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December 11 Biweekly Strategy Webinar Q&A

Below, please find subscribers’ Q&A for the December 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.

Q: I was assigned options—called away on both my short-call positions in BlackRock (BLK) and Bank of America (BAC).

A: What you do there is call your broker and exercise your long to cover your short; that should get you 100% of the profit 10 days ahead of expiration, and that is the best way to get out of that position. If you get hit with the dividend, then you're at break-even on the total trade. The way to get around this is you have 10 positions, including several non-dividend paying positions, so you don't have a call-away risk. You really only have about a 1 in 100 chance to get called away, so it's worth doing. If the worst case is you break even, the best case is you make 15% or 20% on the position in a month. That is worth doing.

Q: What do you think of the situation in Syria?

A: We don't know. For us, it's a huge win because it eliminates the last Russian position in the Middle East. They have lost Egypt, Syria, Iraq, and at one point Algeria—so they have no more positions in the Middle East. They lose all their air bases, military bases, and naval bases in Syria, and they also lose their only warm water port in the Mediterranean. It happened because they couldn't afford to draw troops away from Ukraine to help support Syria. Given the choice between Syria and Ukraine, they'll pick Ukraine. It is another argument for the US to maintain support for Ukraine.

The trouble is in the Middle East, whenever you get a chance, you often end up getting somebody else that's worse. Did we just trade one terrorist for another one? We'll have to wait and see. Fortunately, this war didn't cost us any money. It cost Russia a lot. We had no troops in Syria and no weapons commitments, so we got off easily on this one. It’s probably the most important foreign policy achievement of the last four years.

In the meantime, we're destroying all their weapons stockpiles, just in case the new people coming in are bad guys. We'd rather not wait until after they identify themselves as bad guys—we might as well destroy all the weapons now while nobody is defending them. So, as I speak, we're destroying weapons stockpiles for its ships and rocket facilities. Also, this is a huge loss for Iran because they lose easy sea access to Gaza. They used to just truck weapons to the coast in Lebanon, put them on a boat, and send them to Gaza. Now, they have to go all the way around Africa to supply Gaza. So basically it's a huge win for us, and I'll write more about that in the Monday letter.

Q: Do the spread positions need to be actively closed out to achieve profits?

A: No, they don't. You don't have to touch them. That's the beauty of these positions. All ten I expect to expire in the money at maximum profit point, and on the following Monday morning opening, you will find that the margin is freed up, the cash profit is credited to your account, and you're in a 100% cash position. So don't do anything, even if your broker will tell you to individually buy and sell the individual legs and wipe out your profit. I sent out a research piece on this today about how to handle when calls are called away.

Q: I sold BlackRock (BLK) last week because Schwab called and warned me I could owe $6,000 due to the dividend. They did not suggest I close my long position.

A: Again, it goes back to how to handle option call-aways. The only reason they call you is to eliminate any liability for Charles Schwab because, in the past, people would get options called away, they'd say my broker never told me, and they sued the broker. So, the reason they emailed you and called you with warnings is to avoid liability for themselves. In actual fact, only 1 out of 100 different options actually get called away. It's done randomly by a computer, and you're far better off holding the position. And then, if you do get called away, use your long to exercise your short. It's a perfectly hedged position, so you have no actual outright risk. The only real risk is if you don't check your email every day and you don't know you've been called away, so you don't call your broker to exercise your long to cover your short.

Q: Do you envision other countries trending towards more tariffs? How would that affect global growth?

A: Any time we raise a tariff on another country, they're going to raise by an equal amount, and it becomes a perfect growth destruction machine. That's why every economic agency in the world is predicting lower growth for next year.

Q: Why are stocks so expensive? Can the high prices be an impediment for new investors to participate or not?

A: It's obviously not an impediment because we're at an all-time high, and we keep going to new all-time highs. Most investors, not just a few, are still underweight stocks, and they're chasing the market. I predicted this would happen all year basically, and now it's happening, and we're 100% invested in making a fortune. So that's what happens when you make big predictions far into the future, and they happen.

Q: What do you think about meme stocks like GameStop (GME)?

