S&P 5,836!
That is down 297 (4.8%) points from our Dec 17th Review and we since took a spill and a recovery and now a spill again – very exciting! Fortunately, our hedges are holding things together and, as I just so happened to say last month, at S&P 6,133:
“We actually could have done better if we didn’t hedge but, then again, if we didn’t hedge – we would not have felt comfortable taking the long-side risks that brought us to this point – would we? If we didn’t hedge, I would certainly be calling for us now to take the money and run but we’re well-hedged for a 20% drop in our Short-Term Portfolio (STP) – so we’re not expecting to get caught by surprise and, to some extent, these recent gains are also a hedge – though it’s hard to think of them that way, isn’t it?”
BALANCE is the key to long-term success in trading so let’s start this Review off by looking at the Short-Term Portfolio (STP), where our hedges reside. $710,192 is up $198,782 (38.8%) since our last review and that’s exactly what our $1M worth of hedges are supposed to do when the S&P drops 4.8% (as 20% should be $1M).
Our long trades and short puts are hedges on hedges in the STP and we’re quick to take profits as they are only there to help pay for our greater insurance plays:
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- Short Puts: DIS, GNRC and TOL are about to expire worthless for a gain of $16,115. Let’s make sure we’re comfortable with the rest:
- DHI – It’s down 63.5% but it’s a net $133.26 entry and DHI is at $138.40 so we’re not actually in trouble, other than the premiums – which will eventually burn off. I’d save a roll for if we ACTUALLY get in trouble.
- EXPE – Up 77.5% with a year to go is almost something we would close – if we were not so deep in the money that we have no fear of it going against us.
- GOLD – We would LOVE to buy this for net $12.85 so no worries.
- HUM – Our target was well-placed as we bounced off $240 and, with Trump back in town, Health Insurers can start printing money again.
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- IMAX – Should expire worthless in March.
- LEVI – Though below our target, it’s still green and I have confidence – Good for a new sale!
- MMM – Well over our target.
- MRK – Stocks move from our Watch List to short puts and, if the short puts go red we check our premise to see if we want to make it a long play and we definitely do with MRK so let’s move these ($24,825) to 15 short 2027 $110 puts at $16.50 ($24,750) in the LTP and add (in the LTP) 25 2027 $90 calls at $20.50 ($51,250) and we’ll sell 20 of the 2027 $120 calls for $7.30 ($14,600) and, since we originally collected $14,820 for the short puts and paid $75 to roll them, we’re in the new $75,000 spread for all of net $21,905 with an upside potential of $53,095 (242%) and, would you look at that! We’re already $27,050 in the money! Aren’t options fun?
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- MRNA – We already have MRNA in the LTP with 30 short $50 puts so we’re just going to close these and make our adjustment to the LTP position.
- MU – I love these guys. Great for a new trade.
- NKE – Already in the LTP but, at $72.08, I have much more confidence in NKE coming back and our net is only $71.70 so we’ll just wait and see how earnings go.
- PHM – Too far in the money to worry about.
- RTX – Also miles in the money but, for $770 – it’s a waste of space so let’s close it.
- TGT – On track.
- TROX – I have faith and we’re net $9 anyway.
We collected about $215,000 in short call payments and, as long as we are Ready, Willing AND Able to pick up those positions at the promised net prices – then it’s just free money. Yes, I’d love to own 1,000 share of MRK at net $110.18. It’s at $100.98 now and we could have taken the assignment and owned the stock down $10 – and then we would have sold puts and calls against it to lower the basis. As it stands, we made the above adjustment and all is well.
As the market is shaky, we took a closer than usual look at our short put positions but there aren’t many worries up there so, unlike the fall, we’re not rushing to cash them out. Our current net $24,000(ish) profit is our buffer at the moment – if that turns red – maybe we will cut these obligations but, for now – I’m not worried enough to bail.
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- SQQQ – Loose bits we’ll discuss later.
- BBY – Messy but profitable and surprisingly all on track so let’s see how earnings look.
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- CPER – We just wanted to see how this idea would play out. Perfectly so far.
- F – Not that I don’t like F but this is definitely not going to be a short-term play so we’ll move this to the LTP. The calls ($20,000) will roll to 200 2027 $8 calls at $2.50 ($50,000, $70,000 total) and the short $14.82 puts ($12,750) can roll to 100 2027 $10 puts at $2 ($20,000).
- SKX – Already at target. We’re making a bit of money on these short calls so now we can sell 7 April $70 calls for $6 ($4,200) to put a bit more money in our pocket.
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- SQQQ – Oddly enough, this $600,000 spread is now entirely in the money at net (don’t forget the ones above) $72,735 so we still have net $527,265 of downside protection if the Nasdaq stays down here. I’m not worried about the short 2026 $40 calls or the 2026 $25 puts and the short March $30 calls are in the money but net $33 so still a bit of premium and we can always roll them along. Should the Nas break lower on earnings, we can simply add more long spreads at $165,000 per $600,000 – so not worried at all!
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- TZA – Still well out of the money at $13.66 and we gave 1,200 $10s that are $3.66 in the money ($439,000) and they are covering 400 short and rollable April $12 calls which are half premium at the moment. The short 2026 $45s are ignorable and the Jan $22s are going worthless so, if we assume the Russell drops 20% and TZA goes up 60% to $21.85, then 800 $10 calls would be $11.85 in the money for $948,000 and let’s say $5 more for 400 $10/15 spreads (after rolling) is $200,000 for $1,148,000 and the current net is $383,200 so we have $764,800 of downside potential from our TZAs against a 20% drop.
So we are happy with our income offsets and we have $1,202,065 of downside protection remaining AFTER we made close to $200,000 in the past months. I think we’d almost rather the markets keep going down than up with all these hedges! We’ll keep that in mind when making adjustments to our long portfolios.
$700/Month Portfolio Review: One week ago we were down $2,429 from our Dec 10th Review at $35,952 and now we’re up $2,733 at $38,685 and that’s up 90.6% overall and those are the vagaries of options pricing that we need to learn to accept.
The only changes we made were rolling the TROX calls from May to Nov and doubling down and that was a good call:
And we added 10 more 2027 $8 calls to VALE, also worked out:
This is a low-touch portfolio and we only have $5,721 to spend but we WILL be looking for bargains in the earnings reports (or the reactions to them).
Money Talk Portfolio Review: Even lower-touch than the $700/Month Portfolio because we can only trade the MTP live on Bloomberg when I do the show – and that’s about once every three months. HOWEVER, I was just on the show on the 4th and we added 3 new trades (XOM, LMT and SYF) but XOM took a dive along with LMT and SYF has been flat so no luck this month and we’re down from $112,560 to $108,048 but that’s still up 8% on a portfolio we started in August and we only have net $23,542 invested so that’s up 51.9% since Aug – a pretty good start!
Other adjustments were made on Dec 3rd (the day we tape) and I’m not going to review this one again but here’s where we stand at the moment (and here is are the actual show segments):
We planned to play cautiously through Q1 earnings and I’ll be on the show again in a month and THEN we will start to get a bit more aggressive but this is a great way to spread $23,542 around as they have $117,093 of upside potential – and we’re just getting started!
IN PROGRESS
