Global Market Comments
September 6, 2023
Fiat Lux
Featured Trade:
(HOW TO MAKE A KILLING IN TESLA)
(TESLA), (SPY), (VIX)
Global Market Comments
September 6, 2023
Fiat Lux
Featured Trade:
(HOW TO MAKE A KILLING IN TESLA)
(TESLA), (SPY), (VIX)
There is no doubt in my mind that a major leg up in Tesla shares is coming, possibly soon. That’s because of the increasing number of “Bigfoot” type sightings of the Cybertruck, the most revolutionary new vehicle launch in a decade.
Social media is increasingly being populated by links to secret videos, drone pictures, charging station sightings, and insider leaks.
The car will me made of flat stainless-steel panels to cut costs on those expensive curves. The windows are armor-plated. It has a towing capacity of 14,000 pounds, can accelerate from zero to 60 mph in 2.9 seconds, and boasts a 500-mile range. It moves the auto industry to a 48-volt platform to save on copper costs. You can have all of this starting at $60,000.
To get on the waiting list, please click here. But you may have to wait for two years to get one. You’ll be somewhere in the 2 million waiting list.
Not only did I pay for this year’s summer vacation with this year’s Tesla profits, and it was not exactly a cheap one, but I paid for next year’s as well. I’m taking a Queen Mary owner’s suite, Orient Express, Hotel Cipriani in Venice kind of vacation.
I’m about to make a lot more.
I get most of my ideas for trade alerts from my own trading. They’re just infinitely more aggressive than the ones I send to the Mad Hedge Trade Alert service. I am much more careful with client money than my own, as I hate losing other people’s money more than anything.
I would never recommend what I did below for mere mortals. If I did, I’d probably end up in jail.
One great high risk leveraged strategy is to sell short Tesla puts outright. All my puts that I sold short this month for $12-$16 are expiring worthless.
It’s not for the faint of heart and it takes a half-century of risk tolerance building to do this kind of trading. Never short more puts than you can afford to buy the stock.
There were a few things required to do such a trade.
Since no one ever gets the absolute bottom, the initial outcome of a large leveraged position is a big loss. Most of you would stop out of the position when this happens. I kept doubling up.
For I had the power of my own convictions.
By selling short puts, I was more than happy to buy Tesla stock lower down if the stock went against me. Using margin, I could buy a lot of stock.
Now that’s a trade!
When I added this position, I thought it highly unlikely that I would get to buy Tesla stock at low prices for the following reasons:
1) The stock market was oversold.
2) Tesla was even more oversold, having fallen 30%.
3) A classic “cup and handle” formation was setting up on the charts. Upside breakout day was July 24.
4) The Volatility Index (VIX) failed to confirm the selloff.
5) After sitting in the sidelines investors had accumulated massive amounts of cash.
6) We are about to move into strongly positive seasonals.
7) Tesla is getting ready to buy back its own stock.
8) Tesla bears, and there are always a lot of them out there, had just freshly topped up their short positions, leaving the stock ripe for a short squeeze.
9) Tesla is one of the most volatile stocks in the market, with option implied volatility regularly hitting 100%. By comparison, the S&P 500 (SPX) sits at a positively boring 20%.
10) Fears of a deep recession were wildly overblown.
The real cherry on top of the cake was the $370 billion Biden Climate bill, which no one expected, came totally out of the blue, and had a ballistic effect on Tesla shares. Tesla is the overwhelming beneficiary of this legislation.
They might as well have called it the “Tesla shareholder enrichment plan.”
It’s easy to commit to paying $245 for a stock that you think someday will be worth $10,000. Tesla is currently the fastest-growing car company in the world with a near global monopoly in EVs. Its market share is 66%. The best Henry Ford could do with Ford Motors (F) in the 1910s was a US market share of 75%.
So, I will probably be doing a lot more of these. I don’t need the money; I just love winning.
You’ll be the first to know.
