Another $3,000 winner for you!
Just like we did last Wednesday in the morning post, yesterday we laid our a Futures trading plan that has led to a $3,000 per contract gain on the Russell (/TF) Futures along with similar gains on the S&P (/ES), Nasdaq (/NQ) and Dow (/YM) all provided to you FOR FREE, right in the morning post, which was even published on Seeking Alpha (thanks to alert editors!) at 9:08am – plenty of time to play before the market opened and we started dropping. Merry Christmas and Happy Chanukah to all of our fans!
We also reiterated that fabulous SDS hedge that once again is paying off huge and we'll be discussing that, along with our Futures trading, in this afternoon's FREE Live Trading Webinar at 1pm, EST. We hold these Webinars once a week and usually they are for our Members only but once a month we like to invite everyone in for a look and, who knows, maybe you'll realize it is worth learning what we have to teach you about Options, Futures, Portfolio Management and Trading Techniques.
As you probably know, we are currently "Cashy and Cautious" in the markets and our main portfolios (Long and Short-Term) are well-balanced, while our Butterfly Portfolio is self-hedged – so we don't have to worry about that one. Our most bullish portfolio is our Options Opportunity Portfolio, which you can join over at Seeking Alpha, and that one has taken a hit this month – but nothing we didn't expect as we added many bullish positions and our hedges have yet to kick in.
That makes it a great time to add new positions like, for example, in the Options Opportunity Portfolio we have a simple hedge using the Nasdaq Ultra-Short (SQQQ), where the March $15 calls are now $3.50 so we bought 30 of those ($10,500) and sold 30 of the March $20 calls, now $1.50 ($4,500) for net $2 ($6,000) on the $5 ($15,000) spread. That gives us a $9,000 hedge in our $100,000 portfolio should the Nasdaq turn south and, best of all, SQQQ is already at $17.78, so the hedge starts out $2.78 in the money ($8,340) and we can only lose if the Nasdaq goes higher – which would then be good for our long positions.
There, you just had your first lesson on hedging. That wasn't too hard, was it? Despite the fantastic leverage, no margin is required for that trade – just $6,000 in cash and, if you keep a stop at net $3,000 – then you risk just $3,000 against a potential $9,000 gain and that is the cost of 4 months' insurance – something you can't have too much of into the holiday uncertainty.
I already sent out an Alert to our Members detailing the fundamentals driving the market this morning and, since it's the holiday season, we gave that away for free on our Twitter account (you can follow us here), so I won't repeat it again when there are so many other fun things to discuss!
For instance, with Natural Gas (we're long) testing the $2 mark in the front-month contracts (/NG), our pal Carl Icahn has been buying more of Cheniere Energy (LNG), upping his stake another 1.1% ($110M) for a total of a 13.8% stake in the company. LNG is down almost 50% this year at $42/share but Carl is right as the company will begin exporting Natural Gas in 2016 and will be able to take advantage of this spread in prices:
The US has not allowed Natural Gas Exports before but we do have plenty of it and it is anticipated that 43 Billion cubic feet of gas will be exported each day once all the facilities are up and running (something we discussed extensively in yesterday's Live Member Chat Room). That will ultimately lead to a weekly draw of 301Bcf, which will drain about 1/3 of our natural gas storage over the course of a year. Nat Gas may not hit Europe's $6 mark as it's exported but anything between that and $2 is going to be a huge win for our positions.
The expectation is, of course, that production will ramp up to fill in the gap but, at $2 per Mcf, don't expect it to happen very quickly. That leads us to conclude that $2 natural gas is not likely to last very long so, like Uncle Carl, we have been accumulating a pretty large position in the Natural Gas ETF (UNG), as well as /NG Futures contracts and LNG is a very good choice here as well:
Our UNG play is proprietary to our Options Opportunity players but I'm happy to help you play along with Carl and the way I would set up an LNG play is as follows:
- Buy 10 2017 $30 calls for $14.60 ($14,600)
- Sell 10 2017 $50 calls for $6.50 ($6,500)
- Sell 5 2017 $45 puts at $11 ($5,500)
That spread would be net $2,600 or $260 per 100 option contract and, if LNG hits the $50 mark into Jan, 2017 expirations, the spread would be worth $20,000 for a net gain of $17,400 (669%) and your obligation, if LNG is below $45, would be to buy 500 shares of it ($22,500) plus the $2,600 cash you already put in would be net $25,100 or $50.20 per share. That doesn't sound great with LNG only at $42.16 but it's an aggressive spread that considers LNG to be way undervalued at $42.
So there's a spread idea that can win you enough to pay for 4 years of a Live Chat Membership at Philstockworld or you can just play the /NG futures long where one contract at $2 would pay $10,000 if /NG hits $3 down the road. Unfortunately, for that you need to understand contract lengths and management but, fortunately, we'll be talking about them in today's FREE Live Webinar (1pm, EST) – I hope you are able to join us!
