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Thoughts on buying puts now for a new portfolio instead of waiting for a rebound post correction since we’re at extremes?
So we’re probably not launching a new portfolios. Here’s why. The Arryn portfolio has nearly $70k cash on the sidelines. The entire point of new portfolios is to execute our strategy.
Buying puts ahead of correction isn’t a bad idea when we launch a new portfolio. Arryn/Stark already have a lot of puts that we’re not going to close even if we end up closing out the call sides of the trade. If we get past September 17 and we’re forced to close out our positions and go to cash, then we will buy puts in Arryn/Stark/Lannister in anticipation of a correction
But let’s suppose we were to start a new portfolio, here’s how this might work out. This is how we would select an option and exactly what we would do.
Suppose we launch a new portfolio today and have a $100k portfolio sitting in cash. We plan to buy a 55% position in QQQ leaps during the next correction and we plan to hedge that position with a roughly 10-12% portfolio position. I’ve found that it’s often 80-20 is the right ratio. That’s why we’re often ending up with 55% position + 11-12% hedge. It often works out that way.
Normally, we’d buy an expiration a year out into the future. So we’d be looking to buy something like the Sep 2026 puts. That’s the expiration we’d want to choose.
Right now, the Sep 2026 $500 puts cost $18.00 per contract. when we go long, we might buy something like the June 2027 just in the money calls at around $75 – $80 per contract. So $55,000 / $80 = 7 contracts. That’s what we’d buy. Around 6-7 contracts for $55-$56k. We’d need to hedge that with 6-7 contracts at $10-12k. At $18.00 x 7 contracts for example, it’s $12,600.
So the right way we would set this up is we would buy the Sep 2026 $500 puts at $18 x 7 contracts with the expectation of buying an $80 contract (expiring in June 2027) during the correction itself.
Now here’s why this is tricky. Suppose the QQQ does sustain a correction and those options go up massively. They go up to $30-$40 a contract. In that situation, you’re probably not going to want to hold them because you’re up so much on the option.
Chances are we would sell puts against the hedge or we’d simply close them out and take the gain as an off-set against the long position. Or we might just hold them and consider the risk as being fully mitigated by hedging ahead of time.
But yes. In this very particular situation with the market up 100+ days now, hedging ahead of time is the right way to go. And we’ll probably look to do this in Arryn/Lannister/Stark if we get to Sep expiration and are we’re forced to close out our positions.
Hmm yeah I like the idea of selling puts against the hedge at the low of the correction. Kind of the middle ground between closing the puts or just keeping them as is. Thanks I feel more prepared for the next correction now.
Does that mean that the $70k cash in Arryn is essentially like a new portfolio in itself?
If we are new and want to follow your leaps strategy starting the coming correction, we can just look at your every move for Arryn from today on, and we just assume we are starting with a $70k cash limit?
Yeah, not only is the 60 to 70 K cash going to be like a new portfolio in and of itself, there’s a decent chance that we’re gonna close out all of our long positions and end up substantially in cash anyway.
As we discussed in our update, we might end up, closing all of our QQQ positions and our Nvidia position.
All we would be holding is former hedges and small positions. 80% of our Would be cash on the sidelines
And consider what it took for us to get to that point. Remember our strategy is to get long and stay long pretty much at all times.
The only circumstance under which we were ever forced to go to the sidelines is when the QQQ rallied for over 100 days an extremely rare set of circumstances. And last time we didn’t do this. Because when we sold covered calls, those covered calls ended up expiring worthless
Like we’re probably never going to see this situation again where the covered calls that we sold ended up closing in the money. And that’s because when we do sell covered calls, it usually calls for an extreme situation for us to be called the way.
And so If the QQQ is trading north of 560 next Friday, we’re closing everything out . If Nvidia is trading north of 160 next Friday we’re closing our Nvidia position out.
We’re gonna use it as an opportunity to close out our positions with the expectation of rolling forward during the correction
In fact, at this point, I sort of hope that the QQQ trades north of 560 so that we can just close out our positions go to cash and get ready to buy at the lows of the next correction.
That’s the clean way to do things. We will discuss our plans in more detail in a dedicated post soon.
Me sitting mostly in cash likes this.
are we also on trade watch for a small add into 550-540 october spread or shall we simply not bother as it is already targeting profit while also covering small losses on the September spread.
So to add to that position, I’d like to see the QQQ overbought. If the QQQ breaks through $580 and pushes up to an 70-RSI, we might go down that path. Especially if the QQQ makes new highs thereby officially pushing the rally well into the 100+ days territory.
Sam, what are we waiting for in terms of pulling the trigger on the NVDA? There is a chance we never see this price again before the correction. We’re getting into a spot where time isn’t on our side.
Ignore. saw your post.
Yeah, I’ll add the problem with rolling is the risk of the rebound.
So as we mentioned, Nvidia hasn’t really rebounded after two touches of oversold
So the risk is that Nvidia has a delayed rebound. Because right now it’s at the midline and if it goes up three or four points, it will significantly impact the October 3 150s to the point where it would be cheaper to just buy them on the rebound then it would roll forward at all
Consider what we’re trying to accomplish with the roll.