Tesla Just Bought Me Another Tesla
Global Market Comments
April 11, 2023
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, APRIL 21 OPTIONS EXPIRATION),
(TESLA), (BAC), (C), (JPM), (IBKR), (MS), (BRK/B), (FCX), (TLT)
CLICK HERE to download today's position sheet.
Followers of the Mad Hedge Fund Trader alert service have the good fortune to own TEN deep in-the-money options positions that expire on Friday, April 21, and I just want to explain to the newbies how to best maximize their profits.
These involve:
Risk On
(TSLA) 4/$130-$140 call spread 20.00%
(BAC) 4/$20-$23 call spread 10.00%
(C) 4/$30-$35 call spread 10.00%
(JPM) 4/$105-$115 call spread 10.00%
(IBKR) 4/$60-$65 call spread 10.00%
(MS) 4/$65-$70 call spread 10.00%
(BRK/B) 4/$260-$270 call spread. 10.00%
(FCX) 4/$30-$33 call spread 10.00%
(TLT) 4/$96-$99 call spread 10.00%
Total Aggregate Position 100.00%
Provided that we don’t have another 2,000-point move up or down in the stock market in the next eight trading days, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the Tesla April $130-$140 vertical bull call debit spread. Since we are a massive $45.00, or 32% in-the-money with only eight days left until expiration I almost certainly will run into the April 21 option expiration.
Your profit can be calculated as follows:
Profit: $10.00 expiration value - $8.80 cost = $1.20 net profit
(12 contracts X 100 contracts per option X $1.20 profit per option)
= $1,440 or 13.64%.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position in your debit spreads, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning April 24 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the phone immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value. You will notice that the highest volatility stocks, like Tesla, will maintain premium all the way into expiration.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, April 21. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
The Options Expiration is Coming
Global Market Comments
January 18, 2021
Fiat LuxFeatured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT WOULD KILL THIS MARKET?)
($INDU), (TLT), (TBT), (GLD), (GOLD), (WPM), (TESLA)
With the Dow Average now up 13,300 points, or 73.89%, since April, I’m getting besieged by questions from readers as to what could make the market go down. This is, after all, the sharpest move up in stocks in history.
With $20 trillion about to hit the US economy, $10 trillion in stimulus, $10 trillion in quantitative easing, and overnight interest rates remaining at zero for three years, there’s not much.
Still, even the most Teflon of bull markets eventually go down. Let’s explore the reasons why. I’m not intending to give you sleepless nights. But the best traders always believe that anything can happen to markets all the time.
1) The Pandemic Ends – If Covid-19 can take the market up 13,300 points in nine months, its disappearance may take it down. That’s because the all-clear on the disease may prompt investors to pull money out of stocks and put it in the real economy.
A lot of people are buying stocks because there is nothing else to do and you can execute trades in the safety of your own home without going outside. Still, this effect may be muted as there are at least 2 million fewer businesses today than before the pandemic.
2) Interest Rates Rise – The Fed has promised not to raise overnight rates for three years, or until the inflation rates top 2% for at least a year (it’s now 0.4%). That seems to give the most aggressive investors a green light for the foreseeable future.
However, the Fed has no control over long term rates, which are set by the bond market. Since January 1, the yield on the ten-year US Treasury bond has soared from 0.90% to an eye-popping $1.20%, and 1.50% is certainly within reach during the first half.
The markets could easily handle that. But if the ten-year yield jumps to 3.0%, which it could do in two years, stocks could suffer, especially if we are at much higher levels by then.
3) Stocks Go Down – A lot of new traders are buying stocks simply because they are going up, independent of the thought process. What if stocks go down? Scads of you are now promising to buy on the next 10% pullback. I guarantee you that when we ARE down 10%, the only thing on your mind will be selling. That’s the way it always works. Loss of upside momentum could easily turn into vicious downside momentum.
4) The Pandemic Gets a Lot Worse – The Teflon market (which was invented during the Manhattan Project to prevent the corrosion of the insides of steel pipes by uranium or plutonium) has matched rising share prices with increasing Corona deaths tic for tic since March. We are now at 4,000 deaths a day and many hospitals now have fleets of freezer trucks parked outside because they can’t bury the bodies fast enough.
