Samwise Quick Reference Handbook
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QQQ intraday ATH
This is amazing to see extension by so much that it makes sense to prebuy long puts, Buying $500 puts means we should intend to close them on the expectation of being near in the money? Or is there a consideration for buying 530 puts with a conservative close on a smaller correction
They are sized for hedging purposes, meaning they protect against super-major-market-breakdown. Not for 10-15% corrections. Really, they are only insurance, and who means insurance mean money in the fire, well, in the vast majority of the time. Think of it as the cost to do business.
Yes but at correction lows we buy and usually are unhedged on longs until we get a bounce on deeply oversold. So I guess I am misunderstanding and that we wont be selling these puts at correction lows and instead will keep them to hedge the long position. Meaning we are prebuying what we would have bought on an oversold bounce and not locking that gain by selling puts at lows waiting for oversold bounces. A separate view I have is that we dont end up getting the deeper correction and instead continue to rally high in which case it would be just a small loss on the 1 year puts if that happens. Another question I have is if we are buying 500 puts that means we are looking to long at 500, would there be a case we decide to go long at 530 or a more conservative level for say a 50% size and then long the rest at 500 on a deeper correction all the while still holding these puts?
These are all very good thoughts. You’re thinking about this in the exact correct way.
So look. As of right now when we buy these September puts next week, our plan is to hold them through the next correction, and then continue holding them through the next rally.
However, that plan might drastically change, depending on how the correction unfolds.
Let me give you a few different scenarios.
Suppose we buy the September 2026 $500 puts at $17.00 next week.
We buy a 12% position in the Arryn portfolio, which is about 18 contracts or $30,600 at $17.00 per contract.
OK, so now we have these pets as a hedge for a future position.
Now let’s supposed the QQQ absolutely crashes sending the NYMO to -100 and the RSI down to 20. The VIX shoots up to 60+.
So we get all of the extremes again that we had back in April.
Now suppose our puts go up to $40 a contract. That can easily happen with high volatility.
Under those circumstances, we may just close out the position.
Notice we will have made about $40,000 or 13-15% on the entire portfolio.
In that situation, we would view the gains as an offset to reduce our risk on the new trade.
With a $40,000 gain, we now get to buy our new leaps at a significant discount or at least with a significant offset.
The hedge will have already effectively produced an $40k offset at that point. So much so that we can go ahead and close out the puts and then just buy the leaps unhedged for the bounce.
Wait for the rebound and then purchase the puts again or buy a different set
We still get risk mitigation because we’ve now reduced the risk by $40,000
That’s a gigantic offset.
Remember, our entire new long position is expected to be $137,500.
$40,000 is more than 25% off-set to that position.
I think in extreme situations like we’ve outlined above, we would close out the puts. We would get long wait for the 10% bounce and then buy back the puts.
—-
Now compare that to a different situation where the QQQ falls only to 30-RSI on an 8% correction.
While we might opt to get long a little early, we wouldn’t use that as an opportunity to close out the puts.
In that situation, we would just hold them because they wouldn’t be up enough and we wouldn’t be in a situation where there is a high degree of certainty that we have a rally. At a 30 RSI we have a strong probability of a bounce, but not like what we saw on April 7.
For example, if you go back to April 7, that’s what it took for us to finally unload all of our hedges
We didn’t even start the process of removing hedges until the QQQ dropped to 440 a share.
And at that point, the only reason we did so is because the puts dominated the portfolio. It put us at net short the market. They were worth more than 50% of the portfolio and we were going green every day during the late part of the correction.
Being that short, we had to start selling our puts in booking profits on our hedges to balance the portfolio net long again. And we had to do this for the last 2 to 3 days of the correction with the bulk of that coming off on April 7.
We didn’t fully transition to 100% long until the day we bottomed. We waited for the $NYMO to hit -100, VIX overbought and QQQ rsi at 20 to close out all of our puts.
Basically, the holy Trinity of correction bottom indicators needed a trigger for us to close out.
So really it just depends on the situation
To be honest with you buying the puts ahead of time is precisely what will allow us to buy long early in the correction with confidence.
