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The Weak Ahead in the Markets

Posted on the 07 September 2020 by Phil's Stock World @philstockworld

The Weak Ahead in the MarketsNo, it's not a typo – I meant weak!

Last week we knew the Nasdaq was too toppy to hold 12,000 and, as hedges in our generally empty portfolio (since it's only two weeks old) we have been playing the Nasdaq Ultra-Long (TQQQ) short and you can see how quickly that spiked down from $175 all the way to $125 on what was actually a fairly minor correction (so far) for the indexes.  

As we discussed back on Aug 21st, the TQQQ spread makes money two ways:  We make money in the position in that our 10 March $125 puts get more valuable as TQQQ goes lower and they are now $31.50 ($31,500), up $6,500 from $26,000 at the time.  We also make money on the premium decay as the 10 March $95 puts lose their value faster than the $125s and those are now $19 ($19,000) and we sold them for $15,000 so down $4,000 on those is net $2,500 (22.7%) gained on the $11,000 spread so far but the spread has the potential to return $30,000 below $95 – so it's still an excellent hedge.  

Another hedge we placed was Tesla and our trade idea for them was:

  • Buy 1 TSLA March $2,000 puts for $413 ($41,300) 

  • Sell 1 TSLA October $2,000 put for $227 ($22,700) 

Tesla had a 5:1 stock split so now we have 5 March $400 puts at $97 ($48,500) and 5 short October $400 puts at $56 ($28,000) and that's already net $20,800 from our $18,000 investment for a $2,200 (12.2%) gain so far but time is really on our side on this one so it will be fun to track along the way.  

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