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Closing NVDL today?
Not yet. Almost there. I’m building out a strategy to capture the upside in Nvidia without taking as much damage if there’s a major correction.
Just posted an update on NVDL and how we plan to play it. We have a way to capitalize on a parabolic move up while limiting he downside risk significantly.
Hey Sam,
I would have copy-pasted the passage I’m unsure about but I don’t think that’s possible in the app.
Anyway I just wanted to ask whether your basic plan is to basically sell those puts after a small pullback of 4/5% (not the expected correction)? And then buy spreads expecting the market to rally further?
And if a correction develops to sell the 400 puts to transition to the 500 puts? But wouldn’t you have sold them by then? And aren’t those actually not suited to protect against a big drawdown in the market?
You can see I’m a bit confused:)
Also I’m wondering if these puts are basically a trade you would have done in Baratheon/Targaryen, just with a bigger time horizon?
Or are you planning to put something on in terms of those in the respective portfolios (since Baratheon/Targaryen are now seen as part of them)?
The June 2026 $500 puts are meant to be our MAIN hedge for the portfolio. It allows us to remain long while protecting the portfolio against a correction. Right now, we own 8 contracts LONG in the Dec 2026 $430 calls and June 2027 $400 calls in Arryn for example. We bought 5 contracts in the June $500 puts. We need to get to 8 contract or higher to get FULL coverage. FULL protection.
While it will largely depend on the size and scope of the sell-off, we’re unlikely to close out the June $500 puts for a very long time. The only circumstances under which we’d close them out is if the market sustained a massive correction, pushed into deeply oversold territory and we all the same signs of capitulation as we had in April 7. We need extraordinary circumstances to close out hedges.
Instead, here’s how we’d play this. In a big correction with regular capitulation and regular oversold conditions, we’d close out the March $400 puts as the June $500 puts are doing the job now.
Once we begin a new rally and the QQQ rallies up to $600-$640, well then we’ll look to buy 1-year out $600 puts and then close out the June $500 on the ensuing correction.
The puts is exactly what allows us to participate in the rally. Because we always have downside protection.
So to answer your question, our plan is to simply hold on to these June $500 puts probably for a good long while. It could be we hold it for the year. Go check some of our completed trades. We closed out hedges on April 7 but only after extreme circumstances. Some of those hedges we’d held for 6-months at the time.
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So I can tell you that right now, the Arryn portfolio is well positioned to handle any level crash in the market. Small, medium or large, it doesn’t matter. The Arryn portfolio is protected.
If the QQQ were to fall to $300 a share, for example, the March $400 puts would go to $120 x 16 contracts = $192,000.
Our QQQ calls would probably drop 90% from where they are. But they’d still be worth a good $20,000 total. That’s $212,000. Then we have another $72,000 worth of Nvidia that might drop 80% down o $15-$20k. Putting us at $230k. We have Nvidia June $90 puts that might rise to $15 and be worth $7,500. The 5 June $500 puts would be worth $200 and be worth $100,000k.
So our portfolio would be up to $340-$350k or more. Realistically probably more than that. That’s the reality. If we were all kidnapped and sat in a room and watched the QQQ fall to $300, we’d be up massively. More than if the QQQ rallied by the same amount right now.
If instead, the QQQ only falls to $480 in a regular correction, well then our portofio might pull back a little down to $220k or something. It will depend on whether we’d be able to buy the other half position in the June puts. Remember, we’ve sold a lot of covered calls totaling $29,000. All of that will off-set any pull-back. That’s a HUGE off-set.
Not to mention the March puts probably go right back to even on a drop liek that. That’ $16k.
So small correction, large correction. It doesn’t matter. The leaps portfolios are fairly well insulated right now.
Execution Risk
One thing you might be hinting at is a concern about execution risk. That’s where skill comes into play.
If the QQQ falls to $300, we’re only protected if we’re holding our puts right? That’s what you’re getting at. That the mere transition of closing out the March puts too early can result in us taking a beating if the market continues lower.
