Samwise Quick Reference Handbook
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If we get a pop on the market to 600 or so after the fed (seems very unlikely unless we see a reversal here) are we primed for the 500 puts or shall we just wait until later this year to buy them? My mental target is SPX 7000 for the next rally. In some ways i think getting a pop and extended rally duration (end of october type stuff) and price to QQQ 610+ might doom the market for the rest of the year.
If the QQQ pops today, we probably buy them today. It depends on what the market does after the fed.
Hey Sam, you said yesterday there would be ramifications from this rally. What do you mean by that exactly? That it could initiate a bear market or that you would adjust your investment strategy?
Also, a week ago you said that if the rally won’t exceed prior records by a significant margin (120+) it’s in the expected range and not at all special. This might be semantics and not really important but this week you called the rally insane etc. Has anything changed your view?
So when looking at the last 26-years of data, it is insane. 26-years is about the entire time I’ve been trading. It’s forever. I remember the dot-com crisis. I remember 9/11. It’s so so long ago. We’re talking that many different environments and the market has never had a high volatility rally that has exceeded 114 days. The dot-com rally was 108 days long. Even that rally ended right at 6-months.
So it’s important to understand that we’re talking bout TWO different things here when we say the rally is insane.
From a percentage point of view, it’s still well below what we saw in Covid or the dot-com bubble right? It’s higher than the previous big runs of 35-36% (47% for this rally now). But well below Covid at 84% and dot-com at 110%.
But taking both percentage return AND duration, this is the third strongest rally in our entire modern history going back to 1999 and that includes the recovery rallies of 2002, 2009 and 2022. Recovery rallies are generally the most explosive of hte bunch and this one has exceeded every single recovery rally we’ve had. That’s kinda crazy when you think about it.
It’s also “not special” in the sense that it is is STILL VERY MUCH in the parameters of the data set. The longest high vol rally is 114-days. We’ve seen a few go to 100, 108, 111, 111 and 112. So in that sense, it’s not special right? It’s within the set.
It’s not like this a 190 day rally? It’s not outside the range of expectations. When we go into future rallies, the expectation should be 55-days is the average. 80-100 days is considered long. 100-120 is considered record territory. If we sell covered calls, we sell them on the 120-day time-frame as we did here. We sold these ones on the 119-day time-frame. Think bout that. Going into the rally we sold covered calls with a built in expectation that there was a small possibility that hte rally could go 119-days. And that if it occurs, all that it means is that we get called out and get buy back in during correction. That’s what’s happening now. We made that decision back in like May.
So this right here, is true. I still highly doubt we exceed the record by that much if at all. Technically speaking, we’re 112 days right now. If the QQQ doesn’t make a new high, there’s not even a record. The QQQ has to make new highs today, tomorrow and Friday to make a new record. on Friday, we’er at 115-days which exceeds covid by a mere 1 day.
We also wont’ see much in terms of percentage gains. We’re at the extreme far end of the range there as well. The rally like ends around $600. Meaning, from $574 to $600 (26-points) marks the top of the rally. When looking at the entire rally from $401 to $600, everything between $570 and $600 could be considered the very top of the rally and that’s what it will look like on the chart.
Ramifications = correction size. I think we’ve now pushed so far into the gutter boundries that we’re likely to see a very substantial correction either right now after this rally ends or immediately after the next rally.
And if it doesn’t happen now, the next rally will be muted (55-day rally). Meaning, if the QQQ does something like falls by only 8%, then I”m confidence two things will be true. First, that we’ll see a smaller rally duration on the next run AND second, that the correction following that small rally will be huge.
We’ve seen that pattern before. Big bad rally that lasts forever and produces massive returns leads to a small correction, small ensuing rally and then massive correction thereafter.
That’s what I mean by ramifications. The market is due for a big correction now and it’s going to happen now or on the very next correction. One or the other.
Is rally duration a more telling parameter than rally size? Or I guess, does the rally duration put a cap on the rally size? In this case, the rally duration is on the high end but still within expectations like you stated above, but the rally size is still well below Covid and the dot-com. However, to match Covid returns, the duration would need to extend a lot longer, and that hasn’t happened in history before and so we shouldn’t count on it. Is that the right way to think about these parameters?
Trade out even $1.80 makes sense
It could. On an overall spectrum of probability, it’s highly likely Nvidia bounces. But we’re in teh exact set of circumstances where it might not occur.