We are simply trying to make it so that we can buy future expiration at a $.75 differential. Really, when it comes down to it at a $.75 cost.
If the October 3 $150 puts drop to say $.75 a contract, well then that’s the same as buying the October 3 150s at $.75 and selling the September puts at $0.00.
The point I’m making here is this we don’t necessarily have to roll forward at all. The value we get from closing out our contracts is so minimal that it may not even be necessary to even worry about rolling them. This is especially true if Nvidia rebounds at all from here.
What’s more if Nvidia rebounds our September puts aren’t going to lose much value from here, but the October put will.
Like if Nvidia goes up five points tomorrow, our September put might drop seven cents or something like that But the October 3 $150’s will drop by like $.40.
So we just need to be careful about how we proceed here because we’re adding capital to an already losing trade.
If we’re going to add capital to the trade, we have to be sure that the add is a really worth it. Versus simply just using the capital to buy something else.
So if you look right now, the differential has dropped to $.60. That’s because the October 3 have lost a lot more value in this small little rebound then did our September puts.
At $.60 it’s a much better differential Because now we’re putting up less money a lot less money
It might be worth it right now if it weren’t for the fact that we only got 20 minutes and I’ve gotten a lot of complaints about trades being made in the last 20 minutes.
But right now at $.60 that differential is solid we might lose that tomorrow because the Septembers are going to lose another five cents overnight
So tomorrow, if Nvidia opens, even Steven, the Septembers are gonna lose more value than will the October’s.
If tomorrow, Nvidia opens up a dollar or two or pushes up to 172, then it is way better to wait.
We might end up with a 50 Cent differential and then I think at that point it becomes worth it
At $.50 we’re now talking about $50 on Targaryen and $100 on Baratheon.
$100 on Baratheon is literally one percent on a 10% portfolio. It’s no different than if we put on a $250 trade in Arryn. It literally should have very very little impact on a portfolio ratio out the way we have it.
The feeling I get is the market is just waiting for the fed and most likely we’re going to sell off on the fed. I don’t think there’s gonna be anything the Fed is gonna say that’s gonna get the market to move higher.
I think the market is just using it as an excuse to hold up until the event is out of the way.
In the past when we were in this situation, we’ve seen the The market initially rebound on the fed and then immediately crash
This happened at the top in 2021. The fed decision helped Dr. the QQQ up to 400 a share where it ultimately peaked and then went into a bear market for 2022.
So we might see something like that here. The point is we’re gonna be a little cautious. We really need to roll in situations where we feel that the capital expenditure is very nominal. That it won’t have a negative impact regardless.
A $.50-$.60 differential is probably where we wanna be. $50 in Targaryen, $100 in Baratheon
October 17 $150’s are $1.50. Now that might be worth it.
October 17 is more than five weeks than from now. Almost 6 trading weeks. We buy that at $1.50, minus $0.23, now we’ve drastically increased the probability of getting this right.
We’ve significantly increased the chances that those calls end up going to like 6, 7 or 8.
At $1.22 we’re talking about about 250 bucks. While that might be expensive relative to the capital we have on the sidelines in Baratheon. I do think that $250 for October 17 is way better than $100 for October 3.
And that’s because those will skyrocket if we have three weeks remaining until expiration and Nvidia is sitting there even at $150 a share.
For example, supposed to drop to 150 and it’s October 3. We have 10 days until expiration. Those options are probably trading at $4-5.
In fact, we can figure that out right now. The September 26th $170 pits on Nvidia are $4.30.
September 26 is 2 1/2 weeks away from expiration with zero volatility.
Imagine if Nvidia was recently trading at 195 and has fallen to 172 in just two weeks.
That increased volatility and the increase in volatility of the market would likely drive those higher than 430.
The point here is there’s more value in the October 17 1 50 puts at $1.50 then there is in the October 3’s at $0.80.
So we might go down that road tomorrow. Maybe change to the October 17 and just pay up a little more money.
You can’t go much further out than October 17 because then the cost really goes up Just one extra week cost 30 more cents which just isn’t worth it
Hey Sam, in light of today’s update (and the split between QQQ/Nvidia/Apple allocation in the portfolio), a comment you made a while ago came to mind where you alluded to the QQQ positions actually doing better than Nvidia. I believe this was a while ago, and maybe things have changed since then, but is there any thought towards skewing more towards QQQ if that’s still the case?
True, I think Sam also mentionned steering away from NVDA saying it didn’t have as much room to grow anymore?
So that was true only on one rally. I think Nvidia still outperforms because it will likely take big hits on corrections creating opportunities.
Look at the recent run. The stock went from $86 to $185. That’s 110%+ on the rally. That’s the best rally it has had in the AI era.
There was a point where our leaps were performing better than Nvidia leaps. And my thinking was this. When it comes to options specifically — not common stock because Nvidia is obviously WAY WAY stronger on the common stock side — but when it comes to leaps, the QQQ is performing pretty much in line with Nvidia. Not in this particular rally.
