Global Market Comments
June 6, 2023
Fiat Lux
Featured Trades:
(Trade Alert - (FCX) – BUY)
CLICK HERE to download today's position sheet.
BUY the Freeport McMoRan (FCX) June 2024 $35-$38 out-of-the-money vertical Bull Call spread LEAPS at $1.50 or best
Opening Trade
6-5-2023
expiration date: June 21, 2024
Number of Contracts = 1 contract
If you are looking for a cheap 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 Freeport McMoRan (FCX) shares will rise by 8% or more over the next 12 months.
You may not have noticed, but we have just entered the golden age of the electric vehicle, thanks to climate change and massive government support. Each EV will need 200 pounds of copper, and Freeport McMoRan is the world's largest copper producer. It also is the world’s largest producer molybdenum and owns some of the biggest gold mines.
The company’s output will have to increase by at least 500% over the next eight years to accommodate projected copper demand. (FCX) has also been especially accommodating in that its shares are just coming back from a 52% over the last 12 months.
To learn more about the company (and to order a car), please visit their website at https://www.fcx.com
I am therefore buying the Freeport McMoRan (FCX) June 2024 $35-$38 out-of-the-money vertical Bull Call spread LEAPS at $1.50 or best.
Don’t pay more than $2.00 or you’ll be chasing on a risk/reward basis.
If you want to get more aggressive with more leverage, use a pair of strike prices higher up. This will give you a larger number of contracts at a lower price.
Please note that these options are illiquid, and it may take some work to get in or out. Start at my price and work your way up until you get done. Executing these trades is more an art than a science.
Let’s say the Freeport McMoRan (FCX) June 2024 $35-$38 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $1.50-$2.00. Enter an order for one contract at $1.50, another for $1.60, another for $1.70 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.
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 an 8% rise in (FCX) shares will generate a 100% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 12.5:1 across the $35-$38 space.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it until you find the real price.
This is a bet that Freeport McMoRan will close above $35 by the June 24, 2024 options expiration in 1 year and 4 months.
Here are the specific trades you need to execute this position:
Buy 1 June 2024 (FCX) $35 calls at………….…..…$8.00
Sell short 1 June 2024 (FCX) $38 call sat…………$6.50
Net Cost:………………………….………..………….….....$1.50
Potential Profit: $3.00 - $1.50 = $1.50
(1 X 100 X $1.50) = $150 or 100% 12 months.
If you are uncertain about how to execute an options spread, please watch my training video 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.
“Everything I ever accomplished in business is due to what I learned in the Marine Corps, especially about leadership,” said FedEx founder and former Marine Captain Fred Smith.
Global Market Comments
June 5, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE IS THE NEXT BIG PLAY),
(FCX), (X), (CAT), (DE), (CLV), (UNG), (OXY), (RIO), (BHP), (TSLA)
CLICK HERE to download today's position sheet.
“The real back swan wasn’t the virus, it was the lockdown, which caused very serious damage to the economy, especially small companies,” said Jason Trennert of Strategas Research Services.
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.
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
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
Global Market Comments
May 31, 2023
Fiat Lux
Featured Trades:
(WHAT AI CAN AND CAN’T DO)
(AAPL), (GOOGL), (AMZN), (AMZN), (TSLA), (NVDA), (MU)
CLICK HERE to download today's position sheet.