Samwise Quick Reference Handbook
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Sam, what level of confidence in 3-4% pullback once we hit the 80RSI at $480-$485? Is 80RSI overbought as reliable as 30RSI oversold?
Might be a good time to roll some spread?
It’s reliable. Not quite as reliable as oversold. Overbought is NEVER as reliable as oversold. In fact, stocks can remain overbought indefinitely. We’ve seen that tiem and again. And that’s because stocks can rise theoretically to infinity and only drop to $0.00. And there is a practical level way way above $0.00 right?
Like look at the entire QQQ for instance. It was trading in the $100’s back in 2020 and has risen 200-300%. Note that’s 200-300% of upside and only 100% of downside. More opportunities to reach extremely overbought than extremely oversold in that sort of situation.
Because of this inherent asymmetry, stocks can and often do remain overbought far more often and far more extreme than oversold.
That being said, even in really bullish markets, we’ve shown a very consistent 3-4% pull-back over 3-5 sessions in the segmented rally analysis. See Chapter 5.2 of investing basics.
But yes, we will look to trade out of our May call-spreads at an 80+ RSI.
Also, when you asked me a few days ago why we wouldn’t close out those positions at $0.04 and $0.02 respectively, you’re seeing it right now. This is why.
While we don’t have a big window and it’s still unlikely to play out the way we want, there’ s chance.
If the QQQ surges here and runs to $480, those call-spread will reach peak value. We’ll be able to sell them for something less than entirely nominal. From there, we wait for the inevitable pull-back and then we’ll redeploy the capital toward a weekly 1 week forward. That buys us time. Depending on pricing, we may even be able to roll down toward a lower strike like the $520-$530 call-spread for May 23 or something. or $515-$525 or May 23.
And now we have a really strong chance of gettin somewhere. Because the QQQ has seen rallies up to those levels before after past crashes. We’ve seen the QQQ do the exact equivalent of of $402 to $530 from April 7 to May 23. We’v seen that equivalent rally.
But again, we need things to fall right into place. We have a far more likely probability of things working out with Tesla and Nvidia. And for those two stocks trade the way I expect, we could easily see Baratheon with gains by July — well north of $10k.
I understand completely now. What about Taragaryen? Same situation?
That has some QQQ May and NVDA July
And to be clear your plan is to roll them and capture upside, not just exit and walk away? I am glad I listened. I was ready to just cut losses and move on. I like NVDA a lot better.
As an aside, you paint a really good picture with your long portfolios and how you rely on hedging first to protect gains, but second with a really good chance they actually enhance gains. Someone was asking my the other day about puts and what misses a lot of people is the effect on options pricing and how the underlying affects it. Puts are often described as insurance and as such many have a basic understanding that they are paying a premium for protection, but ignore the ways it can enhance returns.
For anyone reading there are some really helpful quick charts that show the effect on options pricing when underlying/greeks increase or decrease.
Now Trump is back at it, and just like that it stalled out
Looks like there more support now
Sam there’s a strong chance we could see a 7-10-point pullback soon as we’ve seen after each time Nvidia has reached overbought conditions : before or After see NVIDIA at 120$ next week ?
I don’t really know what the price target is. I just know that since Nvidia is now overbought it has a strong chance of pulling back $7 to $10.
The reason we haven’t sold already is because the QQQ might continue higher to an 80-RSI and if that happens in Nvidia goes with it
If not for the potential further upside in the NASDAQ right now, we’d be selling our Nvidia spread right now.
If we sit around 70RSI today, does that drastically increase the risk of this being similar to the reversal at $493?
Ideally, what we want to see is a surge up to $480 with the RSI pushing to 80+. From there, we want to see the QQQ maybe stall out somewhere around $484-$485, peak and then pullback to $467 ahead of another surge up to $490. That’s how it could play out on overbought conditions. Again, at an 80+ RSI, you can expect a 3-4% pull-back after negative divergence and a time delay. But between now and then, we want to see continued forward momentum rather than the QQQ topping out at an 70-RSI.
No, today’s session has no impact at all on anything. We need to see the QQQ simply peak at 70 and start to pull back to the mid-line.
What’s more important is what the QQQ does on Monday and Tuesday
We’re gonna wanna see forward progress on Monday. Ideally the QQQ rises to 474 to 476 on Monday.
I don’t remember exactly how the $493 70RSI played out, but we would’ve seen a peel back by now from today’s 70RSI?
Peeling back a bit.. Shy of the 80RSI we needed to see
It was very weak at the $474 level it touched
You’re looking at things at way too short of a time-scale. Until the QQQ falls to or under the mid-line on the hourly, it’s still in the same place. But even then, it really depends on how far it pulls back off of its highs together with the distance traveled on the hourly. Like look at Nvidia. It’s down only a few point and already at the midline. Looks bullish overall still.
But we can’t really draw any conclusions yet on the indices until we see an actual pull-back in the RSI down to the mid-line. We’re still hanging around 70 ATM.
By the way, I saw your question in Ask Sam. It’s good question. Going to require a careful response. Saw it over the weekend, but it was a really busy weekend for me. I’ll get back to you on that soon.
No problem at all! You get the gist of it. You;ve addressed most risk, but nothing is ever fool proof. I know execution risk is big. Take your time on the response, I am just curious how you’re handling and being the best risk manager you can be.