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.
I still have a record ten positions left in my model trading portfolio, they are all deep-in-the-money, and about to expire in six trading days. 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, ALL of these positions will expire at their maximum profit values.
They include:
(SPY) 10/$410-$420 call spread 10.00%
(GS) 10/$320-$330 call spread 10.00%
(JPM) 10/$130-$140 call spread 10.00%
(BLK) 10/$770-$790 call spread 10.00%
(MS) 10/$85-$90 call spread 10.00%
(BRKB) 10/$255-$265 call spread 10.00%
(C) 10/$62-$65 call spread 10.00%
With the October 15 options expirations upon us, there is a heightened probability that your short position in the options may get called away.
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 S&P 500 (SPY) $410-$420 in-the-money vertical BULL CALL spread.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point days before the October 15 expiration date. In other words, what you bought for $9.00 on September 17 is now worth $10.00, giving you a near-instant profit of $1,111 or 11.11%!
In the case of the S&P 500 (SPY) September 2021 $410-$420 in-the-money vertical BULL CALL, all have to do is call your broker and instruct them to “exercise your long position in your (SPY) October 15 $410 calls to close out your short position in the (SPY) October 15 $420 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
This is a perfectly hedged position, with both options having the same name and the same expiration date, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one options contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (TLT). 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 buy a long (SPY) position after the close, and exercising his long (SPY) call 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 you 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 could have been an explanation here but I think stupidity and 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.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/11/Call-Options.png345522Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-10-07 11:02:222021-10-07 16:04:51A Note on Assigned Options, or Options Called Away
Global Market Comments September 27, 2021 Fiat Lux
Featured Trade:
(THE MAD HEDGE SUMMIT VIDEOS ARE UP)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE YEAREND RALLY HAS BEGUN),
(DIS), (TLT), (SPY), (GS), (JPM), (BLK), (MS), (BRKB), (GOOG)
The calls started coming in as soon as the market closed.
More than a dozen subscribers called, emailed, and texted me on Thursday to say that they just had the best day in the market this year, and for some, their entire lives.
Holding fire until you saw the whites of their eyes worked. I used both visits to the (SPY) to $430 to load the boat with financial stocks, which then took off like a tribe of scalded chimps.
Mad Hedge made 5.6% on that day alone. One Concierge client reported a breathtaking $5.3 million profit after dumping a lot of his techs and piling into banks and brokers. Suffice it to say that I am very welcome in a well-to-do suburb of Seattle, Washington.
The washout was so dramatic and the recovery so rapid I think it is safe to say that our fall correction is over. We may get some small retracements and sideways chop from here. But the writing is on the wall. We are headed to new all-time highs in stocks by the end of 2022.
I received a lot of questions about how easily I was able to spot the bottom so easily. A Volatility Index (VIX) of $29 was a big help. So was the outflow of $34 billion from equity ETFs and mutual funds the previous week, the most in six months. And when the Mad Hedge Market Timing Index hits a rare low of 19, you don’t sit on your hands very long.
The $300 billion China Evergrande Group debt crisis gave us the crisis and the final flush we needed to establish a clear bottom.
Nothing else can stop this. New Covid cases are falling off a cliff, and childhood vaccinations out next month will accelerate this trend.
A massive infrastructure budget will pass in congress. It is almost irrelevant whether it’s a $3.5 trillion or $1.5 trillion. It will be more than can be spent in any reasonable amount of time.
In the meantime, the ultimate driver of share prices, the exponential growth of post covid corporate profits, continues unabated.
The wall of money keeps getting ever larger. The Fed reported that in Q2, Household Net Worth soared by $5.9 trillion is an incredible $141.7 trillion largely through the appreciation of stock and home prices. The Fed balance sheet has exploded from $4.1 trillion to $8.4 trillion in a mere 18 months.
This will continue for another decade. Keep piling on those leveraged long-term LEAPS. Flat is the new down.
Enjoy.
Four to six Interest RatesRises by 2024 which may start as early as 2024, says Fed governor Jay Powell. The taper could start in November. Bonds rose slightly on the news, but the writing is now definitely on the wall. The Fed now expects a stratospheric 5.9% GDP for 2021 and 3.8% for 2022. Sell all rallies in the (TLT) and buy all financial stocks.
