2020, and that was just their opening act.
But the real excitement is with the innovators: companies like Seelos Therapeutics (SEEL), with their focus on new delivery methods, Numinus Wellness (NUMI) building out a whole network of ketamine-assisted therapy clinics, and ATAI Life Sciences (ATAI) betting big on psychedelic-focused research.
So, are you seeing those dollar signs flashing yet? Because with ketamine, there might just be some serious gold to be found.
Sure, J&J's pulling in the cash, but that's just the tip of the iceberg. The companies blazing the trails – tweaking formulas, reimagining delivery methods, building whole new treatment models – those are the ones with that “make it big” potential.
Still, it’s important to be realistic here. After all, biotech investing is a rollercoaster, not a Sunday stroll. We're talking FDA approvals, trial setbacks, the whole wild ride.
Ketamine, with its trippy backstory and game-changing possibilities, is the embodiment of that risk-reward gamble. Its story is about second chances, unexpected breakthroughs, and pushing the limits of what we thought possible for mental health. And yeah, it's also about those sweet, sweet returns for investors willing to take that leap.
So here's my suggestion: throw this drug, and the companies pushing the envelope with it, straight onto your watchlist. Keep tabs on the clinical trials, the news about those new delivery methods, the regulatory updates.
This space is just getting warmed up, and you don't want to miss the boat when things start taking off. Ketamine might have started out in the shadows, but its future? Well, that could shine pretty bright.
Global Market Comments
March 28, 2024
Fiat Lux
Featured Trade:
(HOW TO RELIABLY PICK A WINNING OPTIONS TRADE)
You’ve spent vast amounts of time, money, and effort to become options trading experts. You know the difference between bids and offers, puts and calls, exercise prices, and expiration days.
And you still can’t make any money.
Now what?
Where do you apply your newfound expertise? How do you maximize your reward versus your risk?
It is all very simple. Stick to five simple disciplines that I am about to teach you and you will suddenly find that the number of your new trades that are winners takes a quantum leap, and the money will start pouring into your trading account.
It’s really not all that hard to do. So here we go!
1) Know the Macro Picture
If you have a handle on whether the economy is growing or shrinking, you have a major advantage in the options market.
In a growing economy, you only want to employ bullish strategies, such as calls, call spreads, and short volatility plays.
In a shrinking economy, you want to execute bearish plays, such as puts, put spreads, and long volatility plays.
Remember the only thing that is useful is a view on what the economy is going to do NEXT. The government only publishes historical economic data, which is for the most part useless in predicting what is going to happen in the future.
Remember, the options market is all about discounting what is going to happen next.
And how do you find that out? Well, you could hire your own in-house staff economist. Or you could rely on economic research from the largest brokerage houses that all have their own economist.
Even the Federal Reserve puts out its own forecasts for economic growth prospects. However, all of these sources have notoriously poor track records. Listening to them and placing bets on their advice CAN get you into a world of trouble.
For the best possible read on the future of the U.S. and the global economy, there is no better place to go than Global Trading Dispatch, published by me, John Thomas, the Mad Hedge Fund Trader.
This is where the largest hedge funds, brokers, and yes, even the U.S. government go to find out what really is going to happen to the economy.
2) Looking for Great Industry Fundamentals
Do you want to give yourself another edge?
There are more than 100 different industries listed on the U.S. stock markets. However, only about five or 10 are really growing decisively at any particular time. The rest are either going nowhere or are shrinking.
In fact, you can find a handful of sectors that are booming while others are in outright recession.
If you are a major hedge fund, institution, or government, you may want to cover all 100 of those industries. Good luck with that.
If you are a small hedge fund, or an individual working from home, you will want to conserve your time and resources, skip most of the U.S. industry, and only focus on a handful.
Some traders take this a step further and only concentrate on a single high-growing, volatile industry, such as technology or biotech, or a single name, such as Netflix (NFLX), Tesla (TSLA), or Amazon (AMZN).
How do you decide which industry to trade?
