Selling Naked as a Philosophy

JC Parets
February 1, 2024

Let me remind everyone what a bad idea it is to sell naked calls.

We don't do it.

I often want to do it.

Many times, it makes sense to do it.

But the answer is always no.

It's just not worth it.

Go ask around. The old timers will tell you.

"Don't do it kid"

But that doesn't mean that as a philosophy, we shouldn't approach the market with that sort of "naked call selling" mentality, at least for the foreseeable future.

In other words, why would someone want to sell naked calls?

Well, if you think there's a lack of upside, and increased amount of downside, just not sure how much downside, perhaps selling naked out-of-the-money calls would make sense.

But rather than actually executing that trade, we want to just approach the market that way.

Again, we DO NOT sell naked calls. But as a mental approach to markets right now? I do like that.

Remember, the divergences have been adding up.

The list of new highs list peaked 7 weeks ago. The divergences in Currency markets and Consumer Discretionary have really stood out.

And now Credit Spreads and Staples are doing what they weren't doing before.

Take a look at the ratio between High Beta stocks and Low Volatility. These are the types of divergences you like to see before a good rug pull:

Markets have been following seasonal trends really well the past few years.

That doesn't mean that we necessarily position ourselves a certain way because of seasonal headwinds.

But wouldn't it be convenient to see weakness in equities as soon as the best 3 month period of the year comes to an end?

Historically, November-January is a great period for stocks. This year was no different obviously, but only if you owned stocks.

You had to actually listen to the market and do something about it.

Also See: Buy In October & Get Yourself Sober (10/20/23)

February is historically one of the worst periods. And for the rest of Q1 during Election years, stocks typically have a hard time.

Tops are not an event.

Neither are bottoms.

They take time to develop. And so we adjust our strategies accordingly whenever the data comes in differently than it has been.

We're in Month #20 of this ongoing Bull Market.

We saw a nice correction in Q3 last year, that came at a perfectly normal time.

And I'm not saying this one needs to take as long, nor does sentiment need to adjust as violently as it did then.

But bull markets do correct. Underneath the surface, we've seen a "stealth correction" already throughout January.

And now I think things could get uglier before they get better again.

We've been initiating new bearish positions this week and fully intend on adding more.

We'll be talking about it all Monday night Feb 5th @ 6PM ET.

Premium Members make sure to REGISTER HERE if you haven't already.

Let me know if you have ay issues accessing my LIVE Video Conference Call. Or you can always email Mary directly.

Let me know what you think!

Any favorite shorts out there?

Let us know!

JC

 

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