Government health officials tell us the pandemic is peaking right now. What if they are wrong? What if in the coming months, deaths top 10,000 a day? That would definitely be worth a 10% correction, if not a 20% one.
Summary
It all sets up a continuing run for stocks that could last at least two years and take the Dow as high at 45,000, or up 50% from here.
Which leads me to a different subject.
What if I am wrong?
I know that many of you have invested in two-year call options (LEAPS, or long term equity participation securities) at the March-May bottom and are sitting on the biggest profits in your life. Lots of these are several thousand percent in the money and have turned into 10X leveraged long equity positions, essentially synthetic futures. As a result, you now have no downside protection whatsoever.
If you bought the 2022 $120-$130 call spread at $20, it is now worth $765, a gain of 38.25X, or 3,825%. You have essentially just won the lottery.
This is what you need to do right now: roll up your strikes.
I shall explain.
Let’s say that when Tesla was at $80 on a split-adjusted basis, I begged many of you to buy the 2022 $120-$130 call spread. Tesla shares then rose by a mind-boggling 1,006%.
Here’s what you do. Sell your 2022 $120-$130 call spread immediately. Lock in the profit. Then buy a 2023 $900-$950 call spread. If Tesla falls, it will be at a much slower rate than your existing position.
Long-dated out-of-the-money options fall at a much slower rate than stocks because they have immense time value. They demonstrate a downside “hockey stick” effect. Very roughly speaking and without doing any math, a 50% drop in the stock will deliver only a 25% drop in the options. However, if Tesla shares rise, you will still participate in the upside and get 95% of the gain.
It’s a classic “heads I win, tails you lose” set up.
This is what professional traders do automatically, without thinking about it as if it were second nature.
I just thought you’d like to know.
About Last Week
A second insurrection is in play for January 20 according to the FBI, with armed demonstrations planned in the capitols of all 50 states. Don’t plan on traveling that day. Public access to the capitol building has ceased for the foreseeable future. Washington is now an armed camp, with 25,000 National Guard called in. The FBI is attempting to arrest the ring leaders as fast as possible. Market will keep seeing this as a buying opportunity, the fires under the market are burning so hot.
The US budget deficit soared to $573 billion in Q4, up 61% YOY. For the full calendar year, the deficit reached a mind-boggling $3.3 trillion, triple the previous year. Almost all the increase went to spending on pandemic related benefits. It’s another nail in the coffin for the bond market. Keep selling the (TLT), even on small rallies. This could be the trade of the century.
The US has 3 million fewer jobs than when Trump took office four years ago. It’s the worst performance since Herbert Hoover took office in 1928. That’s exactly what I predicted back in 2016. Up to March 2020, we also had a zero return in the stock market under Trump, which only started to improve when Biden took the lead in the primaries in May. In the meantime, the National Debt soared from $20 trillion to $28 trillion and it is still soaring. Over 100% of US growth during the Trump administration has been borrowed from the future on credit. It’s not a way to run a country.
The semiconductor shortage is slowing the auto industry, with Toyota, Ford, and Fiat cutting back production. It’s a global problem. Modern cars use more than 100 chips each and are becoming more apps than hardware. I’ve been predicting this for a year, and the problem will continue as it takes billions of dollars and years to ramp up new production. Buy the daylights out of (NVDA), (AMD), and (MU).
Technology is 2% of US employment but 27% of market capitalization and 38% of profits, says my old friend Jeffrey Gundlach of Double Line. Bitcoin is a bubble, inflation will be 3% by June, and bonds (TLT) are beyond terrible. Stocks are expensive but could run for a long time.
Weekly Jobless Claims delivered a horrific print, up 181,000 to 965,000, the worst since the spring. Covid-19 is clearly the reason. Stocks could care less and pushed on to new all-time highs, up eight days in a row. It really is a “Look Through” market.
No rate hike until 2% inflation for a year, said Fed Governor Clarida. It could be a long wait as indicated by the recent 0.4% report.
