Samwise Quick Reference Handbook
To streamline our daily blogs and conserve space, we’ve organized key resources into a convenient, collapsible dropdown menu below. A sort of Quick Reference Handbook if you will -- as our friends in aviation might call it. By clicking the menu below, you’ll have qu...
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Sam, Do you have any opinion on either bitcoin or IBIT right now?
I don’t follow crypto at all. Just the broad market and certain select tech stocks to leverage when oversold or opportunistic.
As I’ve gotten older, I’ve pulled way back at chasing individual investments and instead focus on the indices — QQQ/SPY etc. Mostly leveraged long QQQ.
The QQQ is very stable given the diversification of assets. I’ve found its a lot easier to make consistent money trading stable assets. Assets where you know that it’s not going to enter some long-term decline like Baidu for example.
The QQQ is a reliable asset. The QQQ is to the stock market as U.S. treasuries are to the fixed income market.
That reliability can be leveraged into perpetuity.
If any major stocks becomes oversold, we might get into that like we did with Tesla or Apple. But for the most part, my focus is on the QQQ.
Hi Sam, I have a general question regarding the risk levels present in the LEAPs portfolios vs common stock ones. Correct me if I’m wrong but it seems that with the way that the hedges have worked, the LEAPs have always far outperformed the common stock portfolios even on a risk-adjusted basis. With this in mind, when would someone ever want to choose the common stock portfolio over the LEAPs? Is there some significant portion of execution risk in the LEAPs strategies that can cause a catastrophic outcome? Otherwise the performance of the LEAPs almost seems too good to be true…
LEAPs would take a beating during a bear market even while hedged. The prolonged market downturn could bleed the LEAPs’ profits through theta decay. May come up flat by expiry. That’s essentially money in the sidelines that cannot participate once the market starts climbing back up.
Common stock can wait longer than a LEAP’s expiry, and requires less maintenance. Compare the number of trades between Frey (common stock) and Stark (LEAPs). If you have a day job that can end up isolating you from the market, you might end up missing an important hedge.
Don’t we actually profit more during bear markets when a huge drop occurs and the puts end up deeply ITM? Although I suppose the risk is that we might end up losing all of it if we sell the puts and buy calls at the wrong time.
The hedged common stock will profit from hedges during a bear market. The LEAPs will most likely decay before the market goes back to its highs.
You are correct about timing. The crash we had during liberation day was perfect timing to profit and recover. We won’t see that quick recovery in a true bear market however. Hedging is about protecting our capital first and foremost.
To Jesse:
So our leaps portfolios (Stark, Arryn and Lannister) would skyrocket in a bear market. Here’s why.
Bear markets don’t just unfold in a straight line down. If we entered a 2001-2003, 2008, 2020 or 2022 style bear market, our leaps portfolio would skyrocket. Here’s why.
Let’s consider the 2022 bear market as an example. In a bear market, the first leg down is typically very brutal and looks exactly like a correction. The only difference between a correction and a bear market is that during the recovery bounce back, the QQQ peaks at around the 50% retracement mark ahead of another leg lower. It then does this again a few times.
Back in April when we went long, we were careful to buy DOUBLE the hedge necessary to protect the portfolio. If you look at the Arryn Portfolio, we own 16 puts in the March 2026 $400 puts at only $17.74 per contract. We bought those at resistance near $470-$480 a share.
If the QQQ had entered a 2022 or 2001-2003 or 2008 style bear market from there and crash down to $300 a share, those puts would have risen to around $130 x 16 contracts = $208,000. Our other positions — have a lot of time value remaining — would have seen premiums kick in to protect those leaps. We’d be up far more than $240,000 right now had things gone in that direction.
And like April 7, the second leg down would reach oversold and/or hit a point where it would rebound significantly. In fact, like 2022, we’d end up with a major bear market rally of 25% at some point. This would give us an opportunity to exit the puts, transition long ahead of the rebound, and then buy more aggressive put once again on the bounce back.
