Global Market Comments
February 15, 2022
Fiat Lux
Featured Trades:
(HOW TO HANDLE THE FRIDAY, FEBRUARY 18 OPTIONS EXPIRATION),
(TLT), (SPY), (BRKB), (TSLA), (MSFT), (AMZN)
Tag Archive for: (TSLA)
Happy and newly enriched followers of the Mad Hedge Fund Trader Alert Service have the good fortune to own a record ten deep in-the-money options positions that expire on Friday, February 18 at the stock market close in three days.
I have to admit that I traded like a Wildman this month, pedal to the metal, and 100% invested. This will take our 2022 year-to-date performance to over 24%. I like to think that is the end result of my 53 years investment in researching trading strategies.
Sometimes overconfidence works.
It is therefore time to explain to the newbies how to best maximize their profits.
These involve the:
Risk On
World is Getting Better
(TLT) 2/$149-$152 put spread 10.00%
(TLT) 2/$147-$150 put spread 10.00%
(TLT) 3/$150-$153 put spread 10.00%
(BRKB) 2/$270-$280 call spread 10.00%
(TSLA) 2/$600-$650 call spread 10.00%
Risk Off
World is Getting Worse
(MSFT) 2/$340-$350 put spread -10.00%
(SPY) 2/$465-$475 put spread -10.00%
(SPY) 3/$470-$480 put spread -10.00%
(AMZN) 2/$3400-$3500 put spread -10.00%
(TLT) 3/$127-$130 call spread -10.00%
Total Net Position 0.00%
Total Aggregate Position 100.00%
Provided that we don’t have another 2,000-point move down in the market in the next three days, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the Tesla (TSLA) February 18 $600-$650 vertical bull call spread, which 50% in the money from its lower strike price which I almost certainly will run into expiration. Your profit can be calculated as follows:
Profit: $50.00 expiration value - $43.00 cost = $7.00 net profit
(2 contacts X 100 contracts per option X $7.00 profit per option)
= $1,400 or 16.28% in 15 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 February 21 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 make your broker 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, February 18. 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 month-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
February 9, 2022
Fiat Lux
Featured Trades:
(WHY TESLA IS TAKING OVER THE WORLD)
(TSLA), (GM), (TM)
(TESTIMONIAL)
It was another typical Elon Musk earnings call.
Tesla is evolving into the world’s preeminent robotics and AI company.
It is building the largest neural network in history, which means all the Tesla’s ever made are talking to each other, some four million by the end of this year.
When the US goes all electric in a decade, the size of the power grid is going to triple (buy copper), or else brownouts and outages will become constant. Every home in the country is going to need solar roofs to meet the demand.
Demand for cars is the greatest Tesla has ever seen, far beyond their ability to produce them, and Q1 is the slow quarter for the auto industry. I just tried to buy a new Model X and the waiting list is one year. In fact, I can sell my existing 2018 Model X on eBay for more than I paid for it….new.
Elon never fails to amaze.
As for the stock, you have to get used to the idea that the world’s greatest company has annual 45% drawdowns. That’s how Tesla has always traded. It's either going to zero or infinity, depending on who you talk to.
My decade target is still $10,000 per share. We just had a $420, 35% pullback, so we may take one more run at the lows before we go to new Highs. But I have only been trading Tesla shares for 11 years. What do I know?
I’ll never forget my first tour of the Fremont factory in 2010, right after they bought it for stock from Toyota (TM) out of the General Motors (GM) bankruptcy (Toyota owned half). Tesla then occupied only a tiny corner of the gigantic 50,000 square foot space.
But you know what? There were virtually no humans on the assembly line, just a long row of red German-made robots. There was just the occasional guy shooting oil into automatic joints.
It was a vision into the future.
I knew I was on the right track when the salesman told me that the customer who just preceded me for a Tesla Model X P100D SUV was the Golden Bay Warriors star basketball player, Steph Currie.
Well, if it’s good enough for Steph, then it’s good enough for me.
