Mad Hedge Technology Letter
June 23, 2023
Fiat Lux
Featured Trade:
(POACHING FOREIGN TECH)
(OCDO.L), (AMZN), (TSLA), (APPL)
Posts
Europe is reeling and now it is becoming Silicon Valley’s playground.
The evidence is all over Europe and quite clear-cut at this point.
The royal 7 from the likes of Tesla (TSLA) and Apple (APPL), who have been responsible for most of the stock market gains this year, are leading the charge to cherry-pick the best tech companies in Europe.
The Ukraine military conflict was a godsend for American big tech, as many European companies are now waving the red flag amid commercial electricity costs spiking 100% in many Western European countries.
The unrelenting electricity increase has caused a mad rush to relocate the best European talent to the United States.
Or, if they don’t relocate out of their own will, many are buy-out targets just like yesterday’s news of British online grocer Ocado.
They are on the verge of tasting the sweet hand of acquisitive cash from Amazon (AMZN).
Poached or not poached – Silicon Valley is dominating.
Ocado Group shares jumped as much as 47% - the most in more than five years.
Even with today’s gains, shares in Ocado have still lost about two-thirds of their value since the end of 2021 amid a selloff in growth stocks.
The stock soared in 2018 on a landmark deal to build warehouses and license software to US supermarket chain Kroger Co., boosting the grocer’s credentials as a technology company. Ocado has partnerships with several grocers, but investor focus has shifted to profitability as demand for automated warehouses slows.
I’m not surprised to hear about Amazon’s interest in Ocado.
Ocado has developed, leading automated warehouse technology that could be of great use to Amazon if it tried to take over the supermarket industry in Europe, which it might.
Many American tourists might experience how outdated and obsolete many European supermarkets are these days.
On the corporate side, when I talk to many European workers on the ground in Milan and Brussels, the consensus is that finding a job at an American big tech firm is considered the proverbial golden paycheck.
European counterparts are mired in inefficiency, unproductivity, and the politicians who exist as 27 European Joe Bidens are ruthlessly driving the industry into the ground by taxing and regulating the hell out of them.
European workers also take 2 months of vacation every year along with 15 to 20 federal holidays per year.
When I read the tea leaves, the next expansion of Silicon Valley is to gobble up anything of perceived value in Europe and anything in any European Union country is fair game.
This buying spree could trigger another leg up to big tech and expand margins.
American tech possesses the powerful balance sheets to wield around the world and dominating the European supermarket industry would add to the top line.
Amazon has already forayed into the food industry with Whole Foods in America so this should be viewed as something similar to that.
Look for big tech to enter strategic European industries and eventually buy something like Manchester United or any other high-quality asset.
Global Market Comments
June 23, 2023
Fiat Lux
Featured Trades:
(JUNE 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (ABNB), (GLD), (BA), (CAT), (DE), (X), (PYPL), (SQ), (MSFT), (GD), (GE), (INDA), (META) (GOOGL), (CCI), (NVDA), (ABNB), (SNOW), (PLTR), (TSLA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the June 21 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.
Q: When do we buy Nvidia (NVDA) and Tesla (TSLA)?
A: On at least a 20% dip. We have had ballistic moves—some of the sharpest up moves in the history of the stock market for large stocks—and certainly the greatest creation of market caps since the market was invented under the Buttonwood Tree in 1792 at 68 Wall Street. Tesla’s almost at a triple now. Tripling one of the world's largest companies in 6 months? You have to live as long as me to see that.
Q: Is it a good time to invest in Bitcoin?
A: No, absolutely not. You only want to invest in Bitcoin when we have an excess of cash and a shortage of assets. Right now, we have the opposite, a shortage of cash and an excess of assets, and that will probably continue for several years.
Q: Should I short Apple (APPL)?
A: Only if you’re a day trader. It’s hugely overbought for the short term, but still in a multiyear long-term uptrend. I think we could see Apple at $300 in the next one or two years.
Q: Is it better to focus on single stocks or ETFs?
A: Single stocks always, because a single stock will outperform a basket that's in an ETF by 2 to 1 or even 3 to 1. That's always the case; whenever you add stocks to a basket, it diversifies risk and dilutes the performance. Better to just own Tesla, and if you want to diversify, diversify to Nvidia, but then I live next door to these two companies. That's what I tell my friends. You only diversify if you don’t know what is going to happen, which is most investors and financial advisors.