That risk is real. But that’s why we only transition when we know the coast is clear and when we know what we’re currently holding (hedge wise) will already cover us.
If we’re holding 10 contracts in the June $500’s, well then we’re protected. The QQQ wouldn’t go straight down to $300. It’s not how it works. There are fits and stops along the way.
For example in the last bear market where the QQQ fell 40%, it had multiple MASSIVE rallies on the way down. We had something like 5 different double-digit percentage rallies. One for 17% and another for 24%.
Defeating execution risk depends on getting those moves right.
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Not quite. Again, the June $500 puts are protection for the portfolio. Because we own the June 2027 $400 calls and the December 2026 $430 calls, we had to purchase hedges. The June $500 puts are meant to eventually replace the March $400 puts we bought on the way up.
Baratheon & Targaryen have no long positions. So these are not trades in that sense.
Yes. But the QQQ hasn’t quite rallied enough just yet. One we get new all-time highs and the QQQ pushing past $550, we’ll look to purchase put-spreads in Targaryen/Baratheon as a short play. But right now, there’s nothing to do in either portfolio.
Thank you Sam!
Hi Sam,
I think (?) you’ve mentioned in the past that there has never been a situation where the market rallies to ATH after a correction and not made new ATHs. Is the idea with buying half of the put position at $540 (current ATH) to hedge against the possibility that this is an outlier? Why wouldn’t we buy our core hedge positions more at like $550 / $560?
My current understanding is we’re buying half now to hedge against execution risk. Let me know if I’m wrong 🙂
Thanks!
Hi Sam,
Just curious about your thought process for hedging opportunity risk for NVDA/L in this case. Based on your analysis on the continued parabolic rally case outlined yesterday we’re trying to capture potential further upside, while trying to reduce exposure to hedge against potential downside in the event of a correction. Is there any argument to be made for the idea of just exiting our NVDA/L position and just waiting for the next correction (less than 2.5 months away)? We wouldn’t capture any further upside in the parabolic case, but we wouldn’t be using any capital towards the call / call spreads you’re suggesting. My understanding is this move is more to keep utilization of capital as high as possible at all times, but correct me if I’m wrong :).
Thanks!
So that’s the obvious position to take right? Going to the sidelines and waiting for a correction makes the most sense.
Here’s the problem with it though. I’ve made thousands of trades and investments over the years, and it’s very easy to get caught on the sidelines while the market does the unthinkable.
We’ve seen it before. The first melt-rally was insane. The market rallying 150 days, pulling back 5% and then rallying another 150 days is enough to make people want to quit. Of all events that can happen, a slow, quiet melt-up is my biggest fear by far.
It’s very difficult to trade those and a lot of time goes by with no returns.
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This isn’t that environment but what it illustrates is that the market can do unexpected things and when it does, it’s almost always within the context of a rally. Like the Covid rally. 84% returning rally goes far beyond the next highest returning rally. And imagine if someone made an argument to go to the sidelines at 36% because that was the previous record rally. We now have several more samples showing us that 29-36% seems to be the very top end of the rally range. But that argument could have been made ahead of the 84% run in Covid. If you went to the sidelines at 36%, it would have been a game ender for sure. Inevitably, investors get drawn into compounding the probably by then also shoring to try and make up the shortfall which just leads to more problems. <— this is the biggest risk right there. Dealing with lost opportunity.
On an 84% run, Nvidia could easily eclipse $220+ in that scenario.
If you go to the sidelines, it would take an enormous amount of patience to have to watch Nvidia produce all of those returns while you’re on the sidelines and then you’d have to wait for a correction and figure out how to get back in (likely at a higher price than where you sold).
Whereas simply hedging that out can save a lot of future pain for a mere 5% position. Just that process is painful nevermind the end result impact.
That’s why we hedge upside risk if we’re going to the sidelines. Just to combat the potential parabolic run. Even if we don’t produce as big of a return as simply remaining long, just being in and participating means we’re likely to end up whole on the next correction as we’ll have moved up the bar.