Bonds Crash, down -$3.43 points after Jay Powell’s super bearish comments from Wednesday soak in. The 50-day moving average has been smashed and the next target is the 200-day at $1344.59. Watch the 50-day rollover from here on. My final target is a 1.76% yield on the ten-year US Treasury bond by January.
Back up the Truck, it’s time to load up on stocks on the back of yesterday’s 985-point swan dive. You especially want domestic recovery ones that benefit from rising interest rates, like banks, brokers, fund managers, commodities, and steel. The taper may be only weeks away and will drive stocks to new highs by yearend. You wanted a dip to buy, so buy the dip. Don’t expect much from technology stocks for a while.
China’s Largest Real Estate Developer Goes Bust, China Evergrande Group, with $300 billion in debt. The move smashed risk markets globally, opening the Dow Average down 650. Bitcoin plunged 10%. Is this China’s Lehman moment, or just another day at the office? It does take them another step back towards real communism.
China Bans Crypto, triggering a 7% plunge in Bitcoin. Financial systems the government can’t control are forbidden in the Forbidden City. It’s all part of a flight out of a restricted Yuan into unrestricted crypto by wealthy Chinese. China used to account for 99% of all Bitcoin mining and now it is at zero. The business will flock to the US, Canada, and any other country with cheap electricity. It’s a short-term negative for crypto but a long term positive. Buy Bitcoin and Ethereum on the dip.
Pfizer Boosters for over 65 were approved by the FDA for immediate distribution. Those younger will have to wait. It turns out that the Pfizer effectiveness drops from 99% to 66% in eight months. That puts older recipients, like me, at risk. Under 12 kids to come in October. See you at Costco! Buy (PFE) on dips.
Pandemic Tops 1918 US Death Toll at 675,000, although on a per capita basis we are still only a third of the Spanish Flu. We are not even close to this ending yet. We need vaccinations for kids and booster shots for all to be dome with this, getting national immunity up to 90%.
Housing Starts for August up 3.9% with apartment buildings the big driver. Single family homes fell. Building Permits are up 6.0% and are a 50% increase from the summer lows.
Existing Home Sales Drop, by 2% in August to 5.88 million units annualized according to a signed contract basis. Only 1.29 million homes are for sale, a 2.6-month supply, down 13% YOY. The Median Price rose to an eye-popping $356,700, up 14.9% YOY. Million-dollar homes are up 40% YOY.
Google (GOOG) Buys $2.1 Billion in New York Office Space, which is why I love this company. You can forget about those end of New York City stories. Always follow the money, where companies are putting their money, and you will find great stock. Or so the chairman of JP Morgan Bank taught me 40 years ago. Buy (GOOG) on dips.
Weekly Jobless Claims Pop to 351,000 last week, up 16,000. Leading Economic Indicators jump in August, coming in at 0.9%. March saw the high for the year at 1.3%. Getting a lot of noisy and conflicting economic data points this week as delta works its way through the system. My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a robust +6.63% gain so far in September. My 2021 year-to-date performance soared to 85.20%. The Dow Average was up 13.60% so far in 2021. September 23 saw my biggest up day of the year, some 5.61%
I held fire until the Dow Average 1,000-point washout, then loaded the boat with financial stocks, writing the trade alerts as fast as I could. That leaves me 70% long financial stocks, 10% in cash, and 20% in short (TLT).
That brings my 12-year total return to 507.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.52%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 117.34%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 43 million and rising quickly and deaths topping 685,000, which you can find here.
The coming week will be slow on the data front.
On Monday, September 27 at 8:30 AM, Durable Goods are for August are reported.
On Tuesday, September 28 at 9:00 AM, The S&P Case Shiller National Home Price Index for July is published.
On Wednesday, September 29 at 10:00 AM, we get Pending Home Sales for August.
On Thursday, September 30 at 8:30 AM, Weekly Jobless Claims are announced. The final report of the Q2 US GDP is disclosed.
On Friday, October 1 at 8:30 AM, we learn Personal Income and Spending for August. The September Nonfarm Payroll Report is not out for another week due to the first day of the month rule. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, when I first met Andrew Knight, the editor of The Economist magazine in London 45 years ago, he almost fell off his feet. Andrew was well known in the financial community because his father was a famous WWII Battle of Britain Spitfire pilot from New Zealand.