Q: Is the bottom of the housing market in, and are we due for a spike in home prices when interest rates can only go lower?
A: Yes, absolutely. In fact, we will enter a new 10-year bull leg for housing because we have a structural shortage of 10 million homes and 82 million millennials desperately trying to buy them at any price. I just got a call from my broker and she is panicking because she is running out of inventory. Even the lemons are starting to move.
Q: When do you think energy will rise?
A: Falling interest rates could be a good key because it sets the whole global economy on fire and increases energy demand.
Q: Outlook for the S&P 500 (SPY) second half of the year?
A: We hit 4,800 at least, maybe even higher. That's about a little more than 10% from here, so it’s not that much of a stretch, not like it was at the beginning of the year when it needed to rise 25% to reach my yearend target.
Q: Best time to invest from here on?
A: Either a 10% pullback in the market, or a sideways move of 3 months—that's called a time correction. It usually counts as a price correction because of course, over 3 months, earnings go up a lot, especially in tech.
Q: I’m seeing grains (WEAT) in rally mode.
A: Yes, that's true. They are commodities, and just like copper’s been rallying, and it’s yet another signal that we may get a much broader global commodity rally in everything: iron ore, coal, energy, gold, silver, you name it.
Q: Will inflation drop to 2%, causing stocks to go on another epic run?
A: The answer is yes, I do see inflation dropping to 2% —maybe not this year, but next year; not because of any action the Fed is doing, but because technology is hyper-accelerating, and technology is highly deflationary. The tech product you bought two years ago is now half the price, and they offer you twice as much functionality with an auto-renew for life. So, that is happening across the entire technology front and feeds into the inflation numbers big time, including labor. There's going to be a lot of labor replacement by machines and AI in the coming years.
Q: Is Airbnb (ABNB) a good stock to buy?
A: Well, if we’re going into the most perfect travel storm of all time, which is this summer, and which is why I’m going to remote places only like Cortina, Italy. Airbnb is the perfect stock to own. It’s a well-run company even in normal times.
Q: Should I buy gold here on the pullback?
A: Yes, you should. Gold is also highly sensitive to any decline in interest rates, and by the way: buy silver, it always moves 2.5x as much as the barbarous relic.
Q: How can inflation not go up if commodities and wage demands are going up due to state and federal unions? What about farm equipment and truck supplies? Costs keep rising, should we buy John Deere (DE)?
A: There are three questions here. Inflation will not go up because, though commodities will rise, they are only 0.6% of the $100 trillion global economy, or $660 billion in 2022. That will be more than offset by technology cutting prices, which is 30% of the stock market. You have to realize how important each individual element is in the global picture. And regarding wage demands going up caused by state and federal unions, less than 11.3% of the workforce is now unionized and that figure has been declining for 40 years. Most growth in the economy has been in non-unionized technology firms which largely depend on temporary workers, by design. What IS unionized is mostly teachers, the lowest paid workers in the economy, so incremental pay rises will be small. Unions were absolutely slaughtered when 25 million jobs were offshored to China during the Bush administration. Buy farm equipment and trucks? Absolutely, buy John Deere (DE) and buy Caterpillar (CAT) on the next dip. I was actually looking at Caterpillar for the next LEAPS the other day, but it’s already had a big run; I'm going to wait for a pullback before I get CAT and John Deere. So, again, people see headlines, see union wage headlines—I say focus on the 89% and not on the 11% if you want to make good decisions.
Q: Is Boeing (BA) a buy on the dip?
A: Yes, they got 1,000 new aircraft orders and the stock hasn't moved. So yes, if you get any kind of selloff down to $200, I'd be hoovering this thing up.
Q: Can you please explain how the profit predictor works?
A: It’s a long story; just go to our website, log in and do a search for “profit predictor,” and you’ll get a full explanation of how it works. It’s actually where Mad Hedge has been using artificial intelligence for 11 years, which is why our performance has doubled. Just for fun, I'll run the piece next week.
Q: Gold (GLD) is having a hard time going up because Russia is being squeezed by other governments. Since they need cash, they may be either selling their gold or stop buying new gold.
A: That is a good point, but at the end of the day, interest rates are the number one driver of all precious metals—period, end of story. We’re long gold too, I’ve got lots of gold coins stashed around the world in various safe deposit boxes, and I'm keeping them. I’ve got even more silver coins, which take up a lot of space.