If we want to be certain that we’re not going to be left on the sidelines after the correction ends, we have to buy at the 8% mark. The QQQ has bottomed a number of times at -8%.
So it will be important for us to take big positions at the 8% mark as tbere’s no guarantee that the QQQ will sell off more than 8%
What the puts do for us is it allows us to use that put capital to flip and go long if the QQQ falls more than 8%
Now that I’m thinking about it, those puts are very important
They’re gonna be the very thing that allows us to get longer and longer as the correction goes deeper.
Again suppose we fall 8%. We buy 60% of our target position.
The QQQ falls 10%. We buy a total of 80% of our target position. At 12% correction; we get fully long.
Supposed the QQQ goes to extremes and fall 16% total.
Well, now we can sell our puts and use the capital to add to our position
We wouldn’t be able to do that if we didn’t own the put way ahead of time
So yeah, these September puts are going to be really important for getting the next correction right with the lowest amount of risk possible.
I hope this makes sense.
If we see a deeper, correction, then we’re gonna sell our puts and use the capital to add to our long positions. But we will only do that in extreme circumstances.
Thank you for the very detailed response and scenario breakdown with recaps of how we captured upside in the past! It certainly helps to think in eventualities in terms of future longs and exits for these puts in a capitulation scenario.
Also itching to buy the Sept 2026 long put position but with the probability of rates getting cut next week I could see it shooting up to 600 now that we’re so close to it. But i’m not sure I want to wait and miss this opportunity. Do you think buying now or at 600$ (if it gets there) makes that much of a difference?
Yea I have revisited the notion that those round numbers can act like a “magnet”, as Sam put it.
Ok Mr Market, how about a black Friday right here.
I would say my portfolio most resembles Stark and Frey, with a minuscule spatter of Bar and Tar and some small Arynn/Lannister crossover. Ever since letting go of NVDL and AAPL, I feel hedge heavy or overly balanced over the last few months with a healthy cash position. Our near term correction anticipation and following readjustment plan, seems it could be delayed with anticipated fed rate cuts. I’m fine with more patience, and not participating fully in upside from here. I’m just checking in that this “steady
Eddy balanced feeling” sounds appropriate right now? Yes or No? 🙂
Thanks for all of your work,
This is exactly how I feel too. I definitely bailed way too early and am super cash heavy. it seems like the market will keep going up fueled by rate cuts, tariff cuts or stopping tariffs stopping completely. The market has shaken off every bad number and all other negative things. It also feels like the administration will do whatever it takes to keep it elevated
We talk about it a lot here, but it never ceases to amaze me how the news of the day is spin to make sense of market movements. Worst level of jobless claims in 4 years leading to a record-setting day because it sets expectations for rate cuts for the rest of the year (sticky CPI inflation ignored). If the market was down, “worst level of jobless claims in 4 years and signs of staglation send markets tumbling”
????
Search engine optimization really made headlines worse for everything, video games, sports, even the stock market
can’t emphasize enough that we are already in an outlier and unlikely to see an official correction other than small pull backs. Not challenging Sam or anything but “we are due for correction in any minute” keeps driving the market with “buy every dip/quick sell offs”, which makes perfectly sense where it’s hard to predict the top. I really hope my ignorant guess is wrong. Not anxiety, I am just getting more and more confused with the market where my ignorant guess tells me we will have rally day 150+ and we will still be “due for correction in any minute”. This NEVER happened in history, but this rally may be the first one.. is what I am getting at
It sure feels that way. The market shakes everything off and continues higher. The rates cuts along with the administration willing to do anything to keep the market elevated sure makes it look like nothing major correction is coming anytime soon. That’s just my take don’t know if it’s right or not
I get this sentiment to a degree, but then I look at the QQQ chart that’s added a grand total of $2 and change over the past month with 2 fairly decent pullbacks in-between. It’s already reversed hard off overbought whereas I’m pretty sure it can spend a decent amount of time overbought in true rallies. If you care about catalysts, there have been a few fair of those too that haven’t done much.
Just feels like this has run out of gas and if you look at where the most aggressive moves have been over the past 1 to 1.5 months, it’s been downwards.
