Samwise Quick Reference Handbook
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Hey Sam, what is your thinking in buying the puts with a September expiration instead of a shorter one?
The September puts expire in 1-year and we have two separate end goals here with the September puts.
First, we’re using them as a future hedge to hedge out the risk of going long during the next correction. We want to be able to go long early in the next correction and buying the September puts allows us to do so.
When we hedge, we buy 1-year out expiration. We buy 2-year+ long dated calls, and hedge with 1-year out puts.
The second gaol is to off-set the loss we sustained in the put-spread trade. We took about a 13% hit and so if we can both own a hedge and produce close to a 13% portfolio gain, it will off-set the put-spread trade as if we never made it in the first place.
We don’t even really need to off-set all of this. Even just off-setting 7% is a big win because it will mean we were able to put on the trade, take advantage of the situation and it only ended up costing us a 5% portfolio cost.
So that’s why September.
sure
Hey Sam, thanks for the analysis as always. I forget if you have ever mentioned this before, but do we ever track the data of how far a rally goes past an ATH after a correction? For instance, there was a 25% correction in April 2025, and now a 57% rally, and from 540, we are up 17%.
More data:
April 2023: 8% correction, 22% rally, 12% above ATH
July 2024: 16% correction, 27% rally, 7% above ATH
Covid: 30% correction, 84% rally, 28% above ATH
I’m curious if this ever factors into the data or analysis and why it might matter or not.
It should factor in. I haven’t done it. But I see the importance of the analysis. It’s important. It’s worth a look for sure.
My gut feeling tells me we get a 1-2% pull back after FOMC, consolidate like a week or two, and get a gravitational pull with SPY $700 followed by QQQ $670, then QQQ gets the gravitational pull to $700.
I do think SPX 7000 being right there will be major pull. if I was to be sarcastic in a normal market I’d say we will gap up again tomorrow just for giggles but it’s actually possible now. atleast we are speed running everything but that also leaves the chance for speed running 670 on QQQ. me personally I don’t see a correction happening before December small pullbacks sure
Hi Sam,
We’re looking to sell out of 15 QQQ 500 put contracts on a pullback after purchasing 15 contracts with QQQ at 630. Is there a reason why we wouldn’t want to sell out of the remaining 10 contracts as well? So instead of purchasing 15 contracts for $11-12 we would purchase 25 contracts and then sell out of the current 25 contracts we have right now. Would that be too risky from an allocation standpoint? You could say we’d be overallocated until the major pullback happens.
Thanks!
We discuss that a little in our update. We might be acting a little too conservatively. So may be making some small changes to what we’re doing going to do.
For today, we’re only buying the 15 contracts in Arryn. We may add more positions this week.
Sam, with Nvidia running to $200 and the idea that we may be moving too conservatively given the extremes, any potential for a high likelihood successful trade there? Well over 80 RSI hourly and approaching overbought on the daily.
Not going to make any more Nvidia trades until we go long.
It seems unrealistic to think NVIDIA can recover to a level of $120-130… The opportunity cost of remaining cash and out of the market is increasing significantly… Waiting for a correction to re-enter is certainly a normal strategy, but the market seems uncontrollable and dangerous…
So we sold our Nvidia longs closer to $150 in some cases, $170 in others nd we’re still holding them in our core common stock portfolios. We’re still long Nvidia in the common stock portfolios.
I remember when you commented daily on this issue. We never came out and said, “we’re selling