US air travel is down 61% in November YOY, and that includes the big Thanksgiving travel bump. A trend up will start later this year, but airlines will still emerge from the pandemic with tons of debt. Avoid.
Netflix is launching a movie a day, for all of 2021. It’s disrupting legacy Hollywood at Internet speed, which Covid-19 has brought to a screeching halt. The stock has seen a sideways correction since tech peaked in sideways. Buy at the bottom end of the recent range.
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 400% to 120,000 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 120,000 here we come!
My Mad Hedge Global Trading Dispatch shot out of the gate with an immediate 6.25% profit for the first ten trading days of the year. That is net of a 4% loss on a Tesla short which I added one day too soon. I went pedal to the metal immediately, again going 100% invested with a 50% long/50% short market-neutral portfolio.
That brings my eleven-year total return to 428.80% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.63%, a new high. My trailing one-year return exploded to 72.34%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 90% since the March low.
I did bail on my precious metals positions on (GOLD), (NEM), and (WPM) for small profits. The metals hate rising interest rates and competition from Bitcoin. They have effectively gone into a long bond, short Bitcoin position and I am not interested in either.
The coming week will be a slow one on the data front with Q4 earnings reports coming out daily.
We also need to keep an eye on the number of US Coronavirus cases at 24 million and deaths at 400,000, which you can find here. We are now running at a staggering 4,000 deaths a day.
When the market starts to focus on this, we may have a problem.
On Monday, January 18 at 11:00 AM EST, the US Markets will be closed for Martin Luther King Day.
On Tuesday, January 19 at 4:30 PM, Bank of America (BAC), Goldman Sachs (GS), and Netflix (NFLX) report.
On Wednesday, January 20 at 10:00 AM, we get the NAHB Housing Market Index. Morgan Stanley (MS) and Proctor and Gamble (PG) report.
On Thursday, January 21 at 8:30 AM, December Housing Starts are printed. Intel (INTC) and Union Pacific (UNP) report.
On Friday, January 22 at 10:00 AM, Existing Home Sales for December are out. Schlumberger (SLB) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I’m still waiting for orders on where to report for my Pfizer Covid-19 vaccination. In the meantime, since I will still be locked up for months to come, I have been viewing precious old pictures and videos from my past travel extravaganzas.
In 2019, I took my girls around the world via New Zealand, Sydney, Brisbane, Melbourne, Perth, Manila, New Delhi, Dubai, Cairo, Athens, Venice, Budapest, Brussels, Zermatt, and then back to San Francisco. We don’t do anything small in my family. Click here for the link to my favorite video of us arriving in Venice.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
March 2, 2020
Fiat Lux
Featured Trade:
(TECH’S BIG CORONA HIT)
(COMPQ), (TESLA), (UBER), (EXPE), (CSCO), (CSPR)
Mass layoffs are on the horizon, thanks to the tech market slowdown sapping vitality for risk in the IPO market, and the widening contagion stemming from the coronavirus.
At a moment in Silicon Valley’s history where the market is rethinking its appetite for risk, it is customary for the loftiest and hottest growth names to drop the most in times like this.
For instance, Tesla (TSLA) was rocked by 32% and ride-hailing app Uber (UBER) gave up 25% in an epic downturn.
In general, tech that isn’t integral to the intricate global supply chain will also be penalized because of cratering overall business demand.
The vacuum of demand isn’t applied to only digital products but most others, as the world literally becomes a walled garden of self-quarantine areas.
The odds are still high that this global phenomenon squeaks by, but the far reach of the virus worries even experts and making crucial decisions on how to cut losses is becoming a pressing and imminent issue.
Airlines have been first to announce a potential readjustment to staff numbers such as Finland’s flagship airline Finn Air, but mass layoffs will start to trickle in from Silicon Valley.
Front-running the layoff parade was online travel tech company Expedia (EXPE) who expects to say adiós to 3,000 employees and network infrastructure company Cisco (CSCO) who announced restructuring plans because they expect revenue to fall between 1.5%-3.5% in Fiscal 2020.