Another way I think about it: remember back in May, June, and early July when things were exploding regularly and our eyes were bulging? It truly felt like the market will never stop moving up. Maybe now it feels like the market will never go down (which isn’t true, we’ve seen aggressive 4% pullbacks which we didn’t see early when the rally was explosive), which might be subtle but is definitely different. I don’t even feel that sense of FOMO anymore because this feels like we aren’t really going nowhere but sideways right now (which isn’t sustainable)
thank you for sharing your thoughts.. Time will tell lol
I see ATH. I saw sideways until a couple of days ago. Now I see an uptrend.
That’s not an uptrend. Right now, the QQQ is up a total of $3.00 since early August. Think about that. That’s not an uptrend.
An uptrend would have the QQQ up $50-$70 in that time. Each segment usually adds about 30-points to the highs. Segments generally last something like 10-15 trading days. That means we’re usually adding about 30-poitns new highs every 3-4 weeks.
Between April 7 and August 10, the QQQ rallied $181. That is $45 a month (never mind percentage gains which would allow for more points as you move up).
$45 a month is an uptrend.
In the last month the QQQ is up 3.5 points.
I may not know a lot of things but I know up from down. 😉 I see your point and my portfolio likes your take better too. But if you look from late June’s breakout at 539 to now at 586, that’s 47 points in a couple months. Not 45 a month, sure, but still climbing. Fingers crossed it stalls out soon.
When we say the correction is now due, we’re saying the risk of one occurring at any moment is high. For example, back in February, the QQQ puled back 8% and then rallied back to the highs. On the day it made new highs, it immediately reversed course and went right into a correction. NO warning no nothing. That’s what we’re saying. We’re saying because the rally has now matured, we’re now at a point that any moment on any day, it could look exactly like a normal session with new highs being and then BAM! Reversal correction. That’s where we’re at right now.
We say this because the historical record bears that out. We’re not just making these claims out of thing air.
Also, this isn’t an “outlier case.” We’re at the high end of the range, but it”s not an outlier. We’ve seen 5 rallies since 2023 the peaked within a few weeks of the current rally. The very last rally we just had back between Sep and Feb lasted 111 days. We’re at 110 days today. Still not even longer than the previous rally at this point. In fact, since 2023, we’ve had rallies of 89-days, 111-days, 100-days and now we’re at 110-days. <— so how exactly is this an outlier compared to previous rallies of THIS current era?
It’s outlier at around 130-140 days. At that point, it’s a departure from the trend. But at the moment, it’s still within range of what we’ve seen in this 2023-2025 era and still the third longest rally. Not an even record at the moment.
When you see this list, what you mind gets you think, “oh this time we’re going to keep running” despite what we’ve seen the market do historically. Beyond airing out your anxieties, on what basis are you drawing these conclusions?
Keep in mind that even if the rally gets to 121 days — 7-days pasted covid and a mere 2-weeks past the September 2024 – Feb 2025 — that’s still perfectly within norms and expectations. With the scope of a rally that starts in April whether that rally ends in September or October doesn’t make a massive difference in terms of historical ranges. IT would just move the marker out for hte longest high vol rally to 121 days — or 7-days beyond the previous record. but it wouldn’t be some substantial departure from what we’ve seen right? It wouldn’t change how we think of these rallies in the future beyond maybe extending out expirations to account for the 121-day record.
—
It’s important to realize that the concern that “this time will be different,” is part and parcel to every rally. It is THE RISK to every investment scenario. If you let that get in the way, then you can’t invest at all.
The key is to limit the damage when the “THIS TIME IS DIFFERENT” occurs. When a true outlier event occurs — 150 days — what you have to do is look at the portfolio and determine whether the portfolio would weather that well.
Consider our portfolios. It wouldn’t make the sightest difference to Stark/Arryn/Lannister or the core common stock portfolios if this rally lasted 150 or even 200-days. All of those portfolios would still be DEEP green and will have preserved most of thier profits.
Arryn/Stark/Lannister will weather it perfectly fine. And that is the key to handling outlier events. To ensure the portfolio will weather it’s. That’s all you can really do to address outlier cases. Life insurance.