At 34, he had just been appointed the second youngest editor in the magazine’s 150-year history. I had been reporting from Tokyo for years, filing two stories a week about Japanese banking, finance, and politics.
The Economist shared an office in Tokyo with the Financial Times, and to pay the rent, I had to file an additional two stories a week for them as well. That’s where I saw my first fax machine, which then was as large as a washing machine even though the actual electronics would fit in a notebook. It cost $5,000.
The Economist was the greatest calling card to the establishment one could ever have. Any president, prime minister, CEO, central banker, or war criminal were suddenly available for a one-hour chat about the important affairs of the world.
Some of my biggest catches? Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George Bush, and Bill Clinton, China’s Zhou Enlai and Deng Xiaoping, Japan’s Emperor Hirohito, terrorist Yasir Arafat, and Teddy Roosevelt’s oldest daughter, Alice Roosevelt Longworth, the first woman to smoke cigarettes in the White House in 1805.
Andrew thought that the quality of my posts was so good that I had to be a retired banker at least 55 years old. We didn’t meet in person until I was invited to work the summer out of the magazine’s St. James Street office tower, just down the street from the palace of Prince Charles.
When he was introduced to a gangly 25-year-old instead, he thought it was a practical joke, which The Economist was famous for. As for me, I was impressed with Andrew’s ironed and creased blue jeans, an unheard-of concept in the Wild West.
The first unusual thing I noticed working in the office was that we were each handed a bottle of whisky, gin, and wine every Friday. That was to keep us in the office working and out of the pub next door, the former embassy of the Republic of Texas from pre-1845. There is still a big white star on the front door.
Andrew told me I had just saved the magazine.
After the first oil shock in 1972, a global recession ensued, and all magazine advertising was cancelled. But because of the shock, it was assumed that heavily oil-dependent Japan would go bankrupt. As a result, the country’s banks were forced to pay a ruinous 2% premium on all international borrowing. These were known as “Japan rates.”
To restore Japan’s reputation and credit rating, the government and the banks launched an advertising campaign unprecedented in modern times. At one point, Japan accounted for 80% of all business advertising worldwide. To attract these ads, the global media was screaming for more Japanese banking stories, and I was the only person in the world writing them.
Not only did I bail out The Economist, I ended up writing for over 50 business publications around the world in every English-speaking country. I was knocking out 60 stories a month, or about two a day. By 26, I became the highest-paid journalist in the Foreign Correspondents’ Club of Japan and a familiar figure in every bank head office in Tokyo.
The Economist was notorious for running practical jokes as real news every April Fool’s Day. In the late 1970s, an April 1 issue once did a full-page survey on a country off the west coast of India called San Serif.
It warned that if the West coast kept eroding, and the East coast continued silting up, the country would eventually run into India, creating serious geopolitical problems.
It wasn’t until someone figured out that the country, the prime minister, and every town on the map was named after a type font that the hoax was uncovered.
This was way back, in the pre-Microsoft Word era, when no one outside the London Typesetter’s Union knew what Times Roman, Calibri, or Mangal meant.
Andrew is now 82 and I haven’t seen him in yonks. My business editor, the brilliant Peter Martin, died of cancer in 2002 at a very young 54, and the magazine still awards an annual journalism scholarship in his name.
My boss at The Economist Intelligence Unit, which was modelled on Britain’s MI5 spy service, was Marjorie Deane, who was one of the first women to work in business journalism. She passed away in 2008 at 94. Today, her foundation awards an annual internship at the magazine.
When I stopped by the London office a few years ago, I asked if they still handed out the free alcohol on Fridays. A young writer ruefully told me, “No, they don’t do that anymore.”
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2021/09/john-thomas-economist-e1664802946349.png285500Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-27 09:02:112021-09-27 11:43:06The Market Outlook for the Week Ahead, or The Yearend Rally has Begun
Global Market Comments September 20, 2021 Fiat Lux
Featured Trade:
(INTRODUCING THE MAD HEDGE BITCOIN PLATINUM SERVICE),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE BATTLE OF THE 50-DAY),
(SPY), (TLT), (DIS), (BLOK), (MSTR), (QQQ), (EEM), (UUP)
The next long-term driver of financial markets will be rising interest rates.
It’s not a matter of if, but when. Is it this month, or next month? One way or the other it’s coming.
Which means you should be rearranging your portfolio right now big time.