Brokerage houses pump out more free research than you could ever read in a lifetime. Government reports tend to be stodgy, boring, and out of date. Big hedge funds keep their in-house research confidential (although some of it leaks out to me).
The Mad Hedge Fund Trader solves this problem for you by limiting its scope to a small number of benchmark, pathfinder industries, such as technology, banks, energy, consumer cyclicals, biotech, and cybersecurity.
In this way, we gain a handle on what is happening in the economy as a whole, while lining up rifle shots on the best options trades out there.
We want to direct you where the action is, and where we have a good handle on future earnings prospects.
It doesn’t hurt that we live on the edge of Silicon Valley and get invited to test out many technologies before they are made public.
3) The Micro Picture is Ideal
Once you have a handle on the economy and the best industries, it’s time to zero in on the best company to trade in, or the “MICRO” selection.
It’s always great to find a good target to trade in because positions in single companies deliver double or triple the returns compared to stock indexes.
That’s because the market will pay a far higher implied volatility for a single company than a large basket of companies.
Remember also that you are taking greater risks in trading individual companies. One single stock is subject to far greater even risk and a basket.
If the earnings come through as expected, everything is hunky-dory. If they don’t, the shares can drop by half in a heartbeat. Large indexes buffer this effect.
Of course, there are gobs of market research out there from brokers about individual companies. Some of it is right, some of it is wrong, but all of it is conflicted. Recommendations are either “BUY” or “HOLD.”
Brokers are loath to issue a “SELL” recommendation for a stock because it will eliminate any chance of that firm obtaining new issue business. Who wants to hire a broker to sell new stock with a “SELL” recommendation on their stock?
And brokerage firms don’t make their bread and butter on those piddling little discount commissions you have been paying them. They make it on new issues business. In fact, a new issue can earn as much as $100 million from a new issue for one firm.
I have been following about 100 companies in the leading market sectors for nearly half a century. Some of the managements of these firms have become close friends over the decades. So, I get some really first-class information.
When markets rotate to sectors and companies that I already know, I have a huge advantage. Needless to say, this gives me a massive head start when selecting individual names for options Trade Alerts.
4) The Technicals Line Up
I have never been a huge fan of technical analysis.
Most technical advice boils down to “If it’s gone up, it will go up more” or “If it’s gone down, it will go down more.”
Over time, the recommendations are accurate 50% of the time or are about equal to a coin toss.
However, the shorter the time frame, the more useful technical analysis becomes. If you analyze intraday trading, almost all very short-term movements can be explained in technical terms. This is entirely how day traders make their livings.
It’s a classic case of if enough people believe something, it becomes true, no matter how dubious the underlying facts may be.
So, it does behoove us to pay some attention to the charts when executing our trades.
Talk to old-time investors and you will find that they use fundamentals for long-term stock selection and technicals for short-term order execution.
Talk to them some more and you find the best fundamentalists sound like technicians, while savvy technicians refer to underlying fundamentals.
Get the technicals right, and you can provide one additional reason for your trade to work.
5) The calendar is favorable
There is one more means of assuring your trades turn into winners.
According to the data in the Stock Trader’s Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today.
Amazingly, $10,000 invested on every November 1 and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%.
Of the 62 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the past 20 years!
There have been just three times when the "good six months" have lost more than 10% (1969, 1973 and 2008), but with the "bad six months" time period there have been 11 losing efforts of 10% or more.
Yes, it may be disturbing to learn that we ardent stock market practitioners might in fact be the high priests of a strange set of beliefs. But hey, some people will do anything to outperform the market.
It is important to remember that this cyclicality is not 100% accurate, and you know the one time you bet the ranch, it won’t work.
So, there we have it.
Adopt these five simple disciplines and you will find your success rate on trades jumps from a coin toss to 70%, 80%, or even 90%.
In other words, you convert your trading from an endless series of frustrations to a reliable source of income.
If a potential trade meets only four of these five criteria, please do it with your money and not mine. Your chances of making money have just declined.