Consider the portfolios. We have covered calls in the common stock portfolios that take us out of the QQQ at an average exist of $578.20. Not far from where we are right now now. We sold the $560 sep calls at $18.20 i.e. $578.20 exit. Tarly would be up nearly 50% as a common stock portoflio and moved to cash essentially in the worst case scenario. Best case, we roll forward to $600 calls and continue profiting as it rises indefinitely. The common stock portfolios maximized profits in the entire rally.
The Leaps portfolios have taken a mere 9% short-term put-spread position. Some expire at the end of September, some Oct 17 and others Oct 31. Oct 31 puts the rally at like 135 days or something like that. Worst case, we take a 9% hit. Arryn takes a relatively small hit but would still at around $230k pushed to the sidelines (up 130% in 13-14 months).
It gets pushed to cash. And that’s assuming the rally goes for 150+ days.
Stark gets pushed down to around $120k. It was siting at $60 at the lows in April and launched in January.
Lannister isn’t invested in near-term put-spreads. It would be sitting at $160-$170k up 60-70% overall.
That’s if there’s no correction. And that’s all we can really do. Set up to capitalize in a huge way if the QQQ does follow its long established trend. Take very little negative impact if it doesn’t.
—
Still, you should ask yourself why you are so certain that THIS time is going to be any different than any other previous environment. What makes THIS one different from each one individually. Because at the moment, we’re still not in any sort of outlier case. We’re in a rally that has extended to the long end of the range.
about the future hedging
If I understand correctly,
the 10-12% long put is going to protect the whole portfolio (88-90%) right?
the 55% long qqq 2027 call
AND
the 45% which i assume is the nvda long calls
OR there will another portion for another long puts to hedge the other 45%?
The long put is designed to hedge the QQQ long position, not the entire portfolio. Sam is going for a 80-20 call to put ratio
Joey is right. 55% long QQQ, 12% long QQQ puts to hedge; Nvidai long and then Nvidia hedge.
Normally, here’s what we do. Normally, we go long 55% of our ENTIER portfolio the QQQ. Then we go long 25% Nvidia and 20% Apple.
That amounts to 100% long. 0% hedge. That’s how it normally starts off in a rally.
Then as the QQQ & Nvidia rally, we either close out 1 contract or sell covered calls. We reduce down very slightly. After doing so, we then hedge with that capital we’ve moved to the sidelines. General after we’re up big.
That’s how we can end up 55% long the QQQ, 25% long Nvidia and 20% long Apple and then also down teh line buy a 12 Put portion to hedge the QQQ and a 2-3% put position to hedge Nvidia etc.
The ratios are confusing right now because we’re buying the hedge ahead of time.
QQQ new ATH pre-market
Hi Sam,
I’m working through the hedging math you’ve outlined, but I think I’m missing something.
You’ve mentioned you want to purchase the leap position slightly in the money for the strike. You’ve also mentioned you want to purchase hedges at the same strike as your long leap strike. Extrapolating this out to general terms: you want to purchase your leaps and hedges with a strike slightly in the money (relative to the leap position of course). You’re targeting the $500 strike for the future hedge at $17.25. I’m trying to see pricing of all this relative to QQQ’s price today. Assuming today was near the lows of the upcoming correction I’d be purchasing the QQQ June 2027 $580 calls and QQQ Sept 2026 $580 puts. However; the pricing of the Sept $580 puts right now are ~$37 and not $17.25. Maybe I’m not doing something right? Basically, I’m trying to do the options math you’ve outlined, but relative to today, assuming we’re at the lows of the future correction today. Some help would be appreciated!
Thanks!
If I understand correctly, your confusion comes from the assumption that both would be purchased at the same time. Normally, Sam would wait for the first segment of the rally to take place to hedge. What he discussed here was buying the Sept 500 put ahead of time, before the correction, targeting a $17.25 price. They’re at $17.00 right now.
C G is correct. We don’t ever purchase them at the same time for that very reason. We usually buy the long side first and then buy the puts after.
For example, last year when we launched Arryn, we bought the calls near the August lows and bought the puts to protect Arryn on the rebound up to $480 from $423.
