Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Miami, Florida at 12:00 PM on Friday, January 10, 2025. A three-course lunch is included.
I’ll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, and real estate.
And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $267.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion or just sit around and chew the fat about the financial markets.
The lunch will be held at an exclusive hotel in the Coconut Grove sector of Miami, the details of which will be emailed to you with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets for this luncheon, please click here.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/04/florida-post-card.png424600Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-12-11 09:04:022024-12-11 10:59:00Friday, January 10, 2025 Miami, Florida Strategy Luncheon
I was pondering a TESLA trade alert from MHFT today when my cell rang with a Lake Tahoe area code. Since I know a couple of people in that part of the world, I answered, and it was none other than John Thomas.
If I had not heard his voice on the MHFT webinars, I would have thought I was being conned. But given that I’m in the last month of a trial run, he actually called to find out how I was doing with the service and what I thought.
Here’s the short version of what I told him.
I’m a pretty experienced investor, but definitely not sophisticated when it comes to using options, or for that matter, trading currencies and commodities.
My first trade with MHFT – a (FXY) vertical call spread – literally scared the hell out of me, so I used a tiny position size. I think I made around $900 (more than my trial subscription, so there’s that).
But through the process of using John’s trade ideas, I learned. Fast. Nothing will help you grasp the potential of option strategies like doing them. And as I write this, I have multiple positions on courtesy of MHFT that are on track to deliver double-digit percentage gains in a matter of weeks!
I can’t quite comprehend how he knows so many well-placed people, but he’s incredibly adept at grabbing insights from them, turning these into an investment thesis, and making it incredibly clear and actionable to this reader base.
One day, he’s writing about a chat with a three-star general, and the next, you’re buying a call spread on Palo Alto Networks. He connects the dots in a ridiculously useful way.
But it’s more than just the idea, it’s the timing of the idea. The world is full of people who can say, “hey, cyber-security is a big deal.” Or, “wow, the euro is getting killed.” But the actual trade execution to profit from that in the near term? He’s freaky good.
I also love the defined exit strategy. Look, if you’re the most disciplined human on the planet and never let a bad trade turn into a long-term “investment,” more power to you.
I am not. I hate it when I do it, but it’s happened more than once. With MHFT, the exit is well-marked. You can’t miss it. Personally, I find that removes significant stress, not to mention risk.
Today, I was over at my local Schwab office – before John called – and was raving about MHFT. Not stark raving. Good raving. I’d be surprised if they aren’t signing up for a trial as I write this.
John, thanks for the call. That was a really nice surprise.
But more importantly, thanks for your great work, thinking, and ideas. Enjoy your travels, and I look forward to meeting you at one of your conferences.
Neil
Dublin, Ohio
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/John-Thomas-Beach-e1416856744606.png400276april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-12-11 09:02:562024-12-11 10:58:34The Best Testimonial Ever
“It’s a terrible mistake to own something, just because somebody else owns it, even if that other persona is Benjamin Graham, the head of investing,” said Oracle of Omaha, Warren Buffett.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/03/Warren-Buffett-e1425336310967.jpg199300april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-12-11 09:00:582024-12-11 10:58:16December 11, 2024 - Quote of the Day
Got an interesting call yesterday from an old college buddy - let's call him Bob. We go way back to our UCLA days, before I headed to Tokyo and he went into tech.
He was fuming because UnitedHealth (UNH) just denied his family's third claim this year, something about an "experimental treatment" for his daughter's rare condition.
Coming from a guy who just cashed out of his third startup, hearing him rant about insurance bureaucracy was pretty rich.
Still, his situation got me thinking. After hanging up, I dug into what's really happening with insurance stocks, and the picture isn't pretty.
UnitedHealth Group, our nation's biggest health insurer, just had its worst week in years - dropping 9.5% after one of their executives was tragically murdered, which sparked an unexpected spotlight on their claims practices.
Cigna (CI) and CVS Health (CVS) caught the same downdraft, falling 4.5% and 5% respectively.
But here's what really caught my attention: UnitedHealthcare's denial rate for Medicare Advantage claims has more than doubled since 2020, hitting 22.7% last year.
Interestingly, this spike happened right as they rolled out new automation processes. Funny how that works, isn't it?
Experian Health's latest report shows this isn't isolated - 73% of healthcare providers are reporting more denials than ever, with processing times stretching longer and longer.
The cost of this trend? The Council for Affordable Quality Healthcare estimates $31 billion annually in administrative expenses alone.