A: Don't bother with the meme stocks like GameStop when the good stuff like Tesla (TSLA), Meta (META), and Amazon (AMZN) are going up like a rocket. Why buy the garbage when the high-quality stuff is doing well? And, of course, most of the people buying that stuff, the meme stocks, are kids who don't know what the good stuff is, but they'll find out someday.

Q: If you like Japanese cars, what do you think of Korean cars and, therefore, those companies’ stocks?

A: I don't like them. When you take your Tesla in for a service, sometimes you get a KIA in return. Ouch. You can literally hear every bolt rattle as you drive down the freeway, and you leave behind a trail of parts; the quality difference is enormous.

Q: How do you determine the limit price on spread trades?

A: I don't like making less than a 5% profit in a month. It's just not worth the risk. So let's say if I do a trade alert at $9.00, I'll create a spread of, say, $9.00, $9.10, $9.20, $9.30, $9.40, and that's it. We tell people to not pay more than $9.40. Before we told people not to do that, they used to buy at market, and they would end up paying $10.00 for a $10.00 spread, and it is absolutely not worth it. That is the reason we do that.

Q: I have trouble getting your recommended price.

A: When we put out a trade alert, and 6,000 people are trying to do it at once, you'll never get the recommended price. You may get it at the close because a lot of the high-frequency traders that pile into these positions and pay the maximum price have to be out of that position by the end of the day, so they often dump their positions at the close. And if you just leave your limit order in there, it'll get filled. If it doesn't get filled at the close, it will get filled at the opening the next morning. So that's why I'm telling people on every alert now to put in a spread, put in good-until-cancelled orders, and most of the time, you'll get some or all of those orders done. That is a good way to make money; if you don't believe me, just go to our testimonials page (click here), where hundreds of people have sent in recommendations on their experience.

Q: What do you think about crypto here (BITO)?

A: I wouldn't touch it with a 10-foot pole. The time to get involved in crypto was when it was at $6,000 two years ago, not at $100,000 now. And when the quality is trading and rising up almost every day, why bother with crypto? You'd never know if your custodian is going to steal your position. And by the way, if anyone knows an attorney expert at recovering stolen crypto, please send me their name because I have a few clients who took someone else's advice, invested in crypto, and had their accounts completely wiped out.

Q: Should I bet big on oil stocks (USO) because of the possible deregulation starting in 2025?

A: Absolutely not. “Drill, baby, drill” means oil glut—lower oil prices, which is terrible for oil companies, so you shouldn't touch them. The only plus for oil under the new administration is they'll probably refill the Strategic Petroleum Reserve in Texas and Louisiana from the current 425 million barrels to 700 million barrels by buying on the open market and enriching the oil companies.

Q: Would you sell long-term holds in pharma stocks?

A: No. If it's a long-term hold, your holding will survive the new administration. They'll probably go back up starting from a year going into the next election unless they find ways to deal with the current administration. But if you're in the vaccine business and the head of Health and Human Services is a lifetime anti-vaxxer, that is not going to be good for business, no matter how you cut it, sorry.

Q: Why is Walgreens (WBA) doing so poorly?

A: Terrible management and too late getting into online commerce. The service there is terrible. Every time I go to Walgreens to get a prescription filled, there's a line a mile long. It seems to be a dying company. Someone actually is making a takeover offer for the company today, so I would stand aside on that.

Q: Is Tesla (TSLA) risky?

A: Any stock that's tripled in four months is risky. But the rule of thumb with Tesla is that it always goes up more than you expect and then down more than you expect. Here is where high risk means high reward. My $1,000 target is now looking pretty good.

Q: If you're receiving Global Trading Dispatch, do you get the stock option service?

A: Yes, every trade alert we send out gives you the choice of a stock, an ETF, or an option to buy to take advantage of that alert.

Q: The EV stock Lucid (LCID) just got an analyst upgrade, but the chart looks terrible. Should I buy this cheap stock?

A: Absolutely not. Never confuse “gone down a lot" with “cheap.” Lucid only exists because it's supported by the Saudi royal family. They own about 75% of the company. They have no chance of ever competing with Tesla. Period. End of story.

Q: I have LEAPS on Google (GOOG), Amazon (AMZN), and Microsoft (MSFT). They expire in January, February, and March.