Q: Do you like India (INDA) long term?
A: Yes, it’s the next China. But as Apple is finding out it is very difficult to get anything done there. A radical reforming Prime Minster Modi may be changing things there with his recent Biden visit and (GE) contract to build jet engines.
Q: What do you think of General Dynamics Corp (GD)?
A: I like General Dynamics because I think defense spending is in a permanent long term upcycle as a result of the Ukraine war. And it won’t end with the Ukraine war—the threat will always be out there, and the buying is done by not only us but all the other countries that think Russia is a threat.
Q: Do you like MP Materials Corp (MP)?
A: Yes, I do. The whole commodities space is ready to take off and go on fire.
Q: What about Square (SQ)?
A: The only reason I’m not recommending Square right now is huge competition in the entire sector, where all the stocks including PayPal (PYPL) are getting crushed. I will pass on Square for now, especially when I can buy US Steel (X) at close to its low for the year.
Q: If you had to pick one: Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Meta (META), and Google (GOOGL), which is the best to buy for next year?
A: All of them. Diversify. If I have to pick the top performer, it’s going to be either Tesla or Nvidia, probably Nvidia. But you need at least a 10% correction before you do anything. Actually, the split-adjusted price for our first (NVDA) recommendation eight years ago was $2 a share.
Q: Do you like Crown Castle International (CCI)?
A: Yes, I like it very much—it has very high dividend yield at 5.5%. The reason it hasn’t moved yet is that as long as interest rates are high, any REIT structure will suffer, and (CCI) has a REIT structure. Sure, it’s in a great sector—5G cell towers—but it is still a REIT nonetheless, and those will start to recover when interest rates go down; that’s why we did a 2.5-year LEAPS on CCI. For sure interest rates are going to go down in the next 2.5 years, and you will double your money on (CCI). That’s why we put it out.
Q: Which mid cap will do best over the long term: Airbnb (ABNB), Snowflake (SNOW), or Palantir (PLTR)?
A: That’s easy: Snowflake. They have such an overwhelming technology on the database and security front; I would be buying Snowflake all day long. Even Warren Buffet owns Snowflake, so that’s good enough for me.
Q: Could you comment on the pace of EV adoption/potential for (TSLA) robot fleet acceleration and implications for oil investments in holding pattern till the eventual collapse to near 0?
A: Yes, oil may collapse to near zero, but it may take twenty years to do it—that’s how long it takes to transition an energy source. That’s how long it took the move from horses and hay to gasoline-powered cars at the beginning of the 20th century. A national robot fleet of taxis with no drivers at all is a couple of years off. There are about 1,000 of them working in San Francisco right now, but they still have more work to do on the software. When it gets foggy, they often congregate at intersections causing traffic jams. Suffice it to say that eventually Tesla shares go to $1,000 and after that, $10,000—that’s my bet. By the way, my Tesla January 2025 $595-$600 LEAPS are starting to look pretty good.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2018 in Australia
Global Market Comments
June 20, 2023
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TIME TO CHANGE STRATEGY),
(SPY), (TLT), (UNG), (FCX), (TSLA), (AMGN)
CLICK HERE to download today's position sheet.
All good things must come to an end.
Mad Hedge has made fortunes for thousands of followers over the last 15 years with its aggressive options spread strategy, which profits mightily from falling market volatility ($VIX). That is what is happening in the market 95% of the time.
However, it doesn’t make sense when the ($VIX) drops below $20, and that may now continue to be the case for a prolonged period of time.
However, just as one window closes, another opens.
While low volatility makes options spreads no longer attractive, it makes two-year LEAPS the bargain of the century. With volatility this low, you essentially get the second year for free. That is more than adequate time to go into any recession that may or may not happen and then come back out the other side at max profit.
If the underlying stock suddenly rockets, which is often the case with my recommendations, you can collect 90% of the maximum potential profit in a two-year LEAPS within months, if not weeks.
Better yet, while we used to make 15%-20% on front month options spreads, which benefited from accelerated time decay, the profit on two-year LEAPS can run from 100% to 500%. One client bagged a 5,000%, or 50X profit on an NVIDIA (NVDA) LEAPS he strapped on last October.
He doesn’t work anymore.
The timing for this strategy adjustment is perfect. We have just entered a new bull market for stocks that could run for another decade. With the exception of the “Magnificent Seven,” most US stocks are now just above their bear market bottoms. What better time to increase your leverage tenfold.