So, when I received a call from Elon Musk’s office to test the company’s self-driving technology embedded in their new vehicles for readers of the Diary of a Mad Hedge Fund Trader.
I did, and prepare to have your mind blown!
I was driving at 80 MPH on CA-24, a windy eight-lane freeway that snakes its way through the East San Francisco Bay Area mountains. Suddenly the salesman reached over a flicked a lever twice on the left side of the driving column.
The car took over!
There it was, winding and turning along every curve, perfectly centered in the lane. As much as I hated to admit it, the car drove better than I ever could. It does especially well at night or in fog, a valuable asset for senior citizens whose night vision is fading fast.
All that was required was for me to touch the steering wheel every minute to prove that I was not sleeping.
The cars do especially well in rush hour driving, as it is adept at stop-and-go traffic. You can just sit there and work on your laptop, read a book, call some customers, or watch a movie on the built-in 5G WIFI HD TV.
When we returned to the garage the car really showed off. When we passed a parking space, another button was pushed, and we perfectly backed 90 degrees into a parking space, measuring and calculating all the way.
The range is 300 miles, which I can recharge at home at night from a standard 220-volt socket in my garage in seven hours. When driving to Lake Tahoe, I can stop halfway at get a full charge in 30 minutes at a Tesla supercharging station.
The new chargers operate at a blazing 400 miles per hour. That’s enough time to walk to the subway next door and get a couple of sandwiches.
The chassis can rise as high as eight inches off the ground so it can function as a true SUV.
The “ludicrous mode,” a $12,000 option, take you from 0 to 60
mph in 2.9. However, even a standard Tesla can accelerate so fast that it will make the average passenger carsick.
Here’s the buzzkill.
Tesla absolutely charges through the nose for extras.
The 22-inch wheels, the third row of seats to get you to seven passengers, the premium sound, the leather seats, and the self-driving software can easily run you $30,000-$40,000.
A $750 tow hitch will accommodate a ski or back rack on the back. There is a $1,000 delivery charge, even if you pick it up at the Fremont factory.
It’s easy to see how you can jump from an $84,990 base price to a total cost of $162,500, including taxes, for the ultra-luxury Performance model, as I did.
As for “drop dead’ curb appeal, nothing beats the Model X. When I first started driving Tesla’s I used to get applause at stoplights. It took a while to realize they were cheering the car, not me.
Even after driving one of these for 11 years, I still get notes with phone numbers from young women asking for rides. And they don’t even offer that as an option!
My original split-adjusted cost for my Tesla shares is $3.30.
It’s still true that if you buy the shares, you get the car for free.
I got three.
Thank You, Elon!
Mad Hedge Bitcoin Letter
February 8, 2022
Fiat Lux
Featured Trade:
(BITCOIN MOMENTUM PICKS UP)
(BTC), (ETH), (TSLA)
One might pontificate that the recent bullish price action in Bitcoin is because Bitcoin and other cryptocurrencies are finally starting to decouple from equities.
I don’t agree.
For the past few months, Bitcoin has been relegated to a status of just another lousy tech stock as the price movement mimicked the Nasdaq index but in a more exaggerated form.
I would argue that the decoupling moment hasn’t materialized yet and the industry needs to mature to exhibit more idiosyncratic characteristics.
Once they shake off that convenient moniker, it will allow the incremental investor to define it by its merit.
Defining it through the prism of its current strategic position relative to an entirely different industry just doesn’t make a whole lot of sense.
Bitcoin has roared back from the dead and it’s about time.
The bears can’t hold down the secular drivers underpinning the asset forever.
I believe the outperformance of late that has seen Bitcoin elevate into the mid-$40,000s is more of a result of interest rate expectations being pushed to the upper limit in the short-term and investors expecting a small reversion to the mean.
The U.S. 10-year Treasury yield is now a smidge below 2% after a pulsating move from 1.3% in the past 3 months.
