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What are we doing with the NVDA puts?
I would say don’t even bother with them. I’m glad I did NVDA calls instead of puts. Shorting the market and/or individual stocks is never a good idea in my opinion no matter what the analysis shows. I’d rather sit out than short.
I agree. Cash is a position too.
So the Nvidia puts that we took in our portfolios were already so insignificant that there is no roll. It was a $200 position added to extend a dead trade. We’re not going to trade around a small positions and at the time we already stated we wouldn’t add any furhter to that trade. So we’re not going to roll or addd capital to it.
The Nvidia thesis we had based in its past few years of trading and based on the market’s overall rally’s timing didn’t work. So we’re capped.
We may make a similar trade in the future becuase the overall trend is solid. But we’ve hit the limit in this particular market environment.
In future environments, when the market reaches 80-100 days, it’s going to top in the overwhelming majority of the time. You have the stats.
Well, there has to be some exit plan?
So there are two ways for us to put on trades. We can put on larger trades that are hedged, or we can put on larger trades that we place stop losses on. Not a huge fan of that. I’d rather hedge—much rather hedge—because the concept of stop losses does not work well at all with options, especially near-term options.
The whole idea of using stops in options means you’ll never make money even when your thesis is right. You can be right 90% of the time, but with stops and “exit plans,” you’ll end up wrong 95% of the time.
That’s because it’s impossible to enter into a spread like we have without it taking an immediate drawdown. Even when ultimately successful, nearly every time a trade is put on, it will draw down to whatever “stop-loss” or exit plan level that is set.
For example, our November 21, 2025, $560–$550 put spread is trading at $0.83. As we’ve indicated, it only takes the market three weeks in most cases to sustain most of the losses in a correction, right?
Okay. So right now, on October 8, we’re sitting 32 days before the November 21, 2025, expiration, right?
But with the QQQ up 7–8 points from where we entered, they’re now down about 20–30% from our entry. So what do we do?
If we exit at this point based on some preconceived exit plan of being down 20%, then you can expect this to happen 99% of the time. The trade will never work if you exit on drawdown.
That is because by including a stop-loss like that, we’ve now expanded the requirements of trade to not only having to be right ultimately, but to be right precisely. The only way for the trade to ever be successful withn an “exit plan” or stop scenario is if we are precisely right at the moment we enter the position.
Meaning, when we entered the spread on the expectation of a correction occurring within three weeks of November 21, it’s not just on that thesis, but it’s also on the thesis that the market immediately tops right then and there. Because if the QQQ moves up eight points, then a 20–30% drawdown occurs and we’re forced out. It’s not longer based on “we expect the market to peak within 3-weeks of November 21” anymore. Now it’s we better top right now or we take a drawdown and pursuant to our exit plan, we have to exit.
This will mean that we can trade out here on October 8 down 20% and then watch the QQQ peak on October 10 and crash to $530 by November 10th. And we’ll have exited pursuant to the exit plan. <— and this is how things will play out when we’re right.
And If we don’t exit, then the closer we get to expiration, the more this draws down, and since we started in a small position (3%) , even if it drops 70%, we’re now holding a 1% portfolio position. At 1%, it’s not worth the potential opportunity risk if the QQQ ends up peaking and crashing, especially given how fast corrections can occur.
For example, our October 31 spreads can very easily be in the money by October 31 because the market can sustain a correction in three weeks and be down 10%.
Okay, so how do we address this problem? By thesis and allocation size. Instead of worrying about being precisely right, we allocate a small maximum portion, giving us the wiggle room to be right on the thesis overall but not precisely right.
If the thesis fails, then we’re taking the 9–12% hit. That’s the way we do it—by allocation size. That’s because in most cases like this, we’re going to get it right. In most situations similar to this one, the market would have peaked and we’d have made 20–30% portfolio gains.
So that’s our approach. Our approach is to cap losses to the positions themselves so we’re not worrying about exit points—3% positions.
For larger portions, we take longer-dated options and hedge.
We can only control what we have going on in our portfolios, and as our portfolios are concerned, cap limits to 5–10% trades like this work for our portfolios.
I hope this makes sense. If we felt like our position sizing was too large and felt it created risk to the portfolio, we’d just cut losses. Instead of “cutting losses,” we cut the losses ahead of time.