In a rising interest rate regime seven big things will happen:
1) Bonds (TLT) will collapse.
2) Domestic recovery and commodity stocks (FCX) will soar.
3) Technology stocks (QQQ) will move sideways to down 10%
4) The US dollar (UUP) craters
5) Foreign stock markets (EEM) do better than American ones.
6) Bitcoin (BLOK), (MSTR) and other cryptocurrencies go through the roof.
7) Residential real estate keeps appreciate, but at a slower rate.
These trends will continue for six months, or until long-term interest rates hit an interim peak, such as at 2.00%.
The delta variant gave us a secondary recession. Its demise will give us a secondary recovery, and the same sectors will prosper as with the first. According to the Johns Hopkins University of Medicine, this is happening right now.
The only caution here is that long-term investors should probably keep their technology stocks. Once rates hit the next interest rate peak again, it will be off to the races for tech once again. In the long term, tech always comes back, and tech always wins.
Of course, the major event of the coming week will be the Federal Reserve’s Open Market Committee meeting where interest rates are decided and the press conference with Jay Powell that follows.
Interest rates won’t move. It’s the press conference that is crucial, where we gain insights into the taper. What’s different this time is that the European Central Bank has already begun their taper with an economy far weaker than ours. Will Jay take the cue?
Far and away, the most reliable indicator for “BUY” timing since the presidential election has been the 50-day moving average for the S&P 500. Increasing stock weightings there and you were golden.
The problem now is that we have not seen the index close below the 50-day for two consecutive days for a record 221 days. This has not happened for 31 years.
We all know the reasons: Record low-interest rates making cash trash, seven years of quantitative easing, and a global liquidity glut. Exploding equity in homes and stock portfolios helps too. Still, 31 years is a long time to be this bullish.
I saw all this coming a mile off.
Since the election, I have relentlessly pursued this market with a super aggressive 100% weighting. Then I started paring back risk in June. In July and August, I cut back further to the bone, running minuscule 20% long weightings against a few shorts.
And this is how you manage your risk control.
When markets are rigged in your favor and the lunch is free, you bet the ranch. When they aren’t, you cower on the sidelines and watch others take insane risks.
But who am I to know? I’ve only been doing this for 51 years, and 58 years if you count the (IBM) shares I bought with my paperboy earnings.
Antitrust Comes Home to Roost at Apple, sending the stock down $9 in two days. A judge ruled that Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing. Apple typically takes a 15% to 30% cut of gross sales. It’s a slap on the wrist, as Apple’s main revenue stream is still from iPhones. The judge ruled in favor of Apple on nine of ten other issues. It creates massive new opportunities for hundreds of other Silicon Valley start-ups. Still, if you were looking for an excuse to take profits, this is it. Buy (AAPL) on dips.
Tesla to get EV Tax Credit Restored in a new overhaul of alternative energy subsidies. Both Tesla (TSLA) and General Motors (GM) lost their $7,500 per car subsidies when sales topped 200,000. GM will get an extra $5,000 discount for union-made cars. Tesla is ferociously non-union. Maybe this explains the 36% rally since May. It should help (TSLA) get reach its million-vehicle target for 2021 if it can get enough chips. Buy (TSLA) on dips.
China Inflation Hits 13 Year High, up 9.5% YOY. Soaring commodity and coal prices are the issue. Coal is up 57% YOY, reflecting an energy shortage during the covid economic rebound. It predicts a hot CPI for the US on Tuesday.
The Consumer Price Index rose by 5.3% YOY and up 0.3% in August. It was a seven-month low, with delta clearly a drag. Food and energy came in lighter than expected. Prices for used cars, air tickets, and insurance fell. Stocks loved it, rising triple digits, and bond prices halved losses. St next week’s FOMC we’ll see how Jay really feels.
House Looking at a Top 26.5% Corporate Tax Rate, well up from the current 21% but not as high as the 28% that was feared. Capital gains would rise from 20% to 25%. The goal is to raise $2.5 trillion to get the $3.5 trillion spending package into law. It’s all a trial balloon for what might be possible. Stocks loved it.
Amazon to Hire 125,000 and boost wages to $18 an hour. They are also paying $3,000 signing bonuses and taking pay up to $22.50 in prime areas like New York and California. It’s all part of a strategy to make (AMZN) the “best employer in the world”. Buy (AMZN) on dips as its dominance on online commerce grows.