The 35% move down had a funny way of distorting pretty much every asset class as consumers rushed into real estate, sold off technology stocks as fast as they could, and triggered a flight to safety.
No doubt that interest rates will most likely blow past the 2% threshold, but the reversal in bitcoin is signaling that the ensuing pace of yield appreciation will be orderly and smoother than what we just witnessed the past few months as the Fed tries to catch up.
If the Fed can wrestle back the narrative and actually do their jobs, Bitcoin is sitting pretty as we move forward.
The Fed has finally indicated they will finally act and that shakeout penalized crypto as the goalposts narrowed.
The sad fact is that in times of panic, high-risk assets are usually the first to be sold to supplement the losers or a cascade of stop-loss orders being dismantled can cause contagion that overflows into other areas.
As Bitcoin stabilizes and marks a short-term floor of $40,000, we could experience another buying wave as calm waters mean it's time to set sail aboard the crypto speed boat.
There are more green shoots occurring beneath the surface as more organizations are embracing bitcoin.
Earlier today, KPMG Canada, the Toronto-based branch of professional services firm KPMG, announced that it had purchased some Bitcoin and Ethereum.
Even more important, automaker Tesla (TSLA) revealed in a recently filed 10-K that it held almost $2 billion in bitcoin at the end of last year.
Tesla’s 10K SEC filing update was released yesterday, reaffirming notions that Tesla held onto their Bitcoin holdings amidst declines in Bitcoin’s price to the lower $30,000.
Combined with the news of KPMG Canada adding Bitcoin onto its balance sheet, encouraged a sharp rise in positive Bitcoin price sentiment.
These events mean that market confidence is coming back quickly, and people are realizing that we have finally arrived at an entry point.
These events are simply the latest sign of progress for cryptocurrencies.
On the legal front, I believe a huge source of momentum comes from Congress, with many members of the U.S. Senate speaking favorably on Bitcoin.
On Friday, Texas Sen. Ted Cruz disclosed that he invested in $50K worth of bitcoin during its dip back last month and spoke positively about Texas being the next bitcoin mining hub.
Sentiment has climbed back from the dead and we could experience short-term rapid upside price action in this highly volatile asset class.
Global Market Comments
February 7, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CASH IS KING),
(SPY), (TLT), (TBT), (MSFT), (AAPL), (TSLA), (BRKB)
Global Market Comments
February 4, 2022
Fiat Lux
Featured Trades:
(FEBRUARY 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (PLTR), (BRKB), (MS), (GOOGL), (ROM), (MSFT), (ABNB), (VXX), (X), (FCX), (BHP), (USO), (TSLA), (EDIT), (CRSP)
Below please find subscribers’ Q&A for the February 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Thoughts on Palantir Technologies Inc. (PLTR)?
A: Well, we got out of this last summer at $28 because the CEO said he didn’t care what the share price does, and when you say that, the market tends to trash your stock. But Palantir is also in a whole sector of small, non-money-making, expensive stocks that have just been absolutely slaughtered. And of course, PayPal (PYPL) takes the prize for that today, down 25% and 60% from the top. So, we’re giving up on that whole sector until proven otherwise. Until then, these things will just keep getting cheaper.
Q: Given the weakness in January, do you think we still have to wait until the second half of the year for a viable bottom?
A: Definitely, maybe. If things are going to happen, they are going to happen fast; we got the January selloff, but that’s nowhere near a major selloff of 20%. And the fact is, the economy is still great so that’s why this is a correction, not a bear market. At some point, you want to buy into this, but definitely not yet; I think we take another run at the lows again sometime this month. We just have to let all the shorts come out and take their profits so they can reestablish again.
Q: Why are bank stocks struggling?