A: I would keep all of those—those are all good stocks. I expect them to keep rising at least until January 20th. After that, the Trump administration may announce antitrust actions against all three of these companies, but you'll probably have most of your profit by then. So from here on, if I had longs in all of these companies, I would definitely run them over the holidays because you'll probably get another pop sometime in January.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or JACQUIE'S POST, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

December 12, 2024

Diary, Newsletter, Summary

Global Market Comments
December 12, 2024
Fiat Lux

Featured Trade:

(THE MAD HEDGE DECEMBER 3-5 SUMMIT REPLAYS ARE UP),
(THURSDAY, JANUARY 16, 2025 SARASOTA FLORIDA STRATEGY LUNCHEON)
(SEVEN REASONS WHY THERE WILL BE NO TRADE WAR)

The Mad Hedge December 3-5 Summit Replays are Up

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Listen to all 22 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. It is a true smorgasbord of investment strategies. Find the best one to suit your own goals.

The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here.

We look forward to working with you and the next summit is scheduled for December.

Seven Reasons Why There Will Be No Trade War

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I am a firm believer in the wisdom of crowds.

This means that markets made of millions of participants can see things well before any individual human can.

The consequences for your portfolio can be earthshaking.

So, while the president campaigned on promises that he would immediately impose a 25% import duty on Canada and Mexico, here we are, some 38 days post-election, and many stocks that would suffer from a trade war are doing nothing.

In other words, there ain’t going to be no stinking trade war.

Markets came to this conclusion months ago. You could see this in a whole host of different and disparate asset classes.

Technology is the big one.

The biggest victim of any trade war would be technology firms, which operate the most globalized business models on the planet.

They design products here in the US and use slave labor in China to assemble them for pennies on the dollar, free of wage, OSHA, environmental, health, and child labor concerns.

They then sell them in the US and around the world for enormous profits.

In a world careening off the globalization cliff, you would expect Apple (AAPL) shares to get a pasting.

Yet, the jewel of Silicon Valley has seen its shares rocket by 38.46% since the November 5 election and an eye-popping 12.27%.

Remember, at $3.73 trillion, this is the largest public company in the world doing this! While no one was watching, (AAPL) approached an incredible $4 trillion market cap.

No trade war here!

Look elsewhere across the investment universe, and you see the same thing happening everywhere.

Emerging markets (EEM), whose economies are highly dependent on a functioning global trade system, have been unchanged since November 5.

And what has been the best-performing emerging nation?

Mexico (EWW), which has usurped about one-third of the US car industry. The (EWW) is up slightly since the election.

Guess what?

Not only is there not going to be a stinking trade war, but there isn’t going to be a stinking wall with Mexico either, just a token, Erector Set, pretend one. A budget-balancing Congress won’t pay for it.

China ($SSEC) is posting respectable gains, up 6.3%. What’s more, stock markets in Japan (DXJ) and Europe (HEDJ) have been edging out gains.

So, where did the trade war go?

I’ll list seven of the most obvious reasons.

1) The US has been a massive beneficiary of the globalized trade system. It has allowed America to remain the world’s most dominant and successful economy since WWII.

It has also preserved the US dollar as the world’s preeminent reserve currency, an enormous free lunch for US citizens.

2) American companies have been globalizing for 80 years, making them the most efficient and profitable on the planet.

Many trillions of dollars have been poured into foreign manufacturing and distribution systems. It all runs like a fine-tuned Swiss watch.

It cannot be undone or turned off by the slash of a pen on an executive order. Companies are better off paying lip service to the White House, which they have been doing on a daily basis, and then carrying on as they always have been.

4) To retreat from globalized business models would reduce the profitability of US corporations and send share prices plummeting. There’s no way you increase labor costs from $8 an hour to $80 and then increase your dividend.

5) A retreat would also hand over the international trading system to the Chinese, not exactly a development in America’s self-interest.

6) Some of the most ardent globalizationists I know are the generals and admirals of the US military.

7) Not only are Americans making fortunes off of globalization, so are foreigners. Wealthy customers are the best ones to have. If they are getting rich off you, they tend not to bomb you.