When we launched Lannister, we bought the calls near the September lows at around $450 and bought the puts near $500 on the rebound.
For stark, we bought the calls at $500 and bought the puts at $535.
During the last rally, we bought the June 2027 $400 calls when the QQQ was trying between $402 and $410 and we later bought the march 2026 $400 puts on the rebound up to $470.
You can’t buy them at the same time or it’s ineffective and/or very costly.
In this case, we’re buying the puts FIRST and then buying the calls SECOND. A departure from what we normally do. We normally just go long first, wait for the inevitable oversold rebound and the hedge second.
Once we buy a hedge, we’re essentially a near risk free position. There are still some very very narrow risk scenarios such as the market trading sideways for a year. But overall, if buy the calls at once price and the puts after a 50+ point bounce, we’re essentially risk-free at that point.
Ah, I see. A few follow up questions:
Question #1
Sounds like you’re anticipating the QQQ to correct all the way down to around $500 if you’re targeting a $500 strike on the future hedges. Is that correct?
Question #2
Sounds like we’re primarily focused on the price of the hedge being 20% of the price of the leap ($17 / $84). I’m looking at the options pricing calculator for what strike equates to a premium of ~$17 for the QQQ Sept 2026 puts as of right now and looks like that’s $505 ($80 OTM). In the hypothetical case where we had to purchase these hedges “normally” (and not in the future) this means it would require a $80 rebound from correction lows before we can get a price of $17 for the hedges. Does that math check out with you?
Question #3
How big of a risk is it to purchase these hedges in the future as we don’t know how big the correction will actually be? Sounds like if we purchase these future hedges at a certain strike we could be overpaying for them or they could be not as effective if the correction is actually smaller than we’re anticipating?
So I kind of answered this a little bit when responding to Mercury’s comment, we’re expecting that all things considered the most likely scenario is the QQQ falling to 500.
Like when you consider how long the rally has lasted, the fact that we were in consolidation and the fact that this rally has returned 46%, I think there’s a good chance that Q goes down in test the 500 level
Now we’re going to start getting long at around 8% mark. When The QQQ has dropped 8% from whatever it’s high are, that’s about where we will start buying long positions.
If the QQQ continues lower as we expect that it might, we will continue to add until we reach 100% long
If the QQQ continues further to extremes, kind of like we saw back in April, we will actually close out the puts and use the capital to dollar cost average our new call option position.
And then we will re-hedge again on the rebound as normal
So buying the hedge ahead of time essentially allows us to hedge out the potential of an in extreme correction and allow us to buy at the 8/10/12% mark while being protected of downside.
That might mean that we buy the $530 leaps.
If the correction is larger than expected, we close out the put and use the capital to dollar cost average.
If the correction is regular at 8 to 10%, well then the new $140,000 leap position will carry the day
That’s the way we’re thinking of it right now. It gives us a lot of flexibility during the correction.
Something strange is happening this morning. The S&P futures have decoupled from the S&P-500 (opposite directions). Sam, does it mean something?
Not really. Arbitrage will correct it.
Hi Sam,
Could you elaborate on what you mean by “has the potential to damage the portfolio”? Based on my understanding (and correct me if I’m wrong!) if we purchased a hedge bigger than 11-12% then that would mean our net position wouldn’t appreciate as much as it would’ve in the case where we don’t enter a big correction / bear market, right? What is the situation where this could existentially damage the portfolio?
Thanks!
So there are a lot of different risks of buying a larger than 12% position. For one, if the QQQ continues higher for a while, you now have a larger than 12% position in opposite direction of the market. Second, if the trades doesn’t work — meaning if the QQQ rallies to $630-$650 or something resulting in us having to ditch the hedge on the correction, it could lead to a loss. Suppose we buy at $17 and in the correction, the best we get is $14. A larger than 12% position results in larger losses.
The key is to not overcommit in case there’s some insane outlier case. That’s really the point. Like holding a 25% put position could substantially impact the portfolio if the QQQ were to do something entirely unprecedented like the 2000 dot-com bubble.
