20 Million Tuesday, 28,000 Tuesday – Record Infections, Record Highs

Why didn't we think of this before?  

A deadly virus sweeping the planet is GREAT for the stock market!  There we were trying to keep stores open and going to work and making things – what a waste of time that all was, right?  All we had to do was stay home and have the Government print money – we are all "welfare queens" now, aren't we?  That's especially true of our Corporate Citizens, who are getting hit after hit of Government cash and paying record-low rates for record-high debt – what could possibly go wrong?

The stock market is up 5% in the past week and 15% since July 1st and 54% since March 23rd's 2,200 low – that's a pretty good rally.  We caught that rally and now I think it's time to CASH OUT of our crisis trades so let's do a quick review of the trades we made while the rest of the World was panicking and yes, I'm now telling you to GET OUT!!! while the rest of the World is buying – imagine that….

That's right, it was now 5 months ago when we first plunged below our 2,850 "Must Hold" line on the S&P 500 and, as I said back on March 12th, "When the going gets tough, the tough go shopping" and it's not just the lower stock prices we take advantage of when our fellow investors are panicking out of positions but the higher levels of volatility raise the Volatility Index (VIX) and allow us to "Be the House" and sell options for fantastic premiums.  

Initially, we sell puts to establish good entries in positions when we think there may be more downside.  We'll see how those are doing and decide whether we want to expand on our plays.  The first round was taken on March 12th, and these were the original trade ideas followed by the current price and profit in caps.  If I don't mind holding the position – we'll call it a KEEPER:

• Boeing (BA) – It's hard to call a bottom on BA but they will be close to $160 this morning and that means we can sell 5 of the 2022 $110 puts for $27.50 ($13,750) in the LTP for just $3,707 in margin. This one could be a rough ride.  NOW $13.45 ($13,450) Up $300 (2%) – KEEPER!

• Cisco (CSCO) – Rarely goes on sale and this is a doozy back at $35 this morning. We can sell 10 of the 2022 $25 puts for $3.20 ($3,200) in the LTP to net in for $21.80. $785 margin.  NOW .88 ($880) – UP $2,320 (72%)

• Hanesbrands (HBI) – HBI is one of our "safety" retailers. They make ordinary underwear, which even people with the flu have been known to wear. Down at $9.50 is impossible to resist as that's $3.5Bn for a company making $600M a year so 7x earnings AND they pay an 0.60 dividend, which is 6% on this price. We don't have to buy them for $9 to collect 0.60 though as we can sell 20 2022 $8 puts for $2.20 ($4,400) in the LTP to net us in for $5.80. $519 margin.  Now 0.85 ($1,700) – Up $2,700 (62%)

 

• IBM (IBM) – Our 2019 Stock of the Year is back where we came in in 2018 at around $110 and we can sell 5 2022 $80 puts for $10 ($5,000) in the LTP to net in for $75. $1,206 margin.  NOW $3.60 ($1,800) – UP $3,200 (64%)

• Intel (INTC) – Hasn't been this cheap in a while and $50 is $220Bn in market cap for a company that made $20+Bn in each of the past two years. We can sell 10 of the 2022 $30 puts for $3 ($3,000) in the LTP and net in for $27 – almost half that price. $748 margin.  Now $1.50 ($1,500) – Up $1,500 (50%) – KEEPER!  

• 3x Biotech ETF (LABU) – This index is completely falling apart, just caught up in the general selling that's going on in the market. It fell 20% yesterday and another 20% this morning so VERY RISKY to catch this knife at $25 but we can sell 10 2022 $15 puts for $7.50 ($7,500) in the LTP to net us in for $7,500 on 1,000 shares so the risk/reward is pretty good. Margin on that is $607 but we're also going to buy 20 of the 2022 $20 ($15)/$35 ($10) bull call spreads at $5 ($10,000) as that will be net $2,500 on the $30,000 spread with $27,500 (1,100%) upside potential if LABU can get back over $35.  NOW $3.05 ($3,050) ON THE PUTS and $44/35 ($18,000) ON THE SPREAD FOR NET $14,950 – UP $9,100 (598%) – KEEPER! 

• Plug Power (PLUG) – This was on our "Stocks of the Future" list but it got away from us before we could buy it at $3 and now it's back to $3.15 this morning and we can sell 50 of the 2022 $2.50 puts for $1.10 ($5,500) in the "Stocks of the Future" Portfolio to net us in for just $1.40. $1,369 margin.  NOW 0.30 ($1,500) – UP $4,000 (72%)

• TD Bank (TD) – This is a very solid bank that is not as exposed to the energy sector as other Canadian banks. Testing $40 this morning is under $75Bn for a bank that made $8.5Bn last year and pays a 5% dividend ($2.37) but we're not paying that, we're just going to promise to buy 500 shares by selling 10 2022 $25 puts for $3 ($3,000) in the LTP to net in for $32 if assigned. $1,834 margin.  NOW 0.90 ($900) – UP $2,100 (70%)

• Tenet Healthcare (THC) – One of our biggest winners from last year is back on sale at $19 and it's tempting to back up the truck but we'll just sell 10 of the 2022 $15 puts for $3.50 ($3,500) in the LTP so we can remember to keep an eye on them. $2,090 margin.  NOW $2.80 ($2,800) – UP $1,700 (48%) – KEEPER

• ViacomCBC (VIAC) – They have done nothing but go down and we already have them so not for our portfolio but $18.50 is INSANE as it's $12Bn in market cap for a company that made $3.3Bn last year. If anything, you would think more people will be watching TV as they stay home every night. You can sell 10 2022 $15 puts for $4.50 ($4,500) to net in for $10.50. $743 margin.  NOW $2.10 ($2,100) – UP $3,400 (75%)

Last time we checked on these trades (May 10th), 3 of our 10 Trade Ideas were not doing and we more than tripled down on VIAC AND got more aggressive on the puts – ending up with this much larger spread in our Long-Term Portfolio:

As I said, the primary reason we sell short puts is to INITIATE potential long positions and it reminds us to focus on the stocks and, over the past two months, we have determined that Viacom/CBS is extremely undervalued – so we put a lot more money to work on it though, now, the position is only net $35,030 out of a potential return of $50,000 and VIAC only has to stay over $15 into January of 2022 for a potential gain of $14,970 (42%) from where it is now.  That is up $23,850 (205%) from our May review, when it was already looking like our premise was playing out!   Still a KEEPER! 

So we tried it and we liked it and we put a bit more money in.  Our net on the new spread was actually a net credit of $7,000 so, if all goes well, we'll make $57,000 total profit on that set-up – aren't options fun?!?  

Overall, the first 10 trade ideas we had early in the crisis netted us a profit of $15,950 as of May 10th, which was 37% of a $43,350 net credit we collected and our margin was $9,901 so our gain against margin was 161% in just 2 months on our first set and now our positions are worth $54,170, up another $38,220 (239%) in the past 3 months and now we are mostly done with these and we go back to mainly cash, clear our margin and wait for the next set of buying opportunities.  

We'll look at our second set of crash picks tomorrow.