Instead of being in a 20% position that we sell after a 50% drawdown, we simply just allocate 10% and not worry about it.
It’s really the same thing.
Well, yeah but what about an exit plan?
Hello Sam,
Is this major gap approaching in the short term, or is it more likely to be in the medium term?
Also, with the beta change between QQQ and NVIDIA, have you revised NVIDIA’s pricing, with a major gap of around $120-$130 for QQQ, around $500-$530, and $140-$150 for QQQ, around $550?
So there’s no way to know where the correction will go. We have stats on corrections. They range 8% at the low end for the QQQ and 14% at the high end for a regular correction.
We know that larger rallies tends to lead into larger corrections. But that’s only a tendency. If you look at the data, there have been rare cases where large rallies lead to small corrections.
There’s no way to know right now how the market is going to play out. The odds suggest HIGHER chance of a larger correction with SOME chance of a smaller correction.
8% from $610 = $560
10% from $610 = $550
14% from $610 = $525
No way to know which of these will occur^. We do know that there’s a higher probability that it will be on the larger side given what we’ve seen historically. There’s a correction in size of rally to the size of the correction. Just regular fib retracement suggests that.
But I personally wil never “revise” anything because we don’t have a target. The data isn’t going to change.
Whatever the peak is 8% (lower probability) 10% (average) and 14% (higher probability). You can do you the math on this yourself.
Here’s what we’ve seen after the TOP rallies of the last 26-years. This is in the top. So you can expect a correction of this sort. See screenshot. That analysis isn’t going to change next week or the week after or the week after that.
If you ask me next week, it will be odds based on this:
As you can see, 6 out of 24 corrections were sub-10%. That’s 25% chance. Roughly a quarter of all post MASSIVE rally corrections are under-10%.
That means this one probably has a similar 25% chance to being an 8% correct. That is true this week, next week the week after that and so on. It doesn’t change becuase there’s no change in the data. So there’s nothing to revise.
25% chance of a sub-10% correction.
50% chance of a > or = 14% correction (half the corrections go for 14%+ at the range)
25% chance of a 10-14% correction (the other quarter fall in that 9.7-14% range)
So just add that to whatever the peak is in teh QQQ. At $610 it’s the numbers we outlined above. If the QQQ ruins to $620, it changes the calculus to:
$620 x .08 =$49.60
$620 x .10=$62.00
$620 x .14=$86.80
$620 – 50 =$570.00
$620 – 62 =$558.00
$620 – 87 =$533.00
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Nvidia will likely fall 22-25% inline with its historical beta relative to the QQQ.
Thanks Sam.
What about NVIDIA ?
Beta seems to be high again with QQQ ?
So we won’t know what the beta is until the correction happens. Nvidia has vastly unperformed the QQQ. The QQQ was trained at $583 back in August when Nvidia hit $184. Nvidai is now only at $188 with teh QQQ at $610. The QQQ is up 4.4% since August. Nvidia is up 2%.
Nvidia is stuck at the moment. It’s very clearly in wait mode and the moment the market corrects, Nvidia is going to take the elevator down.
buy the dip
we might need to send smiley to the hospital at this rate
Sorry Sam, but if this isn’t an outlier than I don’t know what is: You basically have 50 rallies, of those only 7 go past 100 and 3 have gone 110-114 days.., this one sits at 127 so this is THE longest rally by FAR (we shouldn’t compare to meltups as you said many times) -> add in the fact that it had no meaningful pullbacks either and this is one extraordinary rally, i think we need to acknowledge that instead of moving the signposts forward..
So consider this and how you’d answer these questions or thoughts. Today we’re at 128 days correct? We don’t know when it’s going to end. We have some indications, but we don’t know what the ultimate date will be. If it were to end today at 128-days, is it an outlier? That’s the critical question. Since we don’t know when it will end, at the present moment, at 128-days is it n outlier case that somehow taints all of the date we have on rallies?
When I say it is not yet an outlier, that’s what I’m saying. As of today, at 128-days, here’s what the data will show if today were the end of the rally.
