Samwise Quick Reference Handbook
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With the QQQ achieving ATH and at this stage, what are your thoughts on the QQQ Aug/Sep 500-510 Put Spread? is that still on trade watch?
Yeah. Take a look at the most recent update. It’s still on watch. But we need a few more weeks first. The key is to get the timing absolutely right on that.
So we may never get into the trade. But if we do, we’ll likely allocate 5% of the leaps portfolios toward it with a goal of produce 30%+ portfolio returns. So huge impact on a small trade.
good plan, thanks!
Hi, slightly off topic,
with nvda & qqq seemingly edging higher,
Are we going to hold the nvda 150 puts sept until correction?
Or still trade out on the next pullback even if its minor?
Hello Sam, Do all these elements confirm the fact that the upcoming correction will be much stronger than those of March 2024, August 2024, and April 2025?
These rally conditions are simply incredible, especially considering the Covid comparison! I can’t believe it.
Congratulations on this excellent data compilation and analysis.
Personally, this worries me for the future because I expect a strong correction, stronger than those of August 2024 and February to April 2025…
Moreover, in one of your articles, you mentioned a support level of $420 for the QQQ, if I remember correctly…
Will July 9th be April 7th-8th, 2025?
To be continued.
Best
Karl
So just keep in mind that anytime we get a huge correction like we just saw, it is extremely uncharacteristic for hte market ot then sustain another correction like that right after. Particularly if the market has just rallied back to its all-time highs.
We’ve seen bear market situations like 2008 where the market had a huge correction in January – March, barely recovered — certainly we didn’t ‘make new highs — and then we had a crash in the fall.
In 2018, we multiple back to back corrections. But again, never got back to the highs. The rebounds were small.
But in situations where we’ve seen a huge rebound like this with new all-time highs, I wouldn’t be on a big correction.
It’s never a wise idea to ever bet or expect a big correction. It’s always worth it to hedge out that possibility. But I wouldn’t bank on it ever. It’s better to expect the market to sustain a 10-12% correction here and then a rally to $600+ on the QQQ.
That is our expectation.
Our expectation is the QQQ sustains a small to moderate correction. 10-14% depending on where it peaks.
After that, I expect the QQQ to rally well past $600 a share during the latter half of the year.
I can see Nvidia easily rallying to $180 and making a froth shot to $200 at some point early in next year. Total parabolic froth run to $200.
In the next correction, I can see Nvidia dropping to ~$120.
WE’ll hedge out the risk of a bigger correction or bear market. WE have already hedged it out.
But we’re not betting on that at all. If it happens, we’ll make money. If the FAR FAR FAR more likely outcome happens, we’ll make even more money.
Bet on what’s likely to happen. Hedge what’s unlikely to happen. Don’t hope for something to occur.
Is there a world where the longer the rally continues uninterrupted to $170-$180 for NVIDIA, the more severe the correction will ultimately be?
I’m starting to believe that the short-term drop to $120-$130 is really the minimum…
This rally worries me…
Those two things don’t correlate unfortunately. For example, after the Covid rally where the market rallied some 80%, the correction was only 14%. After that, the market continued to rally and continued to make new highs.
You can expect a slightly larger correction after a big rally 12-14%.
So, not at correction levels already seen for NVIDIA of more than 34% (January 2025 to April 2025), but rather 22%? Hence the $120-$130 range and not $105-$115?
NVIDIA’s post-correction rise to $180 will occur under the same rally conditions from April 2025 to today where there are no rules since the conclusion is that the configuration is different from that of parabolic COVID?
Hi, Sam. I have a question regarding hedging the common stock portfolios in general.
Some days ago, you explained the importance of hedging the leaps portfolio and transitioning them at the right time.
My question is: Should we do the same active hedge management for the common stocks portoflios as well? (e.g. sold all the hedges during the April 7 low, and bought them back when they rebounded)
I understand the hedges are more lenient because of the low-risks nature of the common stocks, but you had also mentioned that they are more error-proof even if we got the timing of the transition wrong, wouldn’t that mean it would be worth to try maximizing their profits by actively managing their hedges like you did the leaps portfolios?
I would like to know your opinion from a risk vs. reward perspective.
So with the common stock portfolio, the general idea is that we’re in this for the ultra ultra long-term. More long-term than the leaps portfolios.
