Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Mad Hedge Clocks 46.38% Profit in Q1

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How much pain to take?

That is the question plaguing traders and portfolio managers alike around the world. For the average bear market is only 9.7 months long and we are already 16 months into the present one.

Even the longest postwar bear market was only 2.5 years, or 30 months, the 2000-2002 Dotcom Bust, and we are nowhere near that level of economic hardship. Back then, companies posted losses for several quarters in a row, and many ceased to exist (Webvan, Alta Vista, Pets.com).

That means we only have a few more months of pain to take before another decade-long bull market resumes, or 8 months if the bear stretches to a full two years.

That is unless the new bull was actually born last October, which is entirely possible. Certainly, the stock market thinks so, with its refusal to drop on even the worst of news.

Inflation at 6%? Who cares.

A Fed that hates the stock market? Couldn’t give a damn.

Pathetic earnings growth? Call me when it’s over.

This indifference chalked up the deadest trading week I can remember, putting the Volatility Index (VIX) firmly back into “Do Nothing Land” under 20%.

So investors are cautiously putting cash into stocks on every dip, even minor ones, confident that they will be higher by yearend. If a black swan arrives in the meantime, or a political crisis boils out of control, tough luck if you can’t take a joke.

All of which is focusing a lot more attention on gold (GLD), which moved within 2% of a new all-time high last week. I am always looking for cross-asset class confirmations of current trends and the barbarous relic has certainly been one of those.

I have been bullish on gold since I put out LEAPS on Barrick Gold (GOLD) and silver (SLV) last October. They have since performed spectacularly well. The move into precious metals confirms the following. That the Fed tightening cycle will end imminently. Interest rates will fall, and the US dollar (UUP) will weaken. Everything else flows from there.

You are even seeing this in US Treasury Bond yields, with the ten-year plunging to 3.30%, a one-year low. The (TLT) hit $109 last week. Aren’t bonds supposed to be held back by the looming default by the US government?

I’m starting to wonder if the debt ceiling crisis is this generation’s Y2K. At worst, your toaster may show the wrong year but nothing further. Or maybe the pent-up demand for bonds and high yields is so great that it overwhelms all other considerations?

My 2023 year-to-date performance is now at an incredible +46.38%. The S&P 500 (SPY) is up only a miniscule +7.0% so far in 2023. My trailing one-year return maintains a sky-high +103.2% versus +7.0% for the S&P 500.

That brings my 15-year total return to +643.57%, some 2.71 times the S&P 500 (SPY) over the same period. My average annualized return has blasted up to +48.26%, another new high.

I executed no trades during the holiday-shortened week, content to run my ten profitable positions into the April 21 options expiration. If a strategy ain’t broke, don’t fix it. If I see something I like, I’ll take profits on an existing position and replace it with a new one.

Nonfarm Payroll Report Holds Up, at 236,000 in March, the lowest since December 2020. It shows that high interest rates still have not impacted the jobs market. February was revised up to 326,000. The headline Unemployment Rate dropped back to a 50-year low at 3.5%. Average Hourly Earnings dropped to 4.2% YOY, a two-year low, showing that inflation is in retreat. Leisure & Hospitality led at 74,000 followed by Government at 47,000.

Weekly Jobless Claims Drop, to 228,000, down 18,000 as recession fears rise. High interest rates are finally taking their toll, with a banking crisis thrown in for good measure.

Open Jobs Tighten, The June JOLTS survey of job openings fell to 10.698 million, down from 11.3 million last month and well below expectations of 11 million. Is this the calm before the storm when job openings disappear? This report is highly negative for the US dollar.

Tesla (TSLA) Posts Record EV Deliveries, Deliveries grew 36% from a year ago, below the 50% growth Elon Musk promised for the year on the last earnings call, but Musk has a habit of overpromising. The expansion is still a healthy sign that consumers are spending. Any pullback in Tesla is a gift for shareholders.