While the QQQ hasn’t rallied for more than 114 days in a high vol rally in over 22-23 years — I haven’t looked at the 2003 to 2007 era but I remember it well and we didn’t have a rally like this — there’s the possibility that it might.
That possibility, however low, does exist that the QQQ can depart from the trend. Hence why capping at 12%. Especially since we have a 9% position in near-term puts. We really don’t want to push it on the short side of hte trade.
Probably. THat’s how it usually goes lol. Realistically, the probability that any one of these pull-backs lead to THE correction is extremely high. So that risk is always going to be there.
But we do need to reduce risk. We should have closed out hte September’s like I had mentioned when teh QQQ was at $560. They were basically even at that point.
There’s no downside to closing out the October 17 put-spread. Here’s why.
Let’s suppose the QQQ pulls back 3-4%. It drops to $565 or lower. It’s going to happen very soon. but let’s suppose that happens.
We close out hte October 17th spread at even or even up $0.50. What’s the worst that happens? The QQQ roll over and now we get to capitalize on our Oct 31 spread.
IF the QQQ rebounds instead, now we’ve taken risk off and can add back in.
So it’s a good call all around. We don’t need to be stacked with spreads going into the correction.
But it’ll depend on HOW things unfold. If it’s obvious that we’ve gone into correction, then clearly we won’t do that. But it’s another uncertain pull-back like last time with the QQQ pushing deeply oversold quickly, we might close out both the Sep 30 and Oct 17 spreads.
Rally seems weak at this point, I don’t know that it’ll be able to crawl to $600
Signs it’s out of gas
For this to be a breakout of the range, we’d probably need to see the QQQ push to 595 a share. At that point the departure is pretty significant at 12-13 points.
But even then, if the QQQ then tops at 595 think about what that means.
It will mean that we reached 574 at the end of July 583 in August and then 595 in September
That’s a very very bearish trend. These are 2% moves, which are actually quite small. It would be a three push pattern.
And for the amount of volatility required to achieve it, it’s not a positive trend. It will only end in a correction.
For a true breakout, the QQQ would need to push through 600 up to 620 and then it would need to go beyond that.
That would be a true breakout. When you look at the gains in the rally overall that’s about how much we add. 30-40 points to the preceding highs.z.
Anything short of that it’s all continued to consolidation.
What determines whether something breaks out or not is by how much value is added.
For example, last time the QQQ broke out, it took the QQQ up from the 520s to the 570s. The segment added 50 points.
Before that we saw the QQQ go from 489 to 530. That was 41 points.
And then, obviously as we know before that QQQ ran to 470 from 400. It pulled back a bit before running to 490.
That’s sort of the expectation here. And I don’t think the QQQ was going make any sort of move like that next week because everyone already expects the fed to cut. It’s baked into the expectations based on CME group.
The market isn’t gonna be like “oh look the Fed cut rates, what a surprise, let’s rally.”
The only thing that can get the markets driving higher next week is going be the fed statement or press conference.
Anything that hints at further rate cuts than what is already baked in could drive the market higher
But given how long the rally has already lasted, I think the fed is likely to be a catalyst to end the rally. And that can happen in one of two ways
We can either see the market sell off immediately on the fed which only accelerates during the press conference. Just a straight sell the news situation.
Alternatively, we could see the market rally euphorically on the fed which leads to a top 1-5 days later.
We’ve seen that exact type of thing happen a large number of times. It is how the last bull market ended.
The QQQ rallied on the fed’s overly optimistic transitory language on inflation and then topped out $8-9 higher.
Setting aside met ups and high volatility rallies when looking at rallies overall a lot of them end right here 110 to 120 days. There are a variety of melt up and high vol rallies that ended right at the six month mark.
See today’s daily briefing for example.
But at $500, that would represent a drop of almost 17% on a base of $600. Why start buying at 8% and not later, when the probability of the drop exceeding 12% is very real?
Should the decline still last 2 to 3 weeks maximum, or should it extend further if it’s a consolidation phase?
For long positions, it will still be QQQ and NVIDIA, or we will diversify with certain stocks such as nuclear, gold, silver, quantum, and defense, which can also be in ETFs.
Sam ?