It’s meant for very passive conservative long-term investing.
Suppose someone wants to own the QQQ, doesn’t want to sell it and plans to use it as a vehicle to generate wealth 10-15 years down the line.
Not a bad strategy. IF you go back 15-years ago, the QQQ was trading at $36 a share. If someone put in $1 million in the QQQ 15-years ago, that same position is now worth $15.4 million today.
And all they needed to really do was just hedge it every year. Make sure that on a 40% drop, you take limited to no losses.
So let’s take a look at Tarly. We own 124 shares of Tarly at a purchase price of $428 a share. That means for us to even take a loss at all on that long position or to go below our cost, the QQQ would need to fall back to $428 a share. We own the January $450 puts at $14.91. That means we can’t lose even a dime on cost-basis on 100 of the shares at all even the QQQ fell to $0.00. That’s because the puts protect the portfolio at a 1to1 ratio at every dollar under $435 share. But we bought at $428. So that means as cost-basis goes, there is no possible way for us to ever lose our original capital cost at all between now and January no matter what happens.
For the other 24 shares, we generated $2740.10 in gains to off-set any losses to shoe shares. That amounts to 114.17 points.
For us at this point to take ANY loss at all on the QQQ in Tarly, the QQQ would have to drop to $304 a share first. At that point, we start to lose money in the QQQ as 24 shares are currently unhedged below $304.
Anyway, here’s the point I’m trying to drive home. Tarly is meant to be that portfolio one holds for 15-years and find they made 1500% returns passively.
The leaps portfolios are meant for more active management. They’re long-term, but they’re more actively managed.
One thing we really do need to do is consider protecting profits. Transitions, we won’t really do. We’ll always hold the puts.
But what we might do is this. WE might sell covered calls in very limited circumstances where we feel the odd are extremely high for a peak. And we will leverage long as we did back on April 7 to capitalize on the bounce and reduce our cost to hedge. Tarly has thus far produced over $4k taking such actions.
We’ll probably buy new puts soon to help hedge the portfolio’s profits as the portfolio is now up 30%+. We also might consider selling covered calls.
So we may make some adjustments soon to protect profits. The portfolios are currently set-up to protect our capital investment. But no profits are being protect at the moment.
If QQQ does make one last push to 560 before pulling back, do you expect NVDA to follow a similar route? Up to 165 and then 8 point pullback to 157?
You’re getting that answer right now. But Nvidia is likely to see a larger pull-back before a correction. Like at some point between today and where we ultimately peak, we’ll see a bigger pull-back in Nvidia.
Market wants to run
(Sorry, previously posted on the wrong daily post)
Sam, why do you emphasize that it’s important to wait until just the right moment to buy the put spread. I mean, why “risking” that the QQQ fallouts before Stark buys while the spread could be bought for essentially the same price now, give of take 0,09 $ per spread ?
Do you expect more clarity as time passes? My reading is that the only remaining risk is 1-the market skyrockets, or 2-market goes sideways for a long time like we saw in December-to-February, and both risks are already hedged by the position size. So why adopt this type of waiting strategy ?
I understand that risk 2 could benefit from more clarity to fine-tune the contract date, but I don’t think we would gain clarity from this type of risk as time passes.
So, perhaps buy part now, part later ? Or all now ?
So as time passes, we get more certainty for a correction. The problem right is that we’re only at day 64. At day 80, that puts us at 20-days of maximum upside remaining and then 35 days for a maximum correction.
If you buy too early, you run the risk of the market running up to like $580 a share and then the trade is doomed. It’s a time issue. We need those days bled off.
Remember, we don’t HAVE to put on this trade. The idea is to put it on if the ideal scenario develops. That’s the key here.
Let me show you a table I put together for the analysis. It’s for personal notes. What the table shows is the value of the spread at different dates in time in the future. We show what happens if the QQQ rallies to as high as +30 beyond $556 and what happens if it drops anywhere from $0 to $60 in a correction. What you should notice is just how fast the spread can lose tremendous value on a market that grinds higher.
Whereas if we’re at day 80, changes are the QQQ has reached is maximum value or close to that maximum value limiting the upside and drastically increasing the probability of a correction. So that’s the whole point of waiting. Had one bought last Friday and the QQQ decides to go up to Date 100, the spread is toast.