Meanwhile, biotech companies find themselves in an awkward position. They're developing treatments that cost more than a house in the Hamptons and then need these very same insurers to make them accessible.
Amgen's (AMGN) been crushing it with their human therapeutics portfolio, pulling in $28.2 billion in revenue last year.
Biogen's (BIIB) making serious moves in neurological treatments, though their path has been rockier - just ask anyone who followed the Aduhelm saga.
Gilead Sciences (GILD), our antiviral champions, have managed to stay above the fray, partly because their HIV and hepatitis treatments have become standard of care.
But even these giants must wonder:: as insurers tighten their prior authorization screws, what happens to patient access?
These biotechs spend billions developing breakthrough treatments - Amgen alone dropped $4.4 billion on R&D last year - only to face the insurance industry's equivalent of "computer says no."
The irony isn't lost on anyone: insurers need innovative treatments to justify their premiums, while biotech needs insurance coverage to justify their R&D spending.
It's a delicate dance that's worked reasonably well so far, but these rising denial rates have everyone on edge. Just last quarter, we saw several biotech earnings calls dominated by questions about insurance coverage rather than clinical trials.
So what should we do? Well, I say UnitedHealth and Cigna are "holds" right now - the current turbulence needs time to settle.
CVS Health is showing broader operational challenges that suggest it might be wise to consider selling. But Humana (HUM), with their strong Medicare Advantage presence, looks promising.
On the biotech side, Gilead looks like an excellent stock to buy on the dip. Its leadership in antivirals and solid pipeline make it compelling.
Amgen and Biogen? Keep them on your watch list while they try to find their footing in this situation.
Bob texted me again this morning - turns out he's filing an appeal with help from one of Silicon Valley's top healthcare attorneys. Typical Bob, bringing a cannon to a knife fight.
But maybe that's exactly what this sector needs right now - some heavy artillery to shake up the status quo.
For those willing to dodge the crossfire, there might just be some spoils of war worth picking up. After all, fortune favors the bold—and sometimes, the heavily armed.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-12-10 12:00:422024-12-10 12:11:57The Insurance Company Always Rings Twice
With a record of ten positions going into the December 20 options expiration, I am seeing an increasing number of options positions assigned or called away.
This year, I saw that the upside momentum in the stock market was so strong that I decided to run everything into expiration. That will take me to a 100% cash position going into the Christmas holidays. No surprises there!
The following positions will expire in 9 trading days:
Current Capital at Risk
Risk On
(JPM) 12/$210-$220 call spread 10.00%
(NVDA) 12/$117-$120 call spread 10.00%
(TSLA) 12/$230-$240 call spread 10.00%
(TSLA) 12/$250-$260 call spread 10.00%
(TSLA) 12/$270-$275 call spread 10.00%
(MS) 12/$110-$115 call spread 10.00%
(C) 12/$60-$65 calls spread 10.00%
(BAC) 12/$41-$44 call spreads 10.00%
(VST) 12/$115-$120 call spread 10.00%
(BLK) 12/$950-$960 call spread 10.00%
Risk Off
NO POSITIONS 0.00%
Total Net Position 100.00%
Total Aggregate Position 100.00%
That opens up a set of risks unique to these positions.
I call it the “Screw up risk.”
As long as the markets maintain current levels, this position will expire at its maximum profit value.
With the December 20 options expirations upon us, there is a heightened probability that your short position in the options may get called away. This had already happened with Blackrock (BLK) and Morgan Stanley (MS).
Although the return for those calling away your options is very small, this is how to handle these events.
If exercised, brokers are required by law to email you immediately, and you and I know all of this may sound confusing at first. But once you get the hang of it, this is the greatest way to make money since sliced bread.
If it happens, there is only one thing to do: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
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 Berkshire Hathaway (BRK/B) August $405-$415 in-the-money vertical Bull Call spread since so many of you had these.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 11 days before the August 16 expiration date.
In other words, what you bought for $8.70 on July 12 is now worth $10.00, giving you a near-instant profit of $1,300 or 14.94% in only11 trading days.
All have to do is call your broker and instruct them to “exercise your long position in your (BRK/B) August 16 $405 calls to close out your short position in the (BRK/B) August $415 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
You also must do this the same day that you receive the exercise notice. This is a perfectly hedged position. The name, the ticker symbol, the number of shares, and number of contracts are all identical, so you have no exposure at all.