A: A lot of the interest rate rises that we’re getting now were already discounted last year—banks had a great year last year—so they were front running that move, which is finally happening. To get more moves out of banks, you’re going to have to get more interest rate rises, which we will get eventually. We still like the banks long term, we still like financials of every description, but they are taking a break, especially on the “sell everything” index days. A lot of the recent selling was index selling—banks have a heavy weighting in the index, about 15%. So, they will go down, but they will also be the ones that come back the fastest. We’re seeing that in some of the financials already, like Berkshire Hathaway (BRKB) and Morgan Stanley (MS) which are both close to all-time highs now.
Q: What about the situation with Russia and Ukraine?
A: It’s all for show. This is a situation where both the US and Russia need a war, or threat of a war, because the leaders of both countries have flagging popularity. Wars solve those problems—that’s why we have so many of them by the United States. We’ve been at war essentially for most of the last 40 years, ever since Ronald Reagan came in.
Q: I didn’t exit my big tech positions before the crash, should I just hang onto them at this point?
A: The big ones—yes. The Apples (AAPL), the Googles (GOOGL), the Amazons (AMZN) —they’re only going to drop about 20% at the most, maybe 25%, and then they’ll go to new highs, probably before the end of the year. If you’re good enough to get out and get back in again on a 20% move, go for it. But most people can’t do that unless they’re glued to their screens all day long. So, if you have stock, keep the stock; if you have options, get out of the options, because there the time decay will wipe you out before a turnaround can happen. This is not an options environment, unless you’re playing on the short side in the front month, which is what we’re doing.
Q: When you send out the trade alerts, I have a hard time getting them executed. How do you advise?
A: Move the strike price, go out in maturity, and you can get our prices at slightly higher risk. Or, just leave it and, quite often, people’s limit orders get done at the end of the day when the algorithms have to dump their positions at the close because they’re not allowed to carry overnight positions. Also, even if you get half of my trade alerts, you’re doing pretty good—we’re running at a 23% rate in 6 weeks, or 200% annualized. And remember, when I send out a trade alert, you’re not the only one trying to get in there, so you can even go onto a similar security. If I recommend Alphabet (GOOGL), consider going over to Microsoft (MSFT), because they all tend to move together as a group.
Q: I am sitting on a 16% profit in the ProShares Ultra Technology (ROM), which you recommended. Should I take the money and run, and get back in at a lower price?
A: Yes, this is just a short covering rally in a longer-term correction, and you make the money on the volume. You win games by hitting lots of signals, not hanging on to a few home runs where people usually strike out.
Q: You said inflation will be short lived, so why would there be 9 interest rates after the initial 4?
A: It’s going to take us 8 interest rates just to get us back to the long-term average interest rate. Remember the last 2% is totally artificial and only happened because there was a financial crisis 13 years ago. So, to normalize rates you really need to get overnight rates back up to about 3.0%. And that means 12 interest rate hikes. If you don’t do that, you risk inflation going from controllable to uncontrollable, and that is the death of the Fed. So, that’s why I expect a lot more interest rate rises.
Q: Will the tension between Russia and the Ukraine affect the market?
A: No, it hasn’t so far and I don’t expect it to. Although, it’s hard to imagine going through all of this and not seeing a shot fired. When that one shot gets fired, then maybe you get a down-500-point day, which it then makes back the next day.
Q: Anything to do with Alphabet (GOOGL) announcing its 20 to one split?
A: No, it’s too late. We had a trade alert out on a Google 20 call spread which we actually took profits on this morning. So, nice win for the Mad Hedge Technology Letter there. There’s nothing to do with these splits, it’s not like they’re going to un-announce it, this isn’t a risk-arbitrage situation where there’s always an antitrust risk hovering over the deal that may crash it. This is pretty much a done deal and doesn’t even happen until July 1. People think bringing the share price from $3,000 down to $150 makes it available for a lot more potential retail buyers, which it does. It also makes call spreads on the options a lot cheaper too. When we put out these alerts, we can only do one or two contracts, even tying up $10,000—divide that by 20 and all of a sudden your cheapest Google call spread cost $500 instead of $10,000.
Q: Can you speak about the liquidity on your strikes? Sometimes we’re trading against strikes that have no open interest.