It’s obviously not required. People can go to the sidelines and time re-entry during the next correction. I think if done right, it’ll mostly end up in our favor. With the QQQ up 35%, under most typical scenarios, exiting up here is likely to result in a lower re-entry.
With Nvidia at $151.50-$153 today, there’s a good chance that we’ll see that price eclipsed on the downside after this rally concludes. Nvidia is likely to drop around 20-25% in the next correction. That’s just Nvidia volatility profile relative to a normal market correction. So even if Nvidia runs to $200. It’s likely dropping to $150 after that.
And if we’re dealing with the NVDL, then we’ll likely get our re-entry at even higher price.
But our entire general strategy is built around never going to the sidelines due to the asymmetry of risk in the market. The market is almost always making new highs and pushing the needle to the upside.
Yet, because of NVDL theta decay specifically we actually have to trade it. If we were simply holding Nvidia or DITM leaps, wouldn’t bother timing it here. We may sell covered calls. But we wouldn’t time exiting.
An asset like DITM leaps will recover in its entirety on a rebound much better than will the NVDL. We don’t need to worry about DITM leaps. Especially if we’ve simply leveraging delta as we are right now in our $400 and $430 QQQ calls. There is inherent upside in those leaps. At $600 a share, our $400 June contract is worth $200 intrinsically. That’s $22 above where they are right now not to mention time value etc. So leaps can weather a correction better than the NVDL.
Anyway, the point here is that hedging upside risk isn’t absolutely necessary with NVDL at this point. Going to the sideline and waiting spares the $5k, but then you assume the unknown risk. As I said above, at $200, Nvidia still likely sees $150 at the next correction.
Hi, Sam,
Not that it matters a whole lot, but I was curious if I saw things differently? I believe previous ATH was $540.81 (according to TradingView anyway) and today it looks like the high was only $540.70. Do you think this will affect any outcome? If this is accurate, then we didn’t make any new highs.
I did see on some websites that ATH was $139.50, so I’m not sure if I’m missing something there? I don’t have extended hours on my chart either.
Thanks!
ATH’s constantly changes because of the QQQ dividend. So right now, it’s under $540. The lows also change. Current ATH sits at $539.40 after the dividend. The lows sit at $401.94 (previous lows at $402.39).
Ohhh that makes a lot of sense. Thank you!
Hey Sam,
can you please provide an alternative to call spreads for long term portfolios for the upcoming strategy? I cannot trade those and did not expect that the long term portfolios would start doing that
So SEC rules limit what I can or can’t post about. One of the things I can’t really touch on is individually tailored strategies. All I can really say is this. Spreads are often required to get maximum impact under certain conditions.
For our Leaps portfolios, we almost never go to the sidelines. But the very nature of the NVDL position itself requires us to due to theta decay.
If we ride the NVDL down and then back up again, it will be at a lower value on the return trip. So we need to exit NVDL.
Alright, with that being said, how do we protect ourselves if Nvidia runs to $200 for example. How do we participate in those gains without taking the risk of getting negatively impacted by theta decay in a correction?
One way to do it as we explained was to close NVDL and buy Nvidia. At least when a correction happens, we’re sitting in Nvidia and not the NVDL. But holding Nvidia shares through a correction is also very painful. Nvidia can easily drop 25%. We have a $36k position in NVDL. If we convert that to Nvidia and Nvidia drops 25%, that’s still a $9k loss. what’s more, Nvidia isnt’ going to produce the same returns on the upside.
We could also simply sell half of our NVDL position and buy it back on the drop. But it’s still half the impact on the downside and when Nvidia rallies post-correction, it’s still going to result in NVDL not returning to its previous highs at the same level Nvidia was at before.
For example, last time Nvidia was at $153, NVDL was trading in the $80’s. Now it’s in the $60’s. Next time it might be in the low $50’s. That’s the inherent issue.
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Enter spreads. What spreads do is they create a lot of leverage. Insane amounts of leverage so that we can go to the sidelines, have a smaller impact on a correction. Much much smaller. And still participate if Nvidia rallies.