Call options are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (BRK/B). There are strategies out here that try to capture dividends the day before they are payable. Exercising an option is one way to do that.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to sell a long (BRK/B) position after the close, and exercising his long (BRK/B) call, which you are short, 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 puts 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 blow it by writing shoddy algorithms.
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.
There is a further annoying complication that leads to a lot of confusion. Lately, brokers have resorted to sending you warnings that exercises MIGHT happen to help mitigate their own legal liability.
They do this even when such an exercise has zero probability of happening, such as with a short call option in a LEAPS that has a year or more left until expiration. Just ignore these, or call your broker and ask them to explain.
This generates tons of commissions for the broker but is a terrible thing for the trader to do from a risk point of view, such as generating a loss by the time everything is closed and netted out.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. In fact, I think I’m the last one they really did train.
Avarice can be an explanation here, but I think stupidity, poor training, and low wages are much more likely.
Brokers have so many ways to steal money legally 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!
https://www.madhedgefundtrader.com/wp-content/uploads/2018/11/Call-Options.png345522april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-12-10 09:02:102024-12-10 10:46:02A Note on Assigned Options, or Options Called Away
Artificial intelligence (AI) is rapidly transforming the financial landscape, promising increased efficiency, personalized services, and improved risk management. However, the Financial Stability Board (FSB) has raised concerns that this technological revolution could also usher in an era of heightened risks, including herding behavior, fraud, and disinformation. As the European Union and other jurisdictions explore the need for further regulation, it's crucial to understand the potential threats AI poses to financial stability and the measures that can be taken to mitigate them.
Herding Behavior: The AI Echo Chamber
Herding behavior, a phenomenon where investors mimic each other's actions without independent analysis, has always been a concern in financial markets. AI, with its ability to analyze vast datasets and identify patterns, could exacerbate this issue.
Imagine a scenario where multiple financial institutions utilize similar AI algorithms trained on the same or similar datasets. These algorithms might arrive at the same conclusions, leading to synchronized investment decisions and potentially creating asset bubbles or triggering flash crashes. This "AI echo chamber" effect could amplify market volatility and systemic risk.
Furthermore, the "black box" nature of some AI algorithms can make it difficult to understand the rationale behind their decisions. This lack of transparency could further fuel herding behavior, as investors may blindly follow AI-driven recommendations without fully comprehending the underlying risks.
Fraud: The Rise of Sophisticated Deception
AI's ability to process information and learn from data can be exploited for malicious purposes. Fraudsters could leverage AI to develop sophisticated schemes that are harder to detect and prevent.
For instance, AI-powered chatbots could be used to impersonate legitimate financial institutions or individuals, tricking people into revealing sensitive information or making fraudulent transactions. Deepfakes, AI-generated synthetic media, could be used to manipulate market sentiment or spread false information about companies, potentially leading to significant financial losses.
Moreover, AI algorithms could be used to identify vulnerabilities in financial systems and exploit them for personal gain. This could involve manipulating trading algorithms, bypassing security protocols, or even launching coordinated cyberattacks on financial institutions.
Disinformation: Eroding Trust and Stability
The spread of disinformation, or deliberately false information, poses a significant threat to financial stability. AI can be used to create and disseminate disinformation at an unprecedented scale and speed, potentially undermining trust in financial institutions and markets.
AI-powered social media bots can spread false rumors or negative news about companies, influencing investor sentiment and causing market fluctuations. Deepfakes could be used to create fake news reports or fabricate statements from influential figures, further eroding public trust.
The constant bombardment of disinformation could make it difficult for investors to distinguish between credible and unreliable information, leading to poor investment decisions and increased market volatility. This erosion of trust could ultimately destabilize the financial system and hinder economic growth.
The Regulatory Response: Navigating the AI Landscape
Recognizing the potential risks associated with AI in finance, the FSB has emphasized the need for regulatory oversight. The European Union is at the forefront of this effort, with its proposed Artificial Intelligence Act aiming to establish a comprehensive regulatory framework for AI.
Key aspects of this regulatory response include:
Transparency and Explainability: Requiring financial institutions to provide clear explanations of how their AI systems work and the factors driving their decisions. This will help to mitigate herding behavior and build trust in AI-driven financial services.
Robustness and Security: Ensuring that AI systems are resilient to cyberattacks and manipulation. This involves implementing strong security protocols and conducting regular audits to identify vulnerabilities.
Accountability and Oversight: Establishing clear lines of responsibility for the actions of AI systems. This could involve designating human overseers or implementing mechanisms for auditing and monitoring AI-driven decisions.
