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.
We got stopped out of a Wells Fargo trade a couple of weeks ago, and it looks like that was the whipsaw it needed to shake weak hands out. And since I was shaken out, I consider myself among the weak hands squad. I'm ok with that.
But given what we've seen since we were stopped out, we're getting back in for another try. This time, with tighter risk management and a longer runway.
The entire All Star Charts team is presently in NYC hosting our Portfolio Accelerator event. So I will skip the preamble and get right to the point for today's trade in $TSM...
The housing sector continues to perform well, and it makes sense that companies in the mortgage business should come along for the ride.
One of those names had a big push into the end of the year, and then had a monster pull back to start 2024. We think this reversal may be a bit overdone and the stock is now at a level where we can take an advantageous position with minimal downside from here.
This comment was shared today during my appearance on the Morning Show with JC and Strazza.
We were discussing this trade in $TSLA we put on yesterday.
Sure, this trade might have some risk in it.
Newsflash: ALL trades have risk. If there was no risk, there would be no potential reward!
An Iron Condor is a four-legged options spread consisting of equal amounts of short out–of-the-money puts and calls, and long further out-of-the-money puts and calls that protect the position and define the risk.
Here’s the PnL Graph for the $TSLA trade and this is a pretty common structure for an Iron Condor trade:
Look what we have here: a $VIX popping its head up to two-month highs.
Are investors getting a little spooked by the prospect of a tricky earnings season?
We'll be able to figure all that out after the fact. In the meantime, we will use these elevated options premiums to help us ride out some portfolio profitability.
I asked my analysts to find me a big cap name that is trading sloppy.
And the one they came with is a widely followed mega-cap name that has been flopping around in a sideways choppy range which, coupled with upcoming earnings, is helping to juice options premiums.
Here's everyone's favorite EV car maker Tesla $TSLA:
One of the areas I’ve identified where I can improve my trading is in trade selection. Specifically, my trade avoidance.
Due to my early trading experience as a stock trader, it was ingrained in me during my formative trading years to avoid positioning in stocks that are about to announce earnings.
And for good reason.
Once a stock trade is on, our only real defense against punishing losses is to have a stop-loss order working. That’s fine if you trust yourself to always honor your mental stops. But for most of us mere mortals, the good-til-canceled stop-loss order is our best protection.
99% of the time, a stop-loss order works as intended. Sure, we might suffer a little slippage here and there. But it works like a charm in preventing disaster. Especially for intraday trades.
But for overnight holds, a stop-loss order has its limits. And these limits are fully exposed in the event of a binary news release – most notably earnings announcements.