Eventually once the market bottoms, our June 2027 calls would skyrocket. In fact, once we bottomed out, the QQQ would promptly return to its highs probably by the middle of 2026. Our June calls — which we would have been holding the entire time — will have doubled in value. Not to mention whatever new long positions we would have picked up along the way down near $300 a share or lower.
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So we’d do well in a bear market. Even if we prematurely exited the March puts at even. Suppose for example, the QQQ were to fall to $480 a share, reach oversold conditions and I mistakenly believe the corrections over. IN reality, we’ve begun a bear market. Even if we got that wrong, the June 2026 $500 puts we just purchased x 10 contacts would carry us.
Think about it. Suppose the QQQ reaches $480 and then crashes down to $300. I’m not closing those June puts without a clear-cut indication that we’ve bottomed and only after a significant percentage loss. We’d need to see the market down at least 20% from its highs before I consider it in addition to 20-RSi and things like that.
Without those major indicators — which worked even in 2008 and in all other environments — we hold the June $500 puts no matter what.
So lets suppose the QQQ reaches $480, we close out the March $400 puts on the mistaken belief that it’s only a correction and the market goes full blown bear market on us.
The June $500 calls on a drop to $300 are worth $220-$230 (with premium). That’s $230,000 to $240,000 on a drop to $300 WITHOUT the 16 contracts the march puts.
Imagine we don’t close out the March puts, those are worth $130 x 1600 = $208,000.00. The portfolio, positioned the way it is right now would rise to $438,000 on a crash to $300 on the QQQ.
We also have $19,000 in cash. So that’s $457,000. Assuming all of our other positions are worth $20,000. That’ $477,000. Nearly a DOUBLE or 100% return overall if the QQQ crashes to $300 a share and we do nothing at all about it.
I appreciate you taking the time to write this comprehensive response, Sam. My apologies for the shortsighted answer.
Not at all short sighted. I think this is a good thread. Hence I why I answered it.
Good questions, comments and observations all around. The leaps portfolios are for sure more risky in set-up and each time we transition it will create a lot of risk. But once we’re hedged, we’re hedged is the idea.
A prolonged sideways market would be the worst thing for us. Worst than a bear market. If the QQQ traded between $520 and $540 for 6-months, that would kill us. A crash or a big rally would be good.
A big rally right now would hurt. We wouldn’t quite lose money, but we wouldn’t make a whole lot either. We’d have a very slow incline due to the covered calls we sold.
What this thread highlighted is our need to address some issues in the common stock portfolio. We need to start thinking about protecting profits. Wouldn’t have thought about that without this thread.
So this is a good thread and a reply to both of you (Jesse & Jason)
So the common stock portfolio is far less risky overall because there is no expiration date. Also, in the narrow windows of time between when we go long leaps and when we hedge, the underlying risk to the leaps portfolios is astronomically high compared to common stock. Again, that’s because there is no expiration date on the common stock. You can simply hold them in perpetuity and there’s no theta decay.
Suppose on April 7 when we transitioned from the puts to the leaps, the QQQ decided to roll over 22% in a 1987 style crash. The leaps would lose a lot of value in that drop. Probably something like 50%. And then we’d need to see a recovery within a reasonable window of time to recovery our losses. Whereas a common stock position has no theta decay or time expiration. As long as the QQQ recovers that 22% drop, the entire position recovers.
With that being said, the windows of risk are narrow and that’s where our skill comes into play. We transitioned precisely when we should have given my overall experience and expertise in recognizing where the lows in the market are likely to occur. What’s more, I’m working on a strategy that closes that risk gap. It will cost us a little money, but we might be able to devise a strategy that closes that risk gap between the time we go long and the time we hedge.
When looking at the portfolios today and the way they’re positioned, you’re right. The Arryn Portfolio is virtually set to outperform regardless of whatever happens. No matter what. If the QQQ crashes 30% right now, it will produce RETURNS. In fact, I’m running a stress test on Arryn right now, and it’s showing that the portfolio goes north of $340k if the QQQ drops 30%. On a normal correction of 12%, the portfolio stays even. We’d be at around $240k on a 12% drop. That means we preserve all of our gains on a correction.