Oil (USO) Production Cut Sends Price Soaring, with OPEC+ including Russia has pledged a total of 3.66-million-barrel oil output cut which is nearly 3.7% of global demand. The jump in oil price will only accelerate global inflation and force the Fed into a tougher predicament. The Saudi – US cooperation is at its lowest ebb.

Walmart’s (WMT) Automation Effort Goes Into Overdrive, Walmart said it expects around 65% of its stores to be serviced by automation by 2026. The company said around 55% of packages that it processes through its fulfillment centers will be moved to automated facilities and unit cost average could improve by around 20%. This is the first step to getting rid of human employees. Eventually, the government will need to deliver universal basic income (UBI).

Gold and Miners Threaten New All-Time Highs, suggesting that a collapse in interest rates is imminent. So is an economic recovery and a resurgence of monetary expansion. Russian and China continue to be major buyers to evade sanctions. Keep buying (GLD) and (GOLD) on dips.


Apple (AAPL) Cash Hoard Soars to $165 Billion, as the cash flow king of all time goes from strength to strength. This will be one of the top targets in any tech rebound, which may be imminent. But you’re have to compete with apple to buy the shares, which is a huge buyer of its own stock.

Chip Stocks are On Fire, clocking the best sector of any in Q1. Too far, too fast, say I, but I’ll be in there buying with both hands on any serious dips. This is no future without (NVDA), (MU), and (AMAT) playing a major role.
Stock Dividends Hit New All-Time Highs, at $146.8 billion, up 7% YOY. As interest rates rose, companies had to raise dividends to keep up. The economy is also far stronger those most realize, with many analysts believing we should have entered a recession a long time ago. A high dividend also gives downside protection in bear markets.

Uranium Demand is Surging with the Nuclear Renaissance. And now the US is restarting plutonium production for the first time in 20 years, a uranium derivative. The 20-year supply we bought from the old Soviet Union has run out with a scant chance of renewal. The Los Alamos Labs in New Mexico is seeking to hire 1,200 engineers to build a brand-new factory from scratch. Buy (CCJ) on dips. And buy Los Alamos real estate if you can get a security clearance.

Keep Buying 90-Day T-Bills, now pushing a 5% risk-free yield. The regional banking crisis highlights another reason. If your bank or broker goes under, your cash deposits can be tied up in bankruptcy for three years. If you own US government securities, they can be ordered and transferred out in days to another institution. You can also buy them directly from the US government free of fee. Just thought you’d like to know.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, April 10 at 7:30 AM EST, the Consumer Inflation Expectations are out.

On Tuesday, April 11 at 6:00 AM, the NFIB Business Optimism Index is announced.

On Wednesday, April 12 at 7:00 AM, the US Core Inflation Rate and Consumer Price Index are printed.

On Thursday, April 13 at 8:30 AM, the Weekly Jobless Claims are announced. The Producer Price Index is also released.

On Friday, April 14 at 8:30 AM,  the US Retail Sales are released.

As for me, I covered the Persian Gulf for Morgan Stanley for ten years during the 1980s when medieval sheikdoms still living in the 14th century were suddenly showered with untold wealth. Needless to say, the firm, which we called Morgan Stallion, had a few ideas on what they should do about it.

I was picked as the emissary to the region because I had already been visiting the Middle East for 20 years and had been doing business there for 15 years. My press visa to cover the Iran-Iraq War was still valid.

In addition, I had already developed a reputation for being wild, reckless, and up for anything to enjoy a thrill or make a buck. In addition, with all the wars, terrorist attacks, and revolutions underway, everyone but me was scared to death to go near the place.

In other words, I was perfect for the job.

Being a veteran combat pilot proved particularly useful. I used to fly down on Kuwait Airlines and I still have a nice collection of the cute little Arabic artifacts they used to hand out in first class. Once in Abu Dhabi, I rented a local plane and hopped from one sheikdom to the next drumming up business. Once, I landed on a par five fairway at a private golf course just to give a presentation to a nation’s ruler.

My last stop was always Kuwait, where I turned the plane back in and met the CIA station chief for lunch to fill him in on what I had learned. It was all considered part of the job. When Iraq invaded Kuwait in 1991, I was their first call.