China Destroys Casino Stocks, threatening to increase oversight of their Macao operations. The concern is that China will pull the gaming licenses of foreign companies when they come up for renewal in June. Buy (WYNN) and (LVS) on the dip.
Weekly Jobless Claims Come in at 332,000, a new post-pandemic low. The previous week was revised down even lower, to 312,000. The end of pandemic unemployment benefits is no doubt a factor, driving people off of their couches and back to the salt mines. Is this the light at the end of the tunnel?
Bitcoin Charts are Showing a Golden Cross, which usually presages upside breakouts in the cryptocurrency. A golden cross is where the 50-day moving average pierces the 200-day to the upside. This is crucial because technicals are more important in crypto than in any other financial instrument. In the meantime, (AMC) has started accepting Bitcoin for online movie ticket purchases. Buy (MSTR) on dips.
My Ten-Year View
When we come out the other side of the pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a modest +1.10% loss so far in September following a blockbuster 9.36% profit in August. My 2021 year-to-date performance soared to 77.47%. The Dow Average is up 13.02% so far in 2021.
That leaves me 70% in cash, 10% short in the (TLT), and 20% long in the (SPY) and (DIS). Both of our September option positions expired at max profits.
I’m keeping positions small as long as we are at extreme overbought conditions. However, a Volatility Index (VIX) above $20 shows there may be a light at the end of the tunnel.
That brings my 12-year total return to 500.02%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.86%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 109.26%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 42 million and rising quickly and deaths topping 673,000, which you can find here.
The coming week will be all about the Fed meeting on Wednesday.
On Monday, September 20, at 11:00 AM, the NAHB National Housing Market Index for September is out.
On Tuesday, September 21 at 9:30 AM, Housing Starts for August are printed.
On Wednesday, September 22 at 11:00 AM, Existing Home Sales for August are announced. At 2:00 PM, the Fed interest rate decision is released and an important press conference about taper issues follows.
On Thursday, September 23 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, September 24 at 8:30 AM, we learn US Durable Goods for August. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, with the shocking re-emergence of Nazis on America's political scene, memories are flooding back to me of some of the most amazing experiences in my life.
I have been warning my long-term readers for years now that this story was coming. The right time is now here to write it.
I know the Nazis well.
During the civil rights movement of the 1960s, I frequently hitchhiked through the Deep South to learn what was actually happening.
It was not usual for me to catch a nighttime ride with a neo-Nazi on his way to a cross burning at a nearby Ku Klux Klan meeting, always with an uneducated blue-collar worker who needed a haircut.
In fact, being a card-carrying white kid, I was often invited to come along.
I had a stock answer: "No thanks, I'm going to another Klan meeting further down the road."
That opened my driver up to expound at length on his movement's bizarre philosophy.
What I heard was chilling.
During 1968 and 1969, I worked in West Berlin at the Sarotti Chocolate factory in order to perfect my German. On the first day at work, they let you eat all you want for free.
After that, you get so sick that you never wanted to touch the stuff again. Some 50 years later and I still can’t eat their chocolate with sweetened alcohol on the inside.
My co-worker there was named Jendro, who had been captured by the Russians at Stalingrad and was one of the 5% of prisoners who made it home alive in 1955. His stories were incredible and my problems pale in comparison.
Answering an ad on a local bulletin board, I found myself living with a Nazi family near the company's Tempelhof factory.
There was one thing about Nazis you needed to know during the 1960s: They loved Americans.
After all, it was we who saved them from certain annihilation by the teeming Bolshevik hoards from the east.
The American postwar occupation, while unpopular, was gentle by comparison. It turned out that everyone loved Hershey bars.
As a result, I got free room and board for two summers at the expense of having to listen to some very politically incorrect theories about race. I remember the hot homemade apple strudel like it was yesterday.
Let me tell you another thing about Nazis. Once a Nazi, always a Nazi. Just because they lost the war didn't mean they dropped their extreme beliefs.
Fast-forward 30 years, and I was a wealthy hedge fund manager with money to burn, looking for adventure with a history bent during the 1990s.
I was mountain climbing in the Bavarian Alps with a friend, not far from Garmisch-Partenkirchen, when I learned that Leni Riefenstahl lived nearby, then in her 90s.