Data Governance and Privacy: Implementing strict data governance frameworks to ensure that AI systems are trained on accurate and unbiased data. Protecting consumer privacy is also crucial, as AI systems often rely on vast amounts of personal data.
International Cooperation: Fostering collaboration between countries and regulatory bodies to develop harmonized standards and address the global nature of AI risks in finance.
The Path Forward: Balancing Innovation and Stability
While AI presents significant challenges to financial stability, it also offers tremendous opportunities for innovation and growth. The key lies in striking a balance between fostering innovation and mitigating risks.
Regulation plays a crucial role in this balancing act. By establishing clear rules and guidelines, regulators can create a level playing field for financial institutions and promote responsible AI development. This will help to build trust in AI-powered financial services and ensure that the benefits of this technology are realized without compromising stability.
However, regulation alone is not enough. Financial institutions must also take proactive steps to manage AI risks. This includes investing in robust security measures, developing ethical AI principles, and fostering a culture of responsible innovation.
The future of finance will undoubtedly be shaped by AI. By addressing the challenges and embracing the opportunities, we can harness the power of AI to create a more efficient, inclusive, and stable financial system.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Douglas Davenporthttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDouglas Davenport2024-12-09 16:20:002024-12-09 16:20:00The Looming Shadow of AI on Financial Stability: Herding, Fraud, and Disinformation
Claiming Nvidia (NVDA) is stunting competition is just the beginning of the end as the tech war between China and the United States heats up again as we get prepared for a new administration to take over the White House.
This appears like a strategic shot across the bow and instead of just talking tough, China is throwing up a pre-emptive attack to counter whatever is in store for them past 2024.
Technology has been a national issue for some time and the follow through has been quite robust as China has bulldozed their way to corner the EV market with national champion BYD.
China is doing well in tech, but understands their tech sector cannot co-exist with Silicon Valley in the long term.
The probe is aimed at Nvidia's practices regarding possible anti-monopoly violations. It is also set to examine its 2020 acquisition of Mellanox, a purchase that was approved by China's State Administration for Market Regulation under the condition that the chipmaker would avoid discriminating against Chinese companies.
According to a Chinese media report, the government believes Nvidia’s $7 billion purchase of the Israeli computer networking equipment maker may have violated Beijing's anti-monopoly rules.
The U.S. has amped up restrictions on chip sales to China in recent years, barring Nvidia and other key semiconductor manufacturers from selling their most-advanced artificial intelligence chips in an effort to limit China from strengthening its military. The company has worked to create new products to sell in China that abide by the U.S. regulations.
I remember the golden years in China where growth was unwavering and every recent American college graduate would jump at the chance to make a career in China.
China, along with many other rich Western countries, have hit a wall with growth models that are delivering diminishing returns.
Asia is struggling and there is no other way to describe it.
The United States continues to power through with the top income bracket and enterprise money propping up the rest of the market and minting millionaires through higher tech stocks.
Nvidia is the jewel of America’s recent success and they promise to bolster Americas claim as the flag bearer of the AI movement. The loser would be zero sum and that loser would be China.
Threatening the best in show of American tech is a bold move by China and it smells of desperation.
There have been whispers of a major currency devaluation to the Chinese yuan in the pipeline which would hurt the economy similar to how the Japanese yen crash has crippled the Japanese.
Then, over the weekend, Syria being overthrown and Russia being able to pull back resources indicates that Russia plans to wind down its operation in Eastern Europe and America could set the stage for conflict in China.
Pulling military resources in Eastern Europe and allocating it further east to China would make sense since the upcoming administration views China as a bigger threat than Russia.
China’s political move to name Nvidia as anti-competitive could be the new beginning of a nasty pernicious relationship for the next 4 years between the 2 governments.
What does that mean for tech stocks?
Buy the dip in Nvidia on news like this.
Stepping back and looking at the Nasdaq ($COMPQ), this won’t take down the index.
Nvidia shares grew around 200% in 2024 and although I don’t expect a repeat performance in 2025, capital is pouring in from the sidelines from abroad and at home.
One thing I can tell you is that money from nowhere is pouring into China, especially the foreign type, because the hostile government means investing there is impossible and idiotic for outsiders.
I am bearish China’s economy and optimistic that U.S. tech stocks can muscle through the China headwinds.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-12-09 14:02:082024-12-09 16:26:28China And Nvidia At Loggerheads
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