Of course, flying across vast expanses of the Arabian desert is not without its risks. Whenever you fly a single-engine plane you are betting your life on an internal combustion engine, never a great idea. I always carried an extra gallon bottle of water in case of a forced landing. The survival time without water is only three days.

Whenever I refueled, I filtered the 100LL aviation gas through a chamois cloth to keep out water and sand. Still, I was pretty good at desert survival, growing up near Indio California in the Lower Colorado Desert and endlessly digging my grandfather’s pickup truck out of the sand.

Once my boss tried to ban me from a trip to the Middle East because the US Navy had bombed Libya. I assured him that something as minor as that didn’t even move the needle on the risk front, at least in my lifetime.

The problem with the Persian Gulf was that they had all the money in the world and no way to spend it. An extreme Wahabis religion was strictly adhered to, and alcohol was banned. But you could have four wives and I enjoyed some of the best fruit juice in my life.

So my clients came to rely on me for diversions. The Iran-Iraq War was taking place then. I took them up in my plane to 10,000 feet and we watched the aerial war underway 50 miles to the north. The nighttime display of rockets, machine gun fire, and explosions was spectacular.

During one such foray, the wind shifted dramatically as a sandstorm rolled in. Suddenly I was landing in a 50-knot crosswind instead of a 10-knot headwind. A quick referral to the aircraft manual confirmed that the maximum crosswind component for the plane was 27 knots.

Oops!

Then I got a bright idea. I radioed the tower and asked for permission to land on the taxiway at a 90-degree angle to the main runway. After some hesitation, they responded, “If you’re willing to try it”. They knew my only alternative was to ditch at sea with two high-ranking gentlemen who couldn’t swim.

The tower very kindly talked me down with radar vectors and at the last possible second, with the altimeter reading 20 feet, the taxiway popped into view. With such a stiff wind I was able to pancake the plane down in yards, slam it on the runway, and then immediately shut the engine down. I asked for a tow, not wanting to risk the windstorm flipping the plane over.

My passengers thanked me profusely.

When Iraq invaded Kuwait in 1991, I lost most of my friends there. They were either killed, kidnapped and held for ransom, or volunteered as translators for US forces. I never saw them again.

I didn’t return to the Middle East until 2019 when I took two teenage girls to Egypt to introduce them to that part of the world. They wore hijabs, rode camels, and opened their eyes. I even set up some meetings with an educated Arab woman.

I will probably go back someday. I still haven’t seen the ruins at Petra in Jordan, nor ridden the Hijaz Railway, which Lawrence of Arabia blew up in 1918. But I have an open invitation from the king there.

I knew his dad.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

 

Mad Hedge Fund Trader

April 7, 2023

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Global Market Comments
April 7, 2023
Fiat Lux

Featured Trade:

(A NOTE ON ASSIGNED OPTIONS, or OPTIONS CALLED AWAY),
(TLT), (TSLA)

 

CLICK HERE to download today's position sheet.

Mad Hedge Fund Trader

A Note on Assigned Options, or Options Called Away

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Since many of you are still running up to ten deep in the money options spreads, it’s time to review how to handle options called away.

The higher the yield on a security, the greater the call away risk. With ten year US Treasury yields now at 4.00% the call away risk is heightened.

Let’s say you call away an option the day before the ETF goes ex dividend. That enables you to collect an entire quarter’s 88 basis point payout in a day. A measly 88 basis points may not be much for you, but it is a lot for a highly leveraged hedge fund.

Our next options expiration is Friday, April 21 in 10 trading days.

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.

The first notice you may get of options called away is a shocking out-of-the-blue margin call of $1 million or more.

If that 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, which are owned by somebody else, 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. I’ll use a recent trade as an example.

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 Tesla (TSLA) December 2022 $140-$150 in-the-money vertical BULL CALL spread.

For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 9 days before the December 16 expiration date. In other words, what you bought for $8.80 two weeks ago is now $10.00!

All you have to do is call your broker and instruct them to exercise your long position in your (TSLA) December 2022 $140 calls to close out your short position in the (TSLA) December 2022 $150 calls.