The common stock portfolio will for sure underperform on that type of sell-off. And they’re currently not as well insulated. They are protected against a major crash. If we saw a massive sell-off int eh market, the common stock portfolio will largely preserve cost-basis. We’d see Tarly drop to around $90,000 on a massive sell-off. We started off at $100k. So we’d preserve our capital well. The only problem is we need to hedge Apple and maybe add a new hedge to the QQQ to preserve our gains. Tarly being up 33% needs to think about profit preservation. It’s set-up to protect cost-basis ($100K). But not quite set-up to protect profits We’ll address this in the next few sessions.
ANSWER: But to answer your question, the common stock portfolio is more conservative in the sense that it’s not subject to extreme risks in those narrow windows between going long and hedges. It’s also not so dependent on the skill of the portfolio manager. Like I can be totally wrong and the common stock portfolio will do well long-term.
Options are inherently more risky than common stock. To get to the point where we are now required a lot of skill and a lot of good decisions. Had we transition too early — suppose at $500 rather than at $410, we have a totally different portfolio today. Had we not transitioned at all, a different portfolio.
We are where we are right now and positioned to handle any crash precisely because we made nearly perfect decisions in the past. So from a starting capital standpoint, Arryn is set-up to outperform no matter what now. But again, that’s because we generated a 140% return buffer which then gave us the luxury to overinsured our portfolio as we have. If we were only up 40% right now, we wouldn’t’ be able to do so right?
So I kind of already answered this above. But let me reiterate some things.
(1) Arryn launched on the August crash right at the lows. It then bought hedges at each of the subsequent high points. We bought our original hedges in the high $480-$490 area and then added to them in the $530-$540 area (right near the highs). We transitioned those hedges at the exact RIGHT time. in fact, we generated nearly 70% portfolios returns, $70,000+ in cash from hedges and position reductions at the highs! That capital was then put to work right at the lows. We don’t do these things, we don’t have a portfolio up 140% nor do we have the ability to be highly conservative with our hedges. We’re more hedged than we need to be because we can afford it. So it takes skill to get it right. There is tremendous execution risk and without making these well timed entries, exits and transitions, the strategy isn’t nearly as effective. But now that we’re up 140%, we’re going to be far more conservative in how we do things because we can afford to do so.
(2) Lannister launched on the September correction RIGHT AT THE LOWS. It performed nearly all of the same moves and made similar transitions. It’s up 70% now.
(3) Stark launched right near the lows in January when the QQQ fell 8-10% from $540 down to $500. It then hedged on the rebound backup to $530-$540 which protected the portofio on the March-April crash. We then transitioned at the right time which allow the portfolio to rise to +33% as it is today.
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The last thing I’ll say here is this. Using oversold indicators and the general correction analysis, we’ll mostly get it right within a reasonable margin of error. Buying at oversold levels makes all of the difference. Transitioning hedges at a 20-RSI makes all of the difference. We’re not just making guesses here. That’s why we’re consistently able to get it right with the long-term portfolios. Especially when it comes to making long-term decisions.
In the last correction, we were uncertain as to where the lows would be from $480 all the way down to $400 until we got clear-cut indicators on April 4-7. Once the indicators triggered, that’s when we transitioned. But notice that we may not always get that opportunity. We’re only transitioning when we’re highly certain about the outcome. If there was no liberation day, we wouldn’t have ever transitioned.
In the next correction, we may never transition. Because if the QQQ fall 12% and barely reaches oversold, that’s not a good reason to close out hedges. The only circumstances where we would complete close out hedges in their entirety is what we saw back in April. We need a 20-RSI and a -100 NYMO to close out hedges completely.
More than likely, what we’ll do in the next correction is close out the $400’s and hold the new $500 calls we bought. And to even do that, we’d need to see the QQQ at oversold levels and the $VIX at overbought level. The QQQ would need to drop at least 11-12% for us to clsoe out the March $400’s.
Have we adjusted our NVDL exit? Since we think we’re topping.
NVDA hit 160. Are you considering closing NVDL?
Nevermind. Trade watch came out right after my comment.