And I bet a lot of you poor souls execute trades all the time that meet NONE of these criteria.
Get the tailwinds of the economy, your industrial call, your company picks, the technicals, and the calendar working for you, and all of a sudden you’re a trading genius.
It only took me half a century to pull all this together. Hopefully, you can learn a little bit faster than that.
I hope it all works for you.
This is John Thomas signing off saying good luck and good trading.
(NOW), (MSFT), (GOOGL), (AMZN), (ACN), (IBM), (DXC), (NVDA)
Ah, ServiceNow – not exactly the first name that pops into your head when you think "disrupting the tech landscape," right? Still, this unassuming company specializing in streamlining the nitty-gritty of IT has been quietly building an AI empire.
Think of them as the ninja of automation, taking care of tech snafus, customer woes, and even app building while you focus on the big picture.
But, ServiceNow knows that building its tech empire takes more than just brains. They've been busy making friends in high places and forging strategic partnerships. Let's talk about some of the heavy hitters on their roster.
Microsoft (MSFT) is onboard, making for a dream integration for IT departments. ServiceNow plays beautifully with Microsoft 365, Teams, and all that good Azure cloud stuff, simplifying your workflow like never before.
Then there's the Google (GOOGL) Cloud partnership, which was like dropping a machine learning bomb on the industry. This collaboration gives ServiceNow users access to Google's insane AI and analytics tools, making everything they do on the platform even smarter.
Further enhancing its ecosystem, there are the consulting giants. Names like Deloitte and Accenture (ACN) aren't just mentioned in passing when it comes to ServiceNow. These companies are ServiceNow's go-to squad for deployment and making the magic happen for businesses of all sizes.
ServiceNow isn't stopping there. They've also teamed up with DXC Technology (DXC), a leading IT services company, to ensure that their implementations go smoothly for customers around the globe.
Meanwhile, the collaboration with IBM (IBM) taps into the power of AI and Watson technology to push the boundaries of automation.
Then there's Salesforce (CRM), integrating their customer relationship management expertise with ServiceNow's workflow automation – it's a win-win for businesses looking to streamline everything from sales to support.
ServiceNow also partners with Nvidia (NVDA) to sprinkle some AI magic for the telecom industry. It’s like they’re on a mission to prove that automation can be your best friend, not just a buzzword.
Lastly, AWS (Amazon Web Services) brings the reliability and scale of their cloud platform, ensuring ServiceNow applications can handle anything you throw at them.
Interestingly, for a name only a handful has probably heard before, ServiceNow hasn't been playing catch-up. They've been quietly building an AI arsenal within their products.
Virtual agents that could put fortune tellers out of business, predictive insights that would make Wall Street analysts drool – they've been adding these features for years.
But when generative AI hit the headlines, ServiceNow wasn't satisfied to just join the hype. They bulldozed onto the stage with Now Assist, a digital copilot that's turning the heads of everyone from IT departments to HR.
Think of it as the magic wand that makes tech tasks so easy, that your grandma could do it (and maybe bake a pie on the side).
Actually, ServiceNow's investment in automation shows they're serious about offering next-level features their competitors can only dream of. Their Intelligent Automation Engine is like a robot brain for streamlining those mind-numbing IT tasks, using the power of machine learning to understand what you need before you even ask.
As expected, they also have an AI-powered Virtual Agent: it's your own digital assistant, ready to guide you through the platform or sort out those pesky tech issues faster than you can say "password reset.”
Want to find information buried somewhere in ServiceNow's depths? Their AI Search is like a digital bloodhound, sniffing out anything you need with scary precision.
Now, let’s talk numbers, because, at the end of the day, that’s what sings. ServiceNow wrapped up FY23 with a 23.5% organic revenue growth and a 28% adjusted operating margin.
With $8 billion in cash and a record $2.7 billion free cash flow, they're not just surviving; they're thriving. And they’ve been sharing the love, repurchasing $538 million of their own shares. Talk about confidence.