Attending the USC film school with a young kid named Steven Spielberg decades earlier, I knew that Riefenstahl was a legend in the filmmaking community.
She produced such icons as Olympia, about the 1932 Berlin Olympics, and The Triumph of the Will, about the Nuremberg Nazi rallies. It is said that Donald Trump borrowed many of these techniques during his successful 2016 presidential run.
It was rumored that Riefenstahl was also the onetime girlfriend of Adolph Hitler.
I needed a ruse to meet her since surviving members of the Third Reich tend to be very private people, so I tracked down one of her black and white photos of Nubian warriors, which she took during her rehabilitation period in the 1960s.
It was my goal to get her to sign it.
Some well-placed intermediaries managed to pull off a meeting with the notoriously reclusive Riefenstahl, and I managed to score a half-hour tea.
I presented the African photograph and she seemed grateful that I was interested in her work. She signed it quickly with a flourish.
I then gently grilled her on what it was like to live in Germany in the 1930s. What I learned was fascinating.
But when I asked about her relationship with The Fuhrer, she flashed, "That is nothing but Zionist propaganda."
Spoken like a true Nazi.
The interview ended abruptly.
I took my signed photograph home, framed it, hung it on my office wall for a few years. Then I donated it to a silent auction at my kids' high school.
Nobody bid on it.
The photo ended up in storage at my home, and when it was time to make space, it went to Goodwill.
I obtained a nice high appraisal for the work of art and then took a generous tax deduction for the donation, of course.
It is now more than a half-century since my first contact with the Nazis, and all of the WWII veterans are gone. Talking about it to kids today, you might as well be discussing the Revolutionary war.
By the way, the torchlight parade we saw in Charlottesville, VA in 2017 was obviously lifted from The Triumph of the Will, except that they didn't use tiki poolside torches in Germany in the 1930s.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/09/leni-riefenstahl.png550400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-20 10:02:462021-09-20 10:30:20The Market Outlook for the Week Ahead, or The Battle of the 50-Day
Global Market Comments September 13, 2021 Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR SEPTEMBER 14-16),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or VENTURING INTO THE METAVERSE
(SPY), (TLT), (VIX),
It refers to the virtual world where all things exist in a virtual world.
And here is the great thing about the metaverse. The real world can only grow at an analog rate and is finite. The virtual world can grow at an exponential, viral rate and is infinite.
Infinite markets with infinite customers? That is something that companies and share prices really like to hear about.
We’re getting a peek into the Metaverse right now with the movement of many companies to a virtual world triggered by the pandemic. With employees working at home, a headquarters at a PO Box in Montana to meet regulatory minimums, selling digital services to a digital market, these companies effectively exist only in terms of electrons and bytes.
But suddenly, costs have plunged by 40%, productivity has improved by 40%, and profits have increased tenfold. These are companies you want to own.
No wonder the stock market is going up almost every day. It’s because companies like this are worth more, a lot more overnight!
It's how Silicon Valley leaped from having 80 unicorns to 800 in the span of two years. The future is happening fast.
If you are an old fart who doesn’t want to bother with all this computer mumbo jumbo, invest a few minutes playing Facebook’s (FB) Oculus Rift with your grandkids. Then sit down and watch the 2018 science fiction/fantasy movie Ready Player One. There is a sequel in the works. The second sequel will be you and me.
We have now just suffered the worst trading week since February, with the (SPY) off by a mere $8.5, or 1.9%. We may have a shot at another long-awaited 5% correction this week. If we do, I’ll put half my cash in the market. I’ll put the rest in at a 10% correction.
I highly doubt that stocks will fall by more than that given the massive weight of liquidity in the financial system, even though it’s September. My $475 (SPY) target for end of 2021 still stands and I’m sticking to it. You’re going to have to pry my cold dead fingers off of my forecast.
The only question is which sectors will lead. My bet is on domestic recovery stocks like banks, brokers, hotels, casinos, airlines, cruise lines, and railroads. Delta peaked two weeks ago and is now falling precipitously, especially in the south.
That sets up a second post-Covid recovery trade with the same sector leading the first time.
The way the pandemic ends is that the US gets to 90% immunity, where Covid becomes an annual flu shot. California is already there with 80% of the population vaccinated and 10% getting the disease. Alabama may get there with 60% vaccinations and 30% getting sick. But in a year, the whole country will be at 90%.