I won’t be adding LEAPS to my daily position sheet or P&L. They will remain a front-month trading tool. So the millions you are about to make will just have to remain our little secret. Concierge members will get access to a dedicated website that will keep a running total of all Mad Hedge LEAPS issued.
All good strategies must come to an end. Market conditions change or the copycats and wannabees squeeze the life out of them. I have seen too many good traders go out of business clinging to strategies that worked yesterday, but not today. They were hauled away in straight jackets, kicking and screaming because they lost all their money.
The stock market is like working in a hurricane. If you don’t learn how to bend with the wind, you snap and end up in a pile of debris.
When the ($VIX) gets back above $20, or better yet $30, and the Mad Hedge Market Timing Index plunges down to the $20’s, I’ll be back fully loaded with front month options spreads by the dozens.
Good luck.
So far in June, we are up +0.47%. My 2023 year-to-date performance is still at an eye-popping +62.52%. The S&P 500 (SPY) is up only a miniscule +12.63% so far in 2023. My trailing one-year return reached +101.75% versus +24.19% for the S&P 500.
That brings my 15-year total return to +659.71%. My average annualized return has blasted up to +48.86%, another new high, some 2.54 times the S&P 500 over the same period.
Some 42 of my 46 trades this year have been profitable. Only 23 of my last 24 consecutive trade alerts have been profitable.
I executed no trades last week. Concierge members received a LEAPS trade alert on Crown Castle International (CCI), which regular subscribers should receive shortly. My longs in Tesla (TSLA) and Freeport McMoRan (FCX) expired at max profit, which I easily ran into the June 16 option expiration this week. I now have a very rare 100% cash position due to the lack of high-return, low-risk short-term trades.
A Mad Hedge Market Timing Index at 82 is not exactly encouraging me to bet the ranch. Don’t rush to buy the top.
On another matter, I am proud to say that every Mad Hedge service saw positions expire at their maximum profit at the June 16 quadruple witching options expiration.
Global Trading Dispatch rang the cash register with Tesla (TSLA) and Freeport McMoRan (FCX). The Mad Hedge Technology Letter coined it with Apple (AAPL). The Mad Hedge Biotech & Health Care Letter printed money with Amgen (AMGN). Jacquie’s Post pleased followers with a profit in the (TLT). Finally, Mad Hedge AI, launched only on Monday, saw the shares for its initial trade alert for (UNG) jump a breathtaking 15% in four days.
I must be doing something right.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
Tesla Model Y Became World’s Top Selling Car in Q1, the first EV to do so. Some 267,200 Y’s were shifted, edging out Toyota’s Corolla by 10,800 units, which led the field for decades. Elon Musk’s price-cutting volume play is working to the competition’s chagrin. The Model Y is on track to top one million sales this year. Buy (TSLA) on dips
Tesla Drops Model 3 Price to $33,000, net of $7,500 federal EV tax credit. That helped it become the world’s top-selling car. Late to the market EV makers are getting killed, hemorrhaging cash. That took the shares up to a new 2023 high of $231. Keep buying (TSLA) on dips.
Apple Launches $3,497 Vision Pro Headset, in a run at Meta (META) in the virtual headset world. It’s the company’s first new product launch since the Apple Watch in 2014 coining yet another new revenue stream. Apple shares hit a new all-time high on the news. Buy (AAPL) on dips.
Weekly Jobless Claims Jump to 261,000, an increase of 28,000, as the deflationary effects of high-interest rates take hold.
Europe Enters a Recession, with a -0.1% GDP print in Q1. Sharp rises in Euro interest rates get the blame.
General Motors Adopts Tesla’s Charging System, essentially giving a near monopoly to Elon Musk. (GM) is joining Ford’s (F) capitulation from two weeks ago. This should grow into a $20 billion a year profit item for Tesla. All of my outrageous forecasts are coming true. Buy (TSLA) on dips.
US to Send Another $2 Billion Worth of Advanced Missiles to Ukraine. The package includes advanced Raytheon (RTX) Himars and Lockheed (LMT) Patriot 3 missiles. Buy both (RTX) and (LMT) on dips as both missiles now have order backlogs extending for years.
Coinbase Gets Crushed after the SEC throws the book at them. The government agency is intent on destroying the entire crypto infrastructure. Get your money out if you can. Avoid (COIN) on pain of death.
