Well, we do know where they SHOULD stop, and that's here. In fact, to be very clear – WE ARE SHORT THE MARKET HERE – many of our Members have gone to cash and our short-term trades are BEARISH, looking for a correction back to that 22-week moving average that you can see as a "gap" too large on Dave Fry's Nasdaq chart.
BUT (and it's a Big But) just like we hedge to the downside on the way up (in case we're wrong), we should hedge to the upside too – just in case that correction never comes. That's why we regularly run our series of "5 Trade Ideas that can Make 500% in a Rising Market" – those are the kind of high-leverage hedges every bear should have in their portfolio and, yesterday, in our Member Chat Room, I reviewed our most recent 5 trade ideas, from our pre-Thanksgiving post:
- 10 QQQ March $83/88 bull call spread at $2.18 ($2,180), selling 1 AAPL 2015 $450 puts for $32.50 ($3,250) for a net $1,070 credit and we did this in the STP. We just bought back the short AAPL puts and they are now $2,400 and the spread is net $2,830 so that's net $430 plus the $1,070 credit still in pocket is making $1,500 in 2 weeks (140%) – that's a good hedge!
- DDM April $105/115 bull call spread at $5, selling CAT 2016 $60 puts for $4 for net $1, now $2 (up 100%) – also got away already.
- 5 DBA 2016 $22/26 bull call spread at $2.20 ($1,100), selling 5 $21 puts for .65 for net $1.75 ($875) and one CAT 2016 $60 put for $400 for a net $175 credit, now net $380 (up 317%, but miles to go) – that one still works!
- AAPL 2016 $450/600 bull call spread at $60, selling $400 calls for $35 for net $25, now $41.60 (up 67%) – That one's still not bad since the full upside is $125.
- T 2015 $30/35 bull call spreads at $3.45, selling 2016 $30 puts for $2.85 for net .60, now net -.18 - down 130% and still playable (and in the Income Portfolio).
So, we can still get bullish with DBA and T and AAPL is still very reasonable, especially as it's now $112 in the money to start! About normal for our 500% plays as we like to diversify them. We also added another potential 500% trade idea on ABX, as follows:
Certainly now I like ABX at $15.43 and the 2016 $13 puts can be sold for $2.25 along with the purchase of the 2015 $15/25 bull call spread at $2.30 for net 0.05 on the $5 spread so you make every single penny that ABX gains up to $25 for as much as 39,900% back on your nickel! Worst case is you own ABX at net $13.05 (another 15% off).
Our bullish premise is long-standing and simple. At our PSW Investing Conference in Atlantic City in April, we discussed the Money supply and, just as important, the Velocity of Money and how it didn't matter how much money the Fed printed – if nobody spent it, it wouldn't help the economy. On the flip side of that coin, once the velocity of money begins to increase, there is almost no way the Fed will be able to contain it fast enough to control inflation.
That has been the crux of our long-term bullish premise all year and, as you can see from our trade reviews, the vast bulk of our Trade Ideas are long-term bullish while we hedge and hedge and hedge to the short side in our much more bearish short-term portfolio which, so far, has not proved necessary as the expected correction never comes.
IN PROGRESS