Why are they killing it, you ask? Simple. The world’s hungry for automation to slash those ballooning IT expenses, and ServiceNow's platform is like an all-you-can-eat buffet.
From IT service management to cybersecurity, they’re expanding faster than my waistline during the holidays. And with AI getting woven into the fabric of their solutions, they’re not just keeping up with trends; they’re setting them.
Looking ahead, ServiceNow shows no signs of slowing down. With a projected 21.5% subscription revenue growth in FY24, they're laser-focused on the future. Their secret weapon? A relentless push into AI – even their Virtual Agent is getting a major upgrade every day.
So, forget watching ServiceNow from the sidelines; they're the lighthouse guiding the way in digital transformation. With AI embedded in their DNA, they're proving that the future of business isn't just digital, it's intelligent.
If you’ve been sleeping on ServiceNow, it might be time to hit the snooze button on that nap and smell the opportunity brewing. I suggest you buy the dip.
Mad Hedge Technology Letter
March 27, 2024
Fiat Lux
Featured Trade:
(TAIWAN IS ON THE MAP)
(AAPL), (TSM)
I know it’s not the sexiest choice but there is a chip company in Taiwan that readers need to look at.
This company has investments all over the world and is the leader in what they do.
They are also involved in AI which lately has been the ticket to riches.
Taiwan Semiconductor Manufacturing Company (TSM) may not seem like a glamorous AI stock, but it's as critical to the AI future.
To understand TSMC's role in AI, you need to understand how we get to end consumer-facing products like ChatGPT, Bard, and other generative AI applications.
For AI to be effective, it must be trained using lots of data -- quantities that must be stored in specialized data centers.
Data centers rely on graphic processing units (GPUs), which are essentially the brains of AI computing systems.
TSMC and the semiconductors it manufactures for its client companies are crucial in this process. These GPUs rely heavily on TSMC's best-in-class manufacturing processes.
This AI knock-on effect hasn't impacted TSMC's financials yet, but management said they expect sales of its AI-related semiconductors to grow at a compound annual rate of 50% for at least the next few years.
By 2027, AI-related semiconductors are expected to be responsible for a large part of the company's revenue.
TSMC will absolutely be additive to the AI ecosystem.
Let’s talk about their products.
TSMC's 3nm fabrication process accounted for 15% of the company's revenue in 2023.
Only one of TSMC's customers used it at the time:
Apple (AAPL).
The three-nanometer product is where it’s at.
Wasn’t it just a year or 2 ago we were at 7 nanometers?
As more customers adopt the manufacturing process, 3nm process nodes will account for a considerably larger share of TSMC's revenue.
This year TSMC's N3-series nodes — including N3B and N3E — will account for over 20% of the foundry's revenue in 2024.
Apple currently exclusively uses TSMC's N3B to make its A17 Pro system-on-chip (SoC) for smartphones, as well as the M3-series processors for iMac desktops and MacBook laptops.
AMD is preparing to launch its new Zen 5-based processors made on 3nm- and 4nm-class process technologies later this year.
Apple's new iPhone 16 series will be equipped with the A18-series processor, and the upcoming M4-series processors for Mac PCs will also be produced using TSMC's 3nm technology.
This marks the first time Intel has entrusted TSMC with the full range of chips for its mainstream consumer platform, the report notes.
This collaboration highlights TSMC's expanding role in serving Intel, which also happens to be the company's rival in the foundry market.
With three major customers using TSMC's 3nm family of process technologies, this company needs to be on readers’ radar.
More companies are expected to adopt TSMC's N3 nodes in 2025, including performance-enhanced N3P, and the report suggests 3nm will account for over 30% of TSMC earnings in 2025.
It’s easy to see with the mushrooming of business for TSMC, how they are a highly sought-after stock.
It also explains why the stock has been on a tear.
It was only just last May they were trading at $82 per share and fast forward to today at the stock sits at $136 per share.
Holding this stock long term has borne fruit and every big should be bought.
They will continue to be the best at what they do.
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