That’s the problem. Overall, from a statistical point of view, the probability that Nvidia rebounds $7-10 from here before a correction or even if a correction has already started, is high overall. That’s what the chart shows us. It reaches oversold, it generally bounces and bounces big.
Of course the downside is we get pushed to hte sidelines and never get a re-entry due to Nvidia continuing to sell-off. That could very well happen. That’s a very real risk.
I like the idea of trading out as an insurance policy of sorts in case the FED initially results in a strong rebound on QQQ and NVDA. If there’s a strong rebound, we’ve freed up capital and can buy back in. If we continue lower, then we’re already well positioned for a downturn with our QQQ put spreads AND there’s a chance NVDA may still rebound slightly even in a correction. Or why not sell half rather than all?
@Sam, if you close out the NVDA puts, at what point would you buy back in (with a later expiration and/or higher strike)?
Would you target a specific price or RSI or – let’s assume there will indeed be an oversold bounce – how would you try try to limit the risk of getting sidelined if the bounce falls short of e.g. midline RSI?
So it just depends on how the bounce unfolds. Pricing would determine what we bought. We’d try to buy back with the same capital. So if we closed at $1.80 for sample, we’ want to buy back at $1.80.
That can mean either buying back the $160’s of the same October 24 expiration or maybe pushing out to a later expiration and buying the $150’s.
It could also mean being the $156’s or $158’s. It’ll really depending on pricing on the rebound.
In terms of rebound distance and things like that, it really depends on how aggressive the move is and if it feels shaky or real. It’d also depend on how the QQQ is trading.
There are a lot of factors that go into it. It’s not something we can predict ahead of time. For example, suppose we close out and Nvidia then slowly grinds higher 2-3 points a day. It struggles or goes shaky. We may quit and jump back in.
Now compare that to what it did last time — a huge gap up. There we might wait until it tests resistance at $180.
So it just depends on the how of things. You can try and extrapolate what to expect by looking at the two charts I posted. You can see how far Nvidia generally bounces. It’s like 7-10 points.
Sounds reasonable to sell NVDA. On the other hand none of the short term trades since last March have gone our way really. The market has been really tricky, so my confidence is not super high I have to say..
When are we going to trade out of NVDA?
No. Not yet. I considered it. I think we might go small bounce, second leg lower like last time. At that point, we might exit.
Hey Sam, is that just your gut feeling or some other reasons as well that lead you to believe that?
QQQ closed at 590.00 exactly! Not that it’s a new high or anything, but I thought that was cool
Hey Sam,
I still don’t quite understand why buying the Sep 2026 $500 puts ahead of time is advantageous to the previous method of going long at a correction bottom and purchasing the hedges on the rebound. Even if we are at extremes, the rally can still extend longer as you have mentioned. Since we cannot time a top, wouldn’t it just be better to wait for the correction and then hedge later? Especially since the purpose of the long-term puts is to serve as a hedge and not really expecting to churn out a big profit from them (although it would be a bonus if they did). If we are going to be 70-80% in cash and 20-30% in puts in the case of Arryn, it seems to me that we would just be shorting the markets, i.e. what exactly are we hedging if we are mostly in cash? I understand that if a correction were to happen at around the $600 mark, the hedges would serve us well, but in the event that this rally truly becomes overextended as it has already proven itself to be, the puts would just be subject to theta decay. On top of that, Arryn is already in long-term and short-term puts that would allow us to capitalize in the event of a correction even without the addition of these new ones.
So those are all good concerns. It’s all a balance of risk and mitigation.
Here’s the purpose they serve. What they do specifically is they make it so that our future long position starts off with an off-set.
Remember the biggest risk that we take the portfolio as a whole is going long and not having a hedge and then seeing the market crash. That is the biggest risk to the portfolio overall.
Like the worst thing that can happen is we have a 15% correction, we get long, and without a bounce, the market drops 34% or something. That would be the worst case scenario for our strategy overall because we would be heavy long and no hedge.
So in order to mitigate that risk what we could do is buy the hedge ahead of time. Under most circumstances we’re never going to have that opportunity. That’s because we rarely ever see the market hit these level of extremes.
It’s very rare for the QQQ to rise 113 days. You can see that from the tables. it almost never happens.