I have been unwavering in my core thesis that tech procuring revenue from Mainland China is nothing more than a short-term Faustian bargain, and now the downsides of that bargain are finally appearing and frankly uncontainable.
The viral coronavirus is escalating on the heels of a new round of layoffs from Silicon Valley’s startups who just don’t know how to make money such as robot pizza startup Zume and car-sharing company Getaround who slashed more than 500 jobs.
Online DNA testing company 23andMe, logistics startup Flexport, Firefox internet browser Mozilla and social platform Quora restructured staff as well.
The “disruptors” are finally getting disrupted out of existence because of a sudden referendum on the health of balance sheets.
The situation turned ugly just before the coronavirus and this health crisis just adds fuel on the fire.
In total, more than 30 startups have cut over 8,000 jobs over the past four months with aggressive venture capital investments pulling back significantly.
The latest to flop at the starting line was Casper Sleep (CSPR) who marketed themselves as the “Nike of sleep” only because they sell online mattresses.
Mr. Market is purging these marginal businesses that over-promise, over-hype, and under-deliver.
The IPO pricing was underwhelming with Casper taking down the price range to the point where it went public at over $13.
The stock is now at $8.
No doubt that some of this negative sentiment was stoked by office-sharing company WeWork, who had an epic fall from grace and cut its valuation by 80% late last year while permanently shelving an IPO.
Now the coronavirus is on the verge of scoring the empty net goal as companies go into full-blown crisis mode.
SoftBank bet two ranches on Uber and WeWork, then poured money into Colombian delivery startup Rappi and Indian hotel startup Oyo.
All have sputtered with mass firings recently.
Poor investment decisions led SoftBank to report a $2 billion operating loss in the last quarter of 2019 from their venture capitalist arm named the Vision Fund.
After Nasdaq flourished in a memorable 10-year run post the financial crisis, flip the parabola upside down and markets are tanking with many experts already contrasting the coronavirus sell-off to the dot-com bust of 2001.
Irrational optimism is part of the DNA of San Francisco.
Entrepreneurs are quietly preparing to change the world, but the climate has soured so quickly that many investors believe many of these current entrepreneurs are unlucky.
The rules of the game deem unprofitable models temporarily obsolete in the current market environment.
In the land where spending money in uneconomic ways is a time-honored tradition, turning to more “responsible” models is gut-check time.
Talent is forgoing chances to enter the start-up world too, instead opting for big box corporates who provide a lower ceiling but higher salary and benefits.
Café X, which operated robot coffee shops and raised $14.5 million in venture funding, fired its own robots and closed three stores in San Francisco recently.
The brightest stars of the IPO pipelines might be able to go public this year, but at a cut-rate price which is a tough pill to swallow for Airbnb and online delivery platform DoorDash.
With no new blood going live on the public tech markets, we focus on the ones already there and recent news is alarming.
Apple whose 42 stores in China have been closed since January and Foxconn, which produces Apple products, are running at around 30%-40% capacity, then it’s ring-the-alarm time.
The most likely scenario is that big tech will need to write off this quarter until the public health crisis improves setting up a bullish second half of 2020.
Even that could get stopped in its tracks.
The only silver lining is that the run-up in shares in January means that the best of tech has only returned one month of share appreciation, but for the weaker companies, they aren’t afforded those types of luxuries in malicious trading conditions and have returned 4-6 months of share appreciation already.
Global Market Comments
June 10, 2019
Fiat Lux
Featured Trade:
(JUNE 21 AUCKLAND NEW ZEALAND STRATEGY LUNCH)
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE GRAND PLAN)
(MSFT), (GOOGL), (AMZN), (TESLA), (TLT), ($TNX)
Global Market Comments
October 29, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or THE COMING 2018 REPLAY),
(TLT), (SPY), (VIX), (VXX), (AAPL),
(FB), (AMZN), (NFLX), (TESLA),
(A COW-BASED ECONOMICS LESSON)
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