But throughout much of the year, that was the case. The QQQ leaps were doing better than Nvidia leaps or about the same.
And so the question was raised. Why invest in Nvidia at all if an internally diversified asset like the QQQ is less susceptible to risk and performing roughly the same?
Nvidia at any time can drop news that derails the stock. The QQQ doesn’t have that problem. It’s diversified into 100 different stocks. There isn’t any one news piece that can fully derail the ENTIRE QQQ.
But ultimately, we’re probably not going to deviate much. We’ll probably stick to 55% QQQ, 25% Nvidia and then we might do something different than Apple for the other 20%. Or we may just increase our QQQ allocation. And go QQQ/Nvidia.
To be honest, it’s opportunity dependent. Suppose hypothetically Nvidia doesn’t sustain a big correction this time, but the QQQ does. If that happens, we might lean heavier into the QQQ and less so into Nvidia.
Oracle is now better than NVIDIA ????
Unbelievable
Hello Sam,
I understand this from your analysis, with a very short-term horizon of 3 weeks and a catalyst with the FED, even though it could be triggered at any time between now and 3 weeks from now.
Besides, NVIDIA’s rise is as striking as February 2025; your chart is excellent in this regard, regarding similarities! So, to summarize, if I understand correctly:
1) Preferred scenario: probability > 60%?
– First anticipated pullback: towards $550.
– Intermediate rebound: between $560 and $565, potentially forming a head and shoulders (H&S) pattern. Then, a final stall with a more pronounced bearish consolidation at $532 ?,
2) More abrupt alternative: probability 40%?
Finally, you agree with my comments about a correction greater than 8%-12% ???? A direct pullback without an intermediate rebound, comparable to the February 2025 drop when the QQQ fell from ~$540 to ~$465 in a straight line—a sudden correction scenario, if the support structure gives way quickly.
Finally, I’m surprised when you say you’re going to remove NVIDIA and QQQ long from your portfolios. Why and where should you redirect the cash?
I understood that you favor long trading over short-term trading.
Best
Karl
Are you referring to Sam’s comment below? I believe he’s indicating sell until the Q’s roll over and then entering again at a lower price, is all. Not abandoning them. Although, as others mentioned, he’s not a huge NVDA fan at this point since it’s growth has extended so far but I doubt he will abandon it completely.
We’re not removing them from the portoflio. It would be a short-term closing of positions to roll them over into longer dated leaps.
So for example, half of our QQQ position expires NEXT December. That’s only 15-months from now. We want to roll that out to 2-years+.
We’re never truly going to the sidelines. And anytime we do, it wouldn’t be for very long.
ah ok, I understood that it was the LONG QQQ and NVIDIA positions not the contracts
So in our core long-term common stock portfolios, we’re not selling anything. We’re staying long permanently in those portfolios. Even if we’re above the price that we sold our covered calls at, we will simply just roll those forward. So for example, if we close at $580 next Friday, we will cover the Sep $560’s we sold for $20.00 next Friday and then sell the October $580’s or something. But we’re not closing any of our common stock long positions. Those are being held indefinitely.
For our options portfolios, we might close out positions and go to the sidelines TEMPORARILY. Only for a short period of time. Then we will buy new long positions in the QQQ and in Nvidia.
But long-term, we are long the market.
Ok thanks !
The overheating with Oracle seems alarming to me, and it seems to increase the likelihood of your scenario with a correction greater than 8% to 12%…
The market is starting to worry me because of the upcoming decline.
QQQ ATH
I think Sam only counts the price during regular trading hours for new highs, but that being said I hope it opens at a new ATH simply so we can officially say the rally has been extended instead of being in this weird middle phase of “technically only 89 days but it could be 107 if it makes new highs but also the SPY has made new highs so it’s a different number of days between the two”
It is ATH by about 50 cents
Also looks like it touched overbought before immediately reversing course again. SPY still overbought.
NVDA deep overbought so maybe now the roll is in play. Should be an interesting update today!
I know the market just opened, but with NVDA overbought and moving down it seems like we might miss the opportunity if we don’t take it. Is there a reason the trades haven’t been initiated yet? They were at almost half the target price mentioned in the last update a few minutes ago.
NVDA isn’t moving down, it’s higher than it opened and up 4% from yesterday.
When I posted it was up about half a point for the day and down about two points from the peak. I think the opportunity risk is skewed against us right now, especially with QQQ overbought and sold off at open. I know it’s early, but why wait, especially if the entry is significantly lower than the mentioned target?
So Nvidia is probably going to test $180 soon. You don’t normally get a big gap-up like that as a single hour of buying. There’s usually follow through.
It has happened where we’ve seen big gap-ups reverse immediately. But it’s very very rare. Far more common is big gap-up = more upside and follow through.
But you’re right. Nvidia is overbought on the hourly. Personally, I’d like to see it hit $180 as that will be a double indication to make our moves.
We’ll probably look to buy October 17 or even later expiration now that the stock is up so much. but we’ll see what happens in the next few hours.