So let’s consider the risk in this situation. The longest rally we have ever seen is 150 days. All rallies considered. That takes us out to the end of October even though no high volatility rally has ever made it that long. That’s not a whole lot in terms of theta decay.
Also, the reality is, we’re going to have a correction. So even if we get to 150 days, we are likely to then see a correction at that point
What’s more the QQQ is highly unlikely to make any penetration into the 600. Even if this goes out till the end of October, we’re unlikely to see significant highs from here. More than likely, we get a pull back over here because we’re over bought and then we might make slow inroads. There will be a long struggle at 600 if we ever get out that long.
And in fact, as it didn’t do it today, it is now less likely for it to happen at all. If a rate cut isn’t enough to get us there and now we have no catalysts I’m not quite sure what’s going to get us to $600 now.
But let’s suppose it does. Let’s suppose it goes up to 600 or even 610. And let’s suppose it takes 150 days in an unprecedented move that has never happened.
Again for all high volatility rallies they have ended by day 114. We are at day 113 right now.
But let’s suppose it gets there. Well even at 610 share you’re talking about a correction down to 550 a share. If we buy the $500 puts for next September at $17, those are likely to rise to around $25-$28 depending on how much volatility occurs.
It would take a lot for us to lose any money on the transaction, once we sustained correction.
I’m talking about once we get to the bottom regardless of how it ends up playing out from here it would take a lot for us to take even a small loss on a 12% position Remember, with a year we don’t really have 12% at risk here. we’re not really going to lose 12%. At some point in time there’s going to be a top, a correction and a bottom. When we get to the bottom, we are likely to be profitable.
The QQQ would have to rise very very significantly from here for us to take any sort of real loss on that 12% position.
For example, for that position to drop to $15 at the correction low would have to take an extra extraordinary set of circumstances.
QQQ Wood have to rise till like 630 a share and then we would have to sustain a low volatility correction down to 580 or something
Consider this. We bought the March 2026 $400 puts at $17 when the QQQ was at $465. That’s almost $130 lower and six months ago.
And those right now are trading at around $2.50. Think about what was needed to get it down to $2.50. Six months and 130-points.
Now think about this. that’s at the highs. we still haven’t had a correction yet.
Once we have a correction, we’re gonna probably be able to exit the March put at around $6-$10 depending on volatility, and how far the straps.
And those were intended to go to zero we had no intention of ever closing out that position. Like we bought those nowhere near where we felt the QQQ was topping we bought them early in the rally as part of our hedge.
Anyway, the point is from a risk reward point of view, it makes a tremendous amount of sense. As I see it the probability that we will make a profit on it is very high, and I think the probability that we would be able to exit at even in a scenario where the QQQ continued higher form here is extremely high as well.
Like I don’t think there’s a high probability we take a loss on the position. Once the correction happens, we’re either gonna be able to hold the position as the hedge or sell at even or a gain.
Angela, I’m sure Sam will share his insights in more detail; however, I suspect the reason we want to enter our put position now is because we know we’re nearing the top whether it’s right here at 592 or at 600 or even 610. I suspect we want to capitalize on buying the puts at the market top so that we can sell near the correction bottom for a substantial profit. Also, if I recall correctly, Sam noted that when we go long at the correction bottom we are essentially naked without any hedge protection. Entering the puts now near the top ensures we profit at the correction bottom and have plenty of cushion when we decide to go long again.
And what makes you so sure we can time the bottom?
I’m not saying I’m sure that I can time a bottom. No where in my post implies that. Sam has mentioned consistently before that it’s easier to time a bottom than to time a top. I am just simply laying out my concerns which Sam has responded to.
Looking at QQQ trading in the 592’s in after-hours despite touching down on 584 earlier today is quite the disappointment. One thing I’m sure of is the correction will be quite spectacular when it finally unfolds.
the quicker we hit 600, the better, because there shouldn’t be much penetration into the 600’s if any ????
596 just like 588 counts as attempt at $600, look how weak it’s been after open. NVDA too.
With a new ATH at opening, it’s officially tied for the longest (non-melt-up) rally!
NVDA banned from China? TIME TO RIP!
Good one haha… hopefully we see a reversal soon. The rip this morning has been nasty.
The market seems to be welcoming the news!
QQQ is overbought on the hourly, daily and WEEKLY.
Monthly too if https://www.tradingview.com/symbols/NASDAQ-QQQ/technicals/ is accurate