Volatility Index ($VIX) Hits 3 ½ Year Low, at $14.26. Complacency with the S&P 500 is running rampant, which always ends in tears. The level implies a maximum up-and-down range of only 8.2% for 30 days.
Airline Profits to Double in 2023, as service sharply deteriorates with revenge travel accelerating. Looks for this summer to be a perfect travel storm.
On Monday, June 19 is the first-ever Juneteenth National Holiday celebrating the freedom of the slaves in Texas, the last state to do so. Markets are closed.
On Tuesday, June 20 at 8:30 PM EST, US Building Permits for May are announced.
On Wednesday, June 21 at 10:00 AM, Fed Chairman Powell testifies in front of Congress.
On Thursday, June 22 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, June 23 at 9:45 AM the S&P Global Flash PMI is printed.
At 2:00 PM the Baker Hughes Rig Count is printed.
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 thought we were done with these guys 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. Suffice it to say, I learned to talk the talk.
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 got 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 absolutely 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. Americans became very good at looking the other way when Germain families were trying to buy food on the black market. That’s why Reichsmarks wasn’t devalued until 1948.
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 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 Nuremburg 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 one-time 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 plan 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, and 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.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Leni Riefenstahl
Olympia
Global Market Comments
June 15, 2023
Fiat Lux
Featured Trades:
(GET READY TO TAKE A LEAP BACK INTO LEAPS),
(AAPL),
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
Just as every cloud has a silver lining, every stock market crash offers generational opportunities.
The September and October 2022 are now behind us, for the past 100 years, the two worst trading months of the year. That means they are also the best months for entering spectacular trades with LEAPS.
What are LEAPS you make ask?
This is the best strategy with which to cash in on the gigantic market swoons, which have become a regular feature of our markets, especially in 2022.
LEAPS, or Long Term Equity Anticipation Securities, is just a fancy name for a stock option spread with a maturity of more than one year.
You execute orders for these securities on your options online trading platform, pay options commissions, and endure option-like volatility.
Another way of describing LEAPS is that they offer a way to rent stocks instead of buying them, with the prospect of enjoying years’ worth of stock gains for a fraction of the price.
While these are highly leveraged instruments, you can’t lose any more money than you put into them. Your risk is well-defined. But you get 10X or more exposure to the stock. They are kind of like synthetic futures on individual stocks.
And there are many companies in the market where LEAPS are a very good idea, especially on those gut-wrenching 1,000-point down days.
Interested?
Currently, LEAPS are listed all the way out until June 2025.
However, the further expiration dates will have far less liquidity than near-month options, so they are not a great short-term trading vehicle. That is why limit orders in LEAPS, as opposed to market orders, are crucial.
These are really for your buy-and-forget investment portfolio, defined benefit plan, 401k, or IRA.
Because of the long maturities, premiums can be enormous. However, there is more than one way to skin a cat, and the profit opportunities here can be astronomical.
Like all options contracts, a LEAPS gives its owner the right to "exercise" the option to buy or sell 100 shares of stock at a set price for a given time.
LEAPS have been around since 1990, and trade on the Chicago Board Options Exchange (CBOE).
To participate, you need an options account with a brokerage house, an easy process that mainly involves acknowledging the risk disclosures that no one ever reads.
If a LEAPS expires "out-of-the-money" – when exercising, you can lose all the money that was spent on the premium to buy it. There's no toughing it out waiting for a recovery, as with actual shares of stock. Poof and your money is gone.
LEAPS are also offered on exchange-traded funds (ETFs) that track indices like the Standard & Poor's 500 index (SPY) and the Dow Jones Industrial Average (INDU), so you could bet on up or down moves of the broad market.
One of my most profitable trades in 2021 was the (TLT) December 2022 $$150-$155 vertical bear put LEAPS, which generated a 100% profit for everyone who got into it. Those who bought the more aggressive (TLT) December 2022 $$140-$145 vertical bear put LEAPS made 200%.
I see you’re still interested. For example, the highly popular ProShares 2X Ultra Technology ETF (ROM) only offers maturities out only six months so it is not possible to do a proper LEAPS. No one is willing to take the risk on the other side of this highly volatile security.
Not all stocks have options, and not all stocks with ordinary options also offer LEAPS.