This is a perfectly hedged position, with both options having the same expiration date, 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 (TSLA) at $140 and sold it at $150, paid $8.80 for the right to do so, so your profit is $1.20, or ($1.20 X 100 shares X 12 contracts) = $1,440. Not bad for a 9-day 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 (TSLA) position after the stock market close, and exercising his long December $140 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 also 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. They’ll tell you to take delivery of your long stock and then post 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 a boatload 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 because as soon as someone learns something useful, they take a job elsewhere for more money. It doesn’t pay. In fact, I think I’m the last one they really did train.

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 Fund Trader

April 7, 2023 - Quote of the Day

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I’m not in favor of breaking up the large banks. But if push comes to shove and there is no other way to eliminate the “too big to fail” problem, which is getting worse, and not better, I would be in favor of breaking up the big banks,” said former Federal Reserve chairman, Alan Greenspan.

 

Mad Hedge Fund Trader

April 6, 2023

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Global Market Comments
April 6, 2023
Fiat Lux

Featured Trade:

(REITERATION OF MY $1,000 TARGET)
(TSLA)

 

CLICK HERE to download today's position sheet.

Mad Hedge Fund Trader

Tesla Special Report: From Here to the Future

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When I heard that the February 28 Tesla Investors Day in Austin, TX was boring, I was highly suspicious. I thought that might be a journalist’s snap judgment with a strong background in creative writing.

Engineers and scientists might have a different take, I thought. So, I listened to the entire 3 ½ hours and copied all the important charts.

What I heard was nothing less than earth-shaking, groundbreaking, and revolutionary, and won’t cost more than we would spend otherwise. All we have to do is spend more intelligently.

Elon Musk unveiled his Master Plan 3 and unleashed a cornucopia of new data which only an immense amount of research can produce. This will require all forms of transportation to be electric powered within 20 years, except for interplanetary rockets.

As anyone who has been through an advanced physics course can tell you, internal combustion engines are woefully inefficient, converting only 25% of their energy into forward motion, and 20% if you include materials energy costs. But then, that was the best the 19th century could do and it worked for 151 years (Nicolaus Otto built the first gasoline-powered internal combustion engine in Germany in 1872).

Electric motors in Teslas operate closer to a 50% efficiency rating, cutting energy demand by half right there.

To move the world to an all-electric economy will cost about $10 trillion, or about 10% of world GDP. Average that out at 0.5% per year and it will take about 20 years. Adding up car and storage batteries, that means 24 terawatts worth of batteries will need to be manufactured. There are one trillion watts per terawatt.

By comparison, the sun produces 1 gigawatt of energy per square kilometer per day, or 509,600 terawatts. That means an all-electric economy dependent on batteries equivalent to less than 0.1% of the sun’s daily output. In other words, it’s miniscule.

In fact, the world is already decarbonizing far faster than people realize.

There are currently 2 billion cars and trucks in the world, 85 million a year are manufactured, and some 16 million in the US. Global EV production came to 10.6 million vehicles in 2022, an increase of 22%.

Some 60% of new electricity generation installed last year came from alternatives. That’s because in terms of power output alternatives are 40% cheaper than oil, coal, or natural gas. That’s being generous as it does not include the health care costs of carbon-based energy, which make several hundred thousand people per year ill in the US alone (asthma, lung cancer, etc.).

This means that a heck of a lot of lithium is going to be needed. Soft, white lithium is number three on the periodic table (you’re talking to a chemist here), is a great oxidizer, and is anything but rare. What IS rare?  Environmental controls and cheap labor.

This is why the bulk of lithium is produced by China and South America where it literally sits on the surface. This is all easily scalable to meet future demand. In fact, moving to an alternatives-based world uses far less mining than the existing conventional one.

The shortage is not in lithium supply but in lithium processing. The world’s largest lithium consumer should know. Musk recently announced they would move into lithium processing.