Then, we can get on with the rest of our lives.
The August Nonfarm Payroll Report Bombs, coming in at only 235,000 versus an expected 720,000, a huge miss. The headline Unemployment Rate fell 0.2% to 5.2%, a new post-pandemic low. Mysteriously, both stocks and bonds hated it. Manufacturing was up 37,000, while Leisure & Hospitality was zero and Retail at -28,000. Education LOST -25,000 during the back-to-school season. Average Hourly Earnings rose an astonishing 0.6% MOM, or 4.3% YOY. The U6 long-term unemployment rate fell to 8.8%. Goodbye taper. A shortage of workers was to blame, but the economic data has been worsening for a while now. Delta is taking a bigger bite than we thought.
JOLTS comes in at a blockbuster 10.9 million in July, a new record high. This is the number of job openings in the private sector. Anyone who wants a job can get a job. Blame the education gap. The problem is that there is demand for 10.9 million website designers, computer programmers, and internet marketers, and an endless supply of waiters and other restaurant workers.
The Fed says growth downshifted during the summer, thanks to delta and a worker shortage according to the Beige Book release. We already knew that, and a five-point selloff in bonds is telling us that Covid is declining and growth is back on.
Europe tapers, cutting back monthly Eurobond purchases 160-170 billion a month. Governor Christine Lagarde believes any inflation is temporary and the time for emergency stimulus is over. Can the Fed be far behind?
Seven million lose Unemployment Benefits. This should make available more workers whose shortage have been a drag on the economy. Accelerating growth can only be good for stocks.
El Salvador launches Bitcoin as a national currency, creating a national wallet, and offering every citizen $30 to open an account. Most of the accounts will be accessed via cell phones. The central bank bought 400 bitcoins worth $20 million as part of the rollout. The country’s president is helping to sort out technical glitches. Is Bitcoin the next global currency? Bitcoin dropped 10% on the news.
Tesla to make its own whips in a dramatic response to a structural global chip shortage that could last years. The news was good for a $30 pop in the stock this morning. Tesla is already one of the world’s largest chip users, and their needs are expected to jump 50-fold in the next ten years. The move justifies a much larger premium for the stock. It’s all about training the neural network.
Will a Bitcoin ETF approval spike the Market? There are a dozen applications with SEC for the first US-approved crypto ETF. When approved, billions of new cash will pile into Bitcoin off the back of the new improved legitimacy. Buy before the IPO, it’s a classic trading strategy. My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch is down 1.09% in September, thanks to a shortage of low-risk/high-return trading opportunities. My 2021 year-to-date performance soared to 77.48%. The Dow Average was up 13.10% so far in 2021.
That leaves me 60% in cash at 40% in short (TLT), and long (SPY) and (DIS). My last two positions expire in four trading days.
Although we have maxed out the profits with these two positions, I’ll keep them as there is nothing else to do. I’m keeping positions small as long as we are at extreme overbought conditions. The Volatility Index (VIX) now over $20 shows that an entry point may be near.
That brings my 12-year total return to 500.03%, some 2.00 times the S&P 500 (SPX) over the same period and a new all-time high. My 12-year average annualized return now stands at a new high of 42.85%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 115.05%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 41 million and rising quickly and deaths topping 670,000, which you can find here.
The coming week will be slow on the data front.
On Monday, September 13, at 12:00 noon, US Inflation Expectations are released.
On Tuesday, September 14, at 8:30 AM, US Core Inflation is published, now the second biggest number of the month.
On Wednesday, September 15 at 9:15, Industrial Production for July is disclosed. At 9:30 AM, we get the New York Empire State Manufacturing Index for September.
On Thursday, September 16 at 8:30 AM, Weekly Jobless Claims are announced. We also get Retail Sales for August.
On Friday, September 17 at 8:30 AM, we learn the University of Michigan Consumer Sentiment for September. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, one of the great shortcomings of San Francisco is that we only have a theater district with two venues and it is in the Tenderloin, the worst neighborhood in the city, an area beset with homeless, drug addicts, and prostitution.
I was walking to a parking lot after a show one evening when I passed a doorway. Three men were violently attacking a blond woman. Never one to miss a good fight, I dove in, knocking two unconscious in 15 seconds (thank you Higaona Sensei!). Unfortunately, number three jumped to my side, pulled a knife, and stabbed me.