As we showed, if Nvidia does run to $190-$200 on a parabolic move — the thing we’re most worried about — we end up with the same returns or close to the same returns. It would be as if we never sold our NVDL position or close to it.
Alternatively, if Nvidia sustain a correction, well then holding a $5k positions in calls and call-spreads means we’re limited to a $5k hit. That is half the impact we’d sustain holding Nvidia common and a quarter the impact of holding NVDL through a correction.
This is all math and risk mitigation. The $160-$170 call-spread produces a 150% return on the way up as we showed. The $180 calls prevents the true parabolic move up beyond $180.
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But as I mentioned to another subscriber, Nvidia tends to drop 23-25% in corrections. If the QQQ sustains a regular 10-14% correction, you can expect Nvidia to drop 23-25%. That means EVEN If Nvidia were to run to $200 a share, it’s very likely to come back down to $150 anyway in teh next correction.
Exiting NVDL at $150 and buying it back at $150 later is always going to be MUCH MUCH better. It will mean avoiding some degree of theta decay during the period between when Nvidia runs to $200 and back down to $150.
And notice that speculative run to $200 is extremely low risk. We’re talking parabolic rally outlier risk here. The most likely scenario, is Nvidia is close to a top now and it may fall to $120 or lower in the next correction.
So we’re talking about hedging out very low risks here. But risks that can be damaging and lead to FOMO risk-taking behaviors. That’s mostly what I’m trying to avoid here. Selling at $150, watching Nvidia run to $200 and causing everyone to sweat FOMO bullets.
We may not even hedge the upside risk. It just depends on where we exit Nvidia. If we get a good exit, we probably won’t hedge it or might just hedge the extreme parts. that means only buying the $180’s or something like that.
We’re in the formulating part of the strategy right now. Nothing is set in stone.
Can you explain why NVDL had an ATH of $88 earlier when NVDA was at its ATH of $153, but now NVDL is only at $66 while NVDA is near its ATH of $153 again? I heard of Theta Decay but I thought that would be with my personal holdings of NVDL and not the stock offfering itself.
The main reason we see this happen is due to volatility decay and compounding drag.
NVDL is a 2x leveraged ETF, which means it’s trying to give you twice the daily performance of Nvidia. Key word: daily. It doesn’t just track Nvidia over time — it resets daily and compounds that movement.
So if Nvidia goes up and down a bunch over weeks or months — even if it ends up at the same place — NVDL can lose value in the process.
Choppy price action bleeds value out of NVDL slowly over time, even if NVDA returns to the same price.
NVDL performs best in environments where Nvidia is moving in a straight line up or down in one direction. For example, we bought the NVDL in Arryn back on April 7 at $28 a share. It’s now at $66. That’s a 135% return. Nvidia is up around 70% over the same period. So NVDL worked well in this environment where Nvidia rallied non-stop.
But in the period between November and today, we’ve had a lot of volatility which leads to bleed off in value,.
This is the ETF itself losing value, even if you bought-and-held it perfectly. It’s just the nature of how these daily-reset leveraged ETFs work.
Bottom line:
Nvidia hitting $153 again doesn’t mean NVDL will hit $88 again at that same level — unless it does so in a clean, uninterrupted rally.
NVDL is a good tool to get leverage during a rally but needs to be exited ahead of corrections. So buying it on April 7 at the lows and then closing it out ahead of the next corrections is the optimal way to play it. Otherwise, going through corrections can mean that down the line we end up with a lower value.
Hi Sam, assuming both QQQ and Nvidia are oversold at this point? Given that, are the new positions for Nvidia a target right here or something targetted after an expected 4-5% pullback off oversold?
Apologies, overbought*
The replacement upside hedge ideally would be made at the time we exit. But since we are getting deeply overbought, we may not do that. WE may just wait for a pull-back first.
We may also simply decide not to hedge it out. We might just go to the sidelines, and then wait patiently to buy on the next correction. It’ll mean being out of Nvidia for a good long time potentially. Maybe months. But the end result is likely to be net positive gain as a result.
We’ll have to see how the exit plays out first.
Thanks Sam!