A: Whenever you put in an order for one strike, even if there’s nothing outstanding on that strike, algorithms will arbitrage against that strike—where your order is—against all the other strikes on the whole options chain. So, don’t worry if you have limited open interest or no open interest on our trade alerts. They will get done, and it may get done by some algorithm or some market maker taking more of another strike, that’s how these things get done. It’s all thanks to the magic of computers.
Q: Do you have thoughts about Freeport-McMoRan (FCX)? I have some profitable LEAP positions open.
A: It’ll go higher, keep them. And I like the whole commodity space, which means iron ore (BHP), copper, steel (X), etc.
Q: Would you trade Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) at this point?
A: No, because we’re dead in the middle of the recent range. That’s a horrible place to enter—you only enter (VXX) on extremes on the upsides and the downside.
Q: What should I do about Airbnb (ABNB) at this price? They’ve been profitable for 2-3 years, with revenues rising.
A: I think Airbnb is one of the best run companies in the world, and I expect their earnings to keep growing like crazy, especially once we get out of the pandemic. I am also a very frequent Airbnb user, having stayed in Airbnb’s in at least 10 countries, so I’m a big fan of them. The stock just got dragged down by the small tech bust but it will come back. This is a “throwing the baby out with the bathwater” situation.
Q: Are there any good LEAPS candidates now?
A: I’m not doing any LEAPS until we reach the final cataclysmic selloff of the correction. Otherwise, the time value will run against you enormously; I’d rather wait for better prices.
Q: Do you see a cataclysmic selloff?
A: Yes, I do. Maybe in a few more weeks, and maybe next week if we get a really hot 8%+ inflation rate—that would really kill the market.
Q: What will tell you if inflation is ending or slowing labor?
A: Labor is 70% of the inflation calculation. So, when these huge pay awards slow down, that's when inflation slows down. By the way, a lot of pay increases that are happening now are catch-up from the last 40 years of no pay increases for American workers in real inflation adjusted terms. So, a lot of this is catch-up—once that’s done, you can forget about inflation. Also, the long-term pressure of technology on prices is downwards, so allow that to reignite deflation, and that will be your bigger issue over the long term.
Q: What should I do about Editas Medicine Inc (EDIT) or CRSPR Therapeutics AG (CRSP)?
A: Don’t touch the sector, it’s out of favor. Let this thing die a slow death. When they come up with profitable products, that’s when the sector recovers. So far, everything they have works in labs but there are no mass-produced Crispr products, they’re trying for mass production on sickle cell anemia and a couple of other things, but still very early days in CRSPR technology.
Q: When will this recording be posted?
A: In two hours, it will be posted on the website. Go to “My Account” and you’ll find the last 13 years of recorded webinars.
Q: What do you mean by “stand aside from Foreign Exchange”?
A: The volatility in the foreign exchange market is just so low compared to equities and bonds, it’s not worth trading right now. When you can trade everything in the world—foreign exchange is at the bottom of the list. If I see a good entry point, I’ll do a trade; but do I trade Tesla (TSLA) with a volatility of 100%, or foreign exchange with a volatility of 5%? Those are the choices.
Q: Should I do any short plays in oil (USO)?
A: Generally, you don’t want to short any commodity unless you're a professional; I say that having been short beef futures when Mad Cow Disease hit in 2003 and you had three limit-up days in a row in the futures market. That happens in the commodity areas—liquidity is so poor compared to stocks and bonds that if you get caught in one of these one-way moves, you can’t get out. So that is the risk; and I’ve known people who have gone bust trading oil both long and short, so this is for professionals only. With stocks you get vastly more data and information than you do in the commodity markets where industry insiders have a much bigger advantage.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Aga Sophia Mosque in Istanbul
Global Market Comments
January 31, 2022
Fiat Lux
Featured Trades:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DEATH OF THE FED PUT),
(SPY), (TLT), (TBT), (MSFT), (AAPL), (TSLA), (BRKB)