It will show this:
High Volatility Rallies 1999 – 2025
April 2025 – 128-days
March 2020 – 114-days
Aug 2003 – 114-days
Sep 2024 – 111-days
Dot-Com – 108-days
Feb 2003 – 100-days
Nov 20023 – 100-days
A whole bunch ended between 72 – 99-days
It took 17-years for the market to tie is 2003 record of 114-days when covid did it in March 2020.
It took 6-years for the market to beat covid’s record in 2025.
Records don’t happen all too often^
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With this record above, as of today, 128-days is a long rally. It’s just shy of 3-weeks longer than covid at the moment.
How does THIS^ above impact future decision making?
For example, suppose we have a correction, we bottom, we get long the market and the next rally reaches 87-days. And knowing what we know about this alternating peaks of century marks, we expect the next rally to run to $660 a share.
Okay. So here we are in the next rally.
We’re approach 87-days. How does this rally at 128-day mark impact that future decision making? Is a rally that lasts 6-months (as of yesterday) which is a few weeks longer than 5.3 months (covid) or 4.5-5 months (a large number of rallies) appreciably different such that the date just gets thrown out? Do you just not sell covered calls beuase this rally lasted 128-days which is 14-days longer than the precious record?
This is what I mean when I say at this present moment at 128-days it isn’t so much longer than every previous run like it — even September 2024 to February 2025 was 111-days, that this one is somehow fundamentally different than Covid or September 2024 or any other rally that lasted 100+ days.
There were four precious rallies that lasted 108-114 days. This one at 128 is a mere 4-weeks longer than 108 days and just shy of 3-weeks loner than 114-days. It’s not off the chart to make it fundamentally different than those previous records.
It isn’t so much longer that it is somehow an outlier above all of the other rallies. Now if it continues like this, then sure. At that point is it an outlier.
But I don’t see 14-20 trading days longer than the previous longest rallies as being so much longer that it makes this rally somehow fundamentally different in terms of properties.
The indicators and considerations that ended covid or the other runs are the same types of considerations that will end this one at the present moment at 128-days.
that’s what is what is meant here.
At what point does this rally have to be judged on fundamentally different merits than the previous 60 that came before it and why does the rally lasting a mere 14-20 days longer than the previous four longest rallies make it so that it should be considered fundamentally different and judged on different terms?
That’s the question to answer. And suppose you come up with the conclusion that it is somehow fundamentally different. If that’s your belief, what is your course of action? Like for Arryn, we’re not going to get long at a 128-days 52% rally. We’re going to sit tight on our piles of cash and simply wait for the inevitable.
As we mentioned yesterday, the market isn’t even really adding much in terms of gains. Even at $610 it’s a mere $26 higher in 2-months. That’s just not much when you compare that to the precious $184 it added in the four months leading into that time.
Hey, I’m not questioning what you take away from this rally and how it would affect future decisions at all. Of course it makes no sense to invest now. I also don’t doubt we will get the correction and will have a lower entry again.
All I’m saying is that if the current rally is 16-20 days longer than the previous record, while the previous highest rallies have all fallen pretty close to each other (3 from 110-114 days, 7 from 100-114) than I would consider this an outlier. Doesn’t mean it doesn’t follow the same market dynamics and so on. But in terms of length it’s an outlier, to me at least.
So from a pure statistical or mathematical point of view, it is approaching outlier status on Z-score (135-days). Anything north of 110-115-days is practically an outlier as only a small handful of rallies have come close to or exceeded i.e. 95th percentage. On IQR, it’s 175 days to be an outlier.
The currently rally is anomalous in terms of straight data sets.
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IF we’re talking about pure features, this rally has done xyz while other rallies have done abc, then yes. It’s definitely an outlier. Especially if it doesn’t top soon.
There are so many indicators indicating that the QQQ is an effective top (it’s in an area where the ultimate top will be).
-Century mark analysis
-Late stage overbought
-NYMO negative while market makes new highs;
-128-day rally
-52% returns
-27-weeks (most end at week 20 that’s almost 50% longer on a weekly basis).
The list is actually quite long.
QQQ no follow-through from yesterday; near hod, near ATH, bearish engulfing candle is invaldated
QQQ relentless, near ATH
QQQ new ATH @ $610.06
QQQ new ATH $611 +$6
We are far due for correction. It will not happen ever if every one of us is expecting it to happen. We would have been all millionaires then lol