The attacker and the woman ran off, leaving me bleeding in a doorway. I drove over the Golden Gate Bridge to Marin General Hospital, bleeding all over the front seat of my car, where they sewed me up nicely and put me on some strong drugs.
The doctor said, “You shouldn’t be doing this at your age.”
I responded that “good Samaritans are always rewarded, even if the work is its own reward.”
Fortunately, I still had my Motorola Flip Phone with me, so I called Singapore from my hospital bed for a market update. I liked what I saw and bought 100 futures contracts on Japan’s Nikkei 225. This was back in 1999 when anything you touched went straight up.
Then, I passed out.
An hour later, I woke up, called Singapore again and bought another 100 futures contracts, not remembering the earlier buy. This went on all night long.
The next morning, I was awoken by a call from my staff who excitedly told me that the overnight position sheets had just come in and I had made 40% on the day.
Was there some mistake?
Then I got a somewhat tense call from my broker. I had a margin call. I had also exceeded the exchange limits for a single contract and owned the equivalent of $200 million worth of Nikkei. I told them to sell everything I had at market and go 100% cash.
That was exactly what they wanted to hear.
That left me up 60% on the year and it was only May.
I then called all of the investors in my hedge fund. I told them the good news, that I wouldn’t be doing anymore trades for the fund until I received my performance bonus the following January and was taking off on a long vacation. With a 2%/20% payout in those days, that meant I was owed 14% of the underlying assets of the fund at a very elevated valuation.
They said that’s great, have fun, by the way, how did you do it?
I answered, “Great drug selection.” No further questions were asked.
Then I launched on the mother of all spending sprees.
I flew to Germany and picked up a new Mercedes S600 V12 Sedan at the factory in Stuttgart for $160,000. I then immediately road-tested it on the Autobahn at 130 mph. I made it to Switzerland in only two hours. After all, my old car needed a new seat.
Next, I bought all new furniture for the entire house, each kid selecting their own unique style.
Then, I took the family to Las Vegas where we stayed in the “Rain Man Suite” at the Bellagio Hotel for $10,000 a night, where both the 1988 Rain Man and 2009 The Hangover were filmed.
I bought everyone in the family black wool Armani suits, plus a couple of Brioni’s for myself at $8,000 a pop. For good measure, I chartered a helicopter for a tour of the Grand Canyon the next day.
At the end of the year, I sold my hedge fund based on the incredible strength of my recent performance for an enormous premium. I then left the stock market to explore a new natural gas drilling technology I had heard about called “fracking.”
Four months later, the Dotcom Crash ensued in earnest.
I still have the scar on my right side, and it always itches just before it rains, which is now almost never. But it was worth it, every inch of it.
It’s all true, every word of it and I’ll swear to it on a stack of bibles.
https://www.madhedgefundtrader.com/wp-content/uploads/2021/09/john-thomas-family-picture.png560712Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-13 11:02:092021-09-13 12:53:33The Market Outlook for the Week Ahead, or Venturing Into the Metaverse
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.
I still have two positions left in my model trading portfolio, they are all deep-in-the-money, and about to expire in seven trading days. 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, ALL of these positions will expire at their maximum profit values.
They include:
(TLT) 9/$155-$158 put spread
10.00%
(SPY) 9/$410-$420 call spread
10.00%
With the September 17 options expirations upon us, there is a heightened probability that your short position in the options may get called away.
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 options 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 S&P 500 (SPY) $410-$420 in-the-money vertical BULL CALL spread.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point days before the September 17 expiration date. In other words, what you bought for $8.90 on August 17 is now worth $10.00, giving you a near-instant profit of $1,210 or 12.35%!
All you have to do is call your broker and instruct them to “exercise your long position in your (SPY) September 17 $410 calls to close out your short position in the (SPY) September 17 $420 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission. This is a perfectly hedged position, with both options having the same name and the same expiration date, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one options contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (TLT). There are strategies out there 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.
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 could have been an explanation here but I think stupidity and 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.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/11/Call-Options.png345522Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-08 09:02:082021-09-08 08:35:43A Note on Assigned Options, or Options Called Away
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-07 09:04:512021-09-07 10:27:42September 7, 2021
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There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
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