With bullish setups continuing to climb this week, I like the cushion this gives me to continue putting on some bearish bets to help smooth out any possible portfolio volatility that may be on the horizon.
Today's bearish "hedge" is a short bet in a technology name that is most definitely not keeping up with its peers.
Today's trade is in a steel sector name that recently poked its head above a resistance level that had been capping the upside for over two years now.
As the stock consolidates its recent breakout, options premiums are quite low, offering us the opportunity to position in some longer-dated calls for a simple bet on higher prices.
Healthcare continues to lead to the upside. While we already have a bullish bet on a sector ETF, it's time for us to drill in a little deeper in search of more beta if this trend is going to continue.
Today's trade is in a name that has been performing great off its December lows and has also been in a longer-term bull market. But only just recently has it begun to outperform against the broader stock market.
As many of our longs continue to work in this current leg higher in the stock market, I like putting on bearish bets as portfolio hedges to cushion the blow if/when the turn comes.
And the best way I know how to do it is to position bearishly in stocks that are already falling. If they are performing poorly now, I have to believe there is a lot more downside should a downdraft hit the broader market.
My analysts published their latest Short Report, and one of the names caught my attention.
Perhaps the title of this post is a bit dramatic. But it got your attention, yeah?
While the indexes continue to plow higher and higher, proving markets can stay irrational longer than bears can stay solvent, there continues to be signs piling up that a turn may be near at hand.
We're not saying that the long bull market is coming to an inglorious and permanent end. We're more of the belief that a well-deserved pause and/or pullback feels like a perfectly natural thing to happen somewhere around here.
So we're going to add another bearish bet to the board in a stock that is already showing signs of topping in a sector that might be ready to roll over.
— Sean McLaughlin, NLD 📈 ( formerly @chicagosean) (@OptionsSean) February 5, 2024
Today on The Flow Show, me and Steve Strazza chatted about the current $VIX environment, the potential for sideways, volatile trading action, and our internally diverging views on the overall market (JC is getting more bearish, Strazza is still flying the Bull Flag, and I'm closer to Switzerland).
As we dug into it, Strazza floated a couple ideas in the Healthcare space that made sense to me once we fleshed it out.
We’re gonna keep this quick cuz I’m on the road doing errands.
I just got off the phone with JC, who called me in the car. His “spidey senses” are tingling and he thinks there might be a low-risk/high-reward opportunity to short the broader indexes here.
He likes it both as a standalone bearish bet and as a portfolio hedge against a bunch of longs that are working for us right now.
Today's trade is a "keep it stupid simple" kinda trade that might take a little intestinal fortitude if you do not enjoy buying stocks at all-time highs.
But in my experience, these are the types of stocks that continue to defy odds.
This is a bonus, second trade idea for today that came out of our internal conference call this morning and dovetails nicely with this note that JC just published.
We're getting short Lululemon, $LULU due to what appears to be a failed breakout:
It doesn't happen very often that a bearish setup presents an opportunity for us to position with a simple long puts purchase. Usually, when we want to buy puts, the whole world is on to the idea and the premiums in the options market reflect that.
But today, we've got a situation where a stock is flirting with breaking a key support level, and the options market is pricing in a smaller move than our research suggests is possible.