Home heating is another challenge. Existing heat pumps, which I have, do a great job heating in winter and cooling in summer in southern and western states where the weather is mild. These use only one-third of the energy used to heat homes with oil and natural gas.  States facing subzero temperatures are another story. This problem can be solved with a fundamental redesign of the heat pump hardware.

Here was a big surprise for me. EVs are not going to create an exponential demand for lithium. Once you get up to a total installed base of 40 million batteries, recycling becomes the primary source of lithium as batteries age out. They can then be reprocessed into new batteries. This eventually caps lithium demand. Future cars will use far less silicon carbide, further reducing its demand by 75%, saving $1,000 a car.

Musk is dumping the traditional 12-volt lead acid battery all Teslas have now which accounts for 87% of all start failures. Instead, he is adding a second small lithium-ion one and redesigning the electrics to take 48 volts. This means lighter weight cables can handle more power at less cost. Musk hopes to force the entire auto industry to move to a 48-volt standard, which should have been done decades ago.

The world’s 4 million Teslas now drive 123 million miles a day and represent the largest AI neural network on the planet. If a car in Florida makes a left turn, all the cars in the rest of the country learn from that experience.

Tesla now has 80,000 chargers in the US, including 40,000 superchargers, which can charge up 450 miles per hour and give you a full charge in 40 minutes. Tesla charged cars with 7 terawatts of power in 2022 and per kilowatt costs have dropped by 40%, with charge times down 30%. Tesla is well on its way to becoming the largest electric power utility in the United States.

Tesla’s current manufacturing capacity is 2 million cars a year across four factories (Fremont, CA, Austin, TX, Berlin, Germany, and Shanghai, China). While it took Tesla 12 years to make its first million vehicles, the 4th million took only seven months. As of today, it is cheaper to own a Tesla than the world’s biggest selling car, the Toyota Corolla, given their total lifetime costs. Work out the cost of charging a Tesla and you are paying the equivalent of 25 cents a gallon for gasoline unless you are at my house, in which case it is free.

The Gigafactory in Sparks, NV, which mass produces lithium-ion battery packs, is currently being doubled in size. In Texas, Tesla is buying wind power from the grid and offering Tesla owners a flat rate for charging of $30 a month because the cost is so low.

There are great hopes for the Cybertruck, for which Tesla has 1.5 million orders, myself included. The final price for the three-motor version will be about $100,000, the same as for a model X. The Cybertruck will have a brand new third-generation platform on which all future Tesla models will be based. It will also include the 48-volt electrical design.

Tesla’s price cuts have been wildly successful, allowing it to gain market share at its competitors' expense. Tesla is really just passing on the recent collapse in commodity prices. So far in 2023, Lithium prices have fallen by 20% and copper 15%. Tesla prices will continue to fall, especially when the new $25,000 Model 2 is brought to market in 2024. That will really decimate the competition.

Tesla has also taken the plunge into the insurance industry, charging drivers on their actual driving history, which they already collect. If you drive like a little old lady, it can run as little as $180 a month. If you drive like Mad Max, it’s more, but not as much as a conventional car insurance company.

Rates change monthly depending on your driving record. Parked in a garage gives you a perfect score of 90 and it drops from there. It’s all about reducing the total cost of a Tesla car. Not such a bad deal if you let their computer do all the driving.

What will Tesla disrupt next?

All in all, it was a breathtaking presentation, which Elon delivered coolly and calmly. It is with the greatest enthusiasm that I reiterate my $1,000 per share price target.

To watch the Tesla Investor Day in its entirety on YouTube, please click here. 

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mad Hedge Fund Trader

April 5, 2023

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Global Market Comments
April 5, 2023
Fiat Lux

Featured Trade:

(THE CODER BOOM)
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
(AAPL)

 

CLICK HERE to download today's position sheet.

Mad Hedge Fund Trader

How to Execute a Vertical Bull Call Spread

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For those readers looking to improve their trading results and create the unfair advantage they deserve, I have posted a training video on How to Execute a Vertical Bull Call Spread.

This is a matched pair of positions in the options market that will be profitable when the underlying security goes up, sideways, or down a small amount in price over a defined limited period of time.