When notified that the State Department budget was going to get cut by 30%, former Defense Secretary James Mattis, a friend, replied, “Then I’m going to need a lot more bullets.”

Bottom line: It’s cheaper to talk to people than to kill them.

Those who were around during the early days of the globalization, like myself, remember that it was originally conceived as a national defense strategy.

By trading with a potential adversary, you create an embedded core of local businessmen who don’t want any political stability or wars to interrupt their profit stream. When Putin came back into power, the first thing he did was remove Russia from the global trading system.

Since there isn’t going to be a trade war, the investment implications are obvious.

You want to use every dip to load the boat on every globalization stock out there, especially in technology.

How do You Spell “Made in USA?”

December 12, 2024 - Quote of the Day

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“People are investing with a rear-view mirror. Last year, you had people scared out of the market. Unfortunately, you are losing a generation of investors at a time when they ought to be thinking about buying high quality stocks,” said Hersh Cohen of Clearbridge Advisors.

December 11, 2024

Diary, Newsletter, Summary

Global Market Comments
December 11, 2024
Fiat Lux

Featured Trade:

(JANUARY 10 MIAMI FLORIDA STRATEGY LUNCHEON)
(THE BEST TESTIMONIAL EVER)

Friday, January 10, 2025 Miami, Florida Strategy Luncheon

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Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Miami, Florida at 12:00 PM on Friday, January 10, 2025. A three-course lunch is included.

I’ll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, and real estate.

And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $267.

I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion or just sit around and chew the fat about the financial markets.

The lunch will be held at an exclusive hotel in the Coconut Grove sector of Miami, the details of which will be emailed to you with your purchase confirmation.

I look forward to meeting you, and thank you for supporting my research.

To purchase tickets for this luncheon, please click here.

The Best Testimonial Ever

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I was pondering a TESLA trade alert from MHFT today when my cell rang with a Lake Tahoe area code. Since I know a couple of people in that part of the world, I answered, and it was none other than John Thomas.

If I had not heard his voice on the MHFT webinars, I would have thought I was being conned. But given that I’m in the last month of a trial run, he actually called to find out how I was doing with the service and what I thought.

Here’s the short version of what I told him.

I’m a pretty experienced investor, but definitely not sophisticated when it comes to using options, or for that matter, trading currencies and commodities.

My first trade with MHFT – a (FXY) vertical call spread – literally scared the hell out of me, so I used a tiny position size. I think I made around $900 (more than my trial subscription, so there’s that).

But through the process of using John’s trade ideas, I learned. Fast. Nothing will help you grasp the potential of option strategies like doing them. And as I write this, I have multiple positions on courtesy of MHFT that are on track to deliver double-digit percentage gains in a matter of weeks!

I can’t quite comprehend how he knows so many well-placed people, but he’s incredibly adept at grabbing insights from them, turning these into an investment thesis, and making it incredibly clear and actionable to this reader base.

One day, he’s writing about a chat with a three-star general, and the next, you’re buying a call spread on Palo Alto Networks. He connects the dots in a ridiculously useful way.

But it’s more than just the idea, it’s the timing of the idea. The world is full of people who can say, “hey, cyber-security is a big deal.” Or, “wow, the euro is getting killed.” But the actual trade execution to profit from that in the near term? He’s freaky good.

I also love the defined exit strategy. Look, if you’re the most disciplined human on the planet and never let a bad trade turn into a long-term “investment,” more power to you.

I am not. I hate it when I do it, but it’s happened more than once. With MHFT, the exit is well-marked. You can’t miss it. Personally, I find that removes significant stress, not to mention risk.

Today, I was over at my local Schwab office – before John called – and was raving about MHFT. Not stark raving. Good raving. I’d be surprised if they aren’t signing up for a trial as I write this.

John, thanks for the call. That was a really nice surprise.

But more importantly, thanks for your great work, thinking, and ideas. Enjoy your travels, and I look forward to meeting you at one of your conferences.

Neil

Dublin, Ohio

December 10, 2024

Diary, Newsletter, Summary

Global Market Comments
December 10, 2024
Fiat Lux

Featured Trade:

(A NOTE ON OPTIONS ASSIGNED OR CALLED AWAY)
(BRK/B)

A Note on Assigned Options, or Options Called Away

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With a record of ten positions going into the December 20 options expiration, I am seeing an increasing number of options positions assigned or called away.