Note that a LEAPS owner does not vote proxies or receive dividends, because the underlying stock is owned by the seller, or "writer," of the LEAPS contract until the LEAPS owner exercises.
Despite the Wild West image of options, LEAPS are actually ideal for the right type of conservative investor.
They offer more margin and more efficient use of capital than traditional broker margin accounts. And you don’t have to pay the usurious interest rates that margin accounts usually charge.
And for a moderate increase in risk, they present outsized profit opportunities.
For the right investor they are the ideal instrument.
Let me go through some examples to show you their inner beauty.
By now, you should all know what vertical bull call spreads are. If you don’t, then please click there link for a quickie video tutorial at
https://www.madhedgefundtrader.com/ltt-vbcs/
(you must be logged in to your account).
Let’s go back to February 9, 2018 when the Dow Average plunged to its 23,800 low for the year. I then begged you to buy the Apple (AAPL) June 2018 $130-$140 call spread at $8.10, which most of you did. A month later, that position is worth $9.40, up some 16.04%. Not bad.
Now let’s say that instead buying a spread four months out, you went for the full year and three months, to June 2019.
That identical (AAPL) $130-$140 would have cost $5.50 on February 9. The spread would be worth $9.40 today, up 70.90%, and worth $10 on June 21, 2019, up 81.81%.
So, by holding a 15 month to expiration position for only a month you get to collect 86.67% of the maximum potential profit of the position.
So, now you know why we leap into LEAPS.
When the melt down comes, and that could be as soon as next week, use this strategy to jump into longer term positions in the names we have been recommending and you should be able to retire early.
Now you know why I like LEAPS so much. Please play around with the names and the numbers and I’m sure you will find something you like. But remember one thing. LEAPS are only a trade to consider at long time market bottoms, not tops!
They are also the perfect positions to own if you believe we have just entered a second Roaring Twenties and a second American Golden Age, as I do.
Time to Leap Into LEAPS
Global Market Comments
June 14, 2023
Fiat Lux
Featured Trades:
(REITERATION OF MY $1,000 TARGET FOR TESLA),
(TSLA)
CLICK HERE to download today's position sheet.
OK, let me take my victory lap.
Since I sent out this report two months ago, Tesla shares have exploded upward by a breathtaking 32,4% to $253, a new 2023 high.
And the best is yet to come!
Of course, we got an assist from several fronts. The Tesla Model Y became the world’s top-selling car in Q1, just edging out the Toyota Corolla. Then both Ford (F) and General Motors (GM) signed on to use Tesla’s national supercharger network, giving it an effective monopoly.
When I heard that the February 28 Tesla Investors Day in Austin, TX was boring, I was highly suspicious. I thought that might be a journalist’s snap judgment with a strong background in creative writing.
Engineers and scientists might have a different take, I thought. So, I listened to the entire 3 ½ hours and copied all the important charts.
What I heard was nothing less than earth-shaking, groundbreaking, and revolutionary, and won’t cost more than we would spend otherwise. All we have to do is spend more intelligently.
Elon Musk unveiled his Master Plan 3 and unleashed a cornucopia of new data which only an immense amount of research can produce. This will require all forms of transportation to be electric-powered within 20 years, except for interplanetary rockets.
As anyone who has been through an advanced physics course can tell you that internal combustion engines are woefully inefficient, converting only 25% of their energy into forward motion, and 20% if you include materials energy costs. But that was the best the 19th century could do and it worked for 151 years (Nicolaus Otto built the first gasoline-powered internal combustion engine in Germany in 1872).
Electric motors in Teslas operate closer to a 50% efficiency rating, cutting energy demand by half right there.
To move the world to an all-electric economy will cost about $10 trillion, or about 10% of world GDP. Average that out at 0.5% per year and it will take about 20 years. Adding up car and storage batteries, that means 24 terawatts worth of batteries will need to be manufactured. There are one trillion watts per terawatt.
By comparison, the sun produces 1 gigawatt of energy per square kilometer per day, or 509,600 terawatts. That means an all-electric economy dependent on batteries equivalent to less than 0.1% of the sun’s daily output. In other words, it’s miniscule.
In fact, the world is already decarbonizing far faster than people realize.
There are currently 2 billion cars and trucks in the world, 85 million a year are manufactured, and some 16 million in the US. Global EV production came to 10.6 million vehicles in 2022, an increase of 22%.