It is the perfect position to have onboard during markets that have declining or low volatility, much like we experienced in 2014, and will almost certainly see again.

I have strapped on quite a few of these across many asset classes this year, and they are a major reason why I am showing positive performance numbers for 2016.

To understand this trade, I will use the example of an Apple trade, which I executed on July 10, 2014. I then felt very strongly that Apple shares would rally into the release of its new iPhone 6 on September 9, 2014.

The same play kicked in again for the iPhone 12 release last October.

So followers of my Trade Alert service received text messages and emails to add the following position:

Buy the Apple (AAPL) August 2014 $85-$90 in-the-money bull call spread at $4.00 or best

To accomplish this, they had to execute the following trades:

Buy 25 August 2014 (AAPL) $85 calls at...............$9.60

Sell short 25 August 2014 (AAPL) $90 calls at......$5.60

Net Cost:...............................................................$4.00

This gets traders into the position at $4.00, which cost them $10,000 ($4.00 per option X 100 shares per option contract X 25 contracts).

The vertical part of the description of this trade refers to the fact that both options have the same underlying security (AAPL), the same expiration date (August 15, 2014) and only different strike prices ($85 and $90).

The breakeven point can be calculated as follows:

$85.00 - Lower strike price
+$4.00 - Price paid for the vertical call spread
$89.00 - Break even Apple share price

Another way of explaining this is that the call spread you bought for $4.00 is worth $5.00 at expiration on August 15, giving you a total return of 25% in 26 trading days. Not bad!

The great thing about these positions is that your risk is defined. You can't lose any more than the amount of capital you put up, in this case, $10,000.

If Apple goes bankrupt, we get a flash crash, or suffer another 9/11 type event, you will never get a margin call from your broker in the middle of the night asking for more money. This is why hedge funds like spreads so much.

As long as Apple traded at or above $89 on the August 14 expiration date, you would have made a profit on this trade.

As it turns out, my read on Apple shares proved dead-on, and the shares closed at $97.98 on expiration day or a healthy $8.98 above my breakeven point.

The total profit on the trade came to:

($1.00 profit X 100 shares X 25 contracts) = $2,500

This means that the position earned a 25% profit on your $10,000 investment in a little more than a month. Now you know why I like Vertical Bull Call Spreads so much. So do my followers.

Occasionally, these things don't work and wheels fall off. As hard as it may be to believe, I am not infallible.

So, if I'm wrong and I tell you to buy a vertical bull call spread, and the shares fall not a little, but a lot, you will lose money. On those rare occasions when that happens, I'll shoot out a Trade Alert to you with stop-loss instructions before the damage gets out of control.

That stop loss is usually at the lower strike price when there is still a lot of time to run to expiration, as the position still has a lot of time value remaining, and the upper strike price when there are only a few days left until expiration.

The most I have ever lost on paper with one of these vertical bull call spreads was 50% of my capital, or $5,000 on a $10,000 investment. That’s because the trade was with both long and short options which maintain time value, no matter what the market does. I also never put more than 10% of my portfolio into a single position, so the paper loss on the entire capital was only 5%.

But that was on one of the worst days in market history when the Dow Average opened down 1,300 points. As it turned out, I kept my position and ended up making the maximum profit by expiration day.

To watch the video edition of How to Execute a Vertical Bull Call Spread, complete with more detailed instructions on how to execute the position with your own online platform, please click here.

Vertical Bull Call Spreads Are the Way to Go in a Crazily Oversold Market

Mad Hedge Fund Trader

April 5, 2023 - Quote of the Day

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“If Carnival Cruise Lines (CCL) can raise $4 billion in the debt markets, why can’t American (AA) or United (UAL) do the same? Why stick it to the taxpayer?” asked my old friend, famed short-seller Jim Chanos.

 

Mad Hedge Fund Trader

April 4, 2023

, ,

Global Market Comments
April 4, 2023
Fiat Lux

Featured Trade:

(Trade Alert - (TLT) LEAPS – BUY)
(TLT)

 

CLICK HERE to download today's position sheet.

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