This year, I saw that the upside momentum in the stock market was so strong that I decided to run everything into expiration. That will take me to a 100% cash position going into the Christmas holidays. No surprises there!

The following positions will expire in 9 trading days:

Current Capital at Risk

Risk On

(JPM) 12/$210-$220 call spread 10.00%

(NVDA) 12/$117-$120 call spread 10.00%

(TSLA) 12/$230-$240 call spread 10.00%

(TSLA) 12/$250-$260 call spread 10.00%

(TSLA) 12/$270-$275 call spread 10.00%

(MS) 12/$110-$115 call spread 10.00%

(C) 12/$60-$65 calls spread 10.00%

(BAC) 12/$41-$44 call spreads 10.00%

(VST) 12/$115-$120 call spread 10.00%

(BLK) 12/$950-$960 call spread 10.00%

Risk Off

NO POSITIONS 0.00%

Total Net Position 100.00%

Total Aggregate Position 100.00%

That opens up a set of risks unique to these positions.

I call it the “Screw up risk.”

As long as the markets maintain current levels, this position will expire at its maximum profit value.

With the December 20 options expirations upon us, there is a heightened probability that your short position in the options may get called away. This had already happened with Blackrock (BLK) and Morgan Stanley (MS).

Although the return for those calling away your options is very small, this is how to handle these events.

If exercised, brokers are required by law to email you immediately, and you and I know all of this may sound confusing at first. But once you get the hang of it, this is the greatest way to make money since sliced bread.

If it happens, there is only one thing to do: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.

Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.

The short options can get “assigned” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.

You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.

Let’s say you get an email from your broker telling you that your call options have been assigned away.

I’ll use the example of the Berkshire Hathaway (BRK/B) August $405-$415 in-the-money vertical Bull Call spread since so many of you had these.

For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 11 days before the August 16 expiration date.

In other words, what you bought for $8.70 on July 12 is now worth $10.00, giving you a near-instant profit of $1,300 or 14.94% in only 11 trading days.

All have to do is call your broker and instruct them to “exercise your long position in your (BRK/B) August 16 $405 calls to close out your short position in the (BRK/B) August $415 calls.”

You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.

You also must do this the same day that you receive the exercise notice.

This is a perfectly hedged position. The name, the ticker symbol, the number of shares, and number of contracts are all identical, so you have no exposure at all.

Call options are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.

Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (BRK/B). There are strategies out here that try to capture dividends the day before they are payable. Exercising an option is one way to do that.

Weird stuff like this happens in the run-up to options expirations like we have coming.

A call owner may need to sell a long (BRK/B) position after the close, and exercising his long (BRK/B) call, which you are short, is the only way to execute it.

Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.

There are thousands of algorithms out there that may arrive at some twisted logic that the puts need to be exercised.

Many require a rebalancing of hedges at the close every day, which can be achieved through option exercises.

And yes, options even get exercised by accident. There are still a few humans left in this market to blow it by writing shoddy algorithms.

And here’s another possible outcome in this process.

Your broker will call you to notify you of an option called away and then give you the wrong advice on what to do about it.

There is a further annoying complication that leads to a lot of confusion. Lately, brokers have resorted to sending you warnings that exercises MIGHT happen to help mitigate their own legal liability.

They do this even when such an exercise has zero probability of happening, such as with a short call option in a LEAPS that has a year or more left until expiration. Just ignore these, or call your broker and ask them to explain.

This generates tons of commissions for the broker but is a terrible thing for the trader to do from a risk point of view, such as generating a loss by the time everything is closed and netted out.

There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. In fact, I think I’m the last one they really did train.

Avarice can be an explanation here, but I think stupidity, poor training, and low wages are much more likely.

Brokers have so many ways to steal money legally that they don’t need to resort to the illegal kind.

This exercise process is now fully automated at most brokers, but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.

Some may also send you a link to a video of what to do about all this.

If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.

Professionals do these things all day long, and exercises become second nature, just another cost of doing business.

If you do this long enough, eventually, you get hit. I bet you don’t.

Calling All Options!