Some 60% of new electricity generation installed last year came from alternatives. That’s because in terms of power output alternatives are 40% cheaper than oil, coal, or natural gas. That’s being generous as it does not include the health care costs of carbon-based energy, which make several hundred thousand people per year ill in the US alone (asthma, lung cancer, etc.).
This means that a heck of a lot of lithium is going to be needed. Soft, white lithium is number three on the period table (you’re talking to a chemist here), is a great oxidizer, and is anything but rare. What IS rare is the lack of environmental controls and cheap labor.
This is why the bulk of lithium is produced by China and South America where it literally sits on the surface. This is all easily scalable to meet future demand. In fact, moving to an alternative-based world uses far less mining than the existing conventional one.
The shortage is not in lithium supply but in lithium processing. The world’s largest lithium consumer should know. Musk recently announced they would move into lithium processing.
Home heating is another challenge. Existing heat pumps, which I have, do a great job heating in winter and cooling in summer in southern and western states where the weather is mild. These use only one third of the energy used to heat homes with oil and natural gas. States facing subzero temperatures are another story. This problem can be solved with a fundamental redesign of the heat pump hardware.
Here was a big surprise for me. EV’s are not going to create an exponential demand for lithium. Once you get up to a total installed base of 40 million batteries, recycling becomes the primary sources of lithium as batteries age out. They can then be reprocessed into new batteries. This eventually caps lithium demand. Future cars will use far less silicon carbide, further reducing its demand by 75%, saving $1,000 a car.
Musk is dumping the traditional 12-volt lead acid battery all Teslas have now which accounts for 87% of all start failures. Instead, he is adding a second small lithium ion one and redesigning the electrics to take 48 volts. This means lighter weight cables can handle more power at less cost. Musk hope to force the entire auto industry to move to a 48-volt standard, which should have been done decades ago.
The world’s 4 million Teslas now drive 123 million miles a day and represent the largest AI neural network on the planet. If a car in Florida makes a left turn, all the cars in the rest of the country learn from that experience.
Tesla now has 80,000 chargers in the US, including 40,000 superchargers, which can charge up 450 miles per hour and give you a full charge in 40 minutes. Tesla charged cars with 7 terawatts of power in 2022 and per kilowatt costs have dropped by 40%, with charge times down 30%. Tesla is well on its way to becoming the largest electric power utility in the United States.
Tesla’s current manufacturing capacity is 2 million cars a year across four factories (Fremont, CA, Austin, TX, Berlin, Germany, and Shanghai, China). While it took Tesla 12 years to make its first million vehicles, the 4th million took only seven months. As of today, it is cheaper to own a Tesla than the world’s biggest selling car, the Toyota Corolla, given their total lifetime costs. Work out the cost of charging a Tesla and you are paying the equivalent of 25 cents a gallon for gasoline unless you are at my house, in which case it is free.
The Gigafactory in Sparks, NV, which mass produces lithium-ion battery packs, is currently being doubled in size. In Texas, Tesla is buying wind power from the grid and offering Tesla owners a flat rate for charging of $30 a month because the cost is so low.
There are great hopes for the Cybertruck, for which Tesla has 1.5 million orders, myself included. The final price for the three-motor version will be about $100,000, the same as for a model X. The Cybertruck will have a brand new third-generation platform on which all future Tesla models will be based. It will also include the 48-volt electrical design.
Tesla’s price cuts have been wildly successful, allowing it to gain market share at its competitors' expense. Tesla is really just passing on the recent collapse in commodity prices. So far in 2023, Lithium prices have fallen by 20% and copper by 15%. Tesla prices will continue to fall, especially when the new $25,000 Model 2 is brought to market in 2024. That will really decimate the competition.
Tesla has also taken the plunge into the insurance industry, charging drivers on their actual driving history, which they already collect. If you drive like a little old lady, it can run as little as $180 a month. If you drive like Mad Max, it’s more, but not as much as a conventional car insurance company.
Rates change monthly depending on your driving record. Parked in a garage gives you a perfect score of 90 and it drops from there. It’s all about reducing the total cost of a Tesla car. Not such a bad deal if you let their computer do all the driving.
What will Tesla disrupt next?
All in all, it was a breathtaking presentation, which Elon delivered coolly and calmly. It is with the greatest enthusiasm that I reiterate my $1,000 per share price target.
To watch the Tesla Investor Day in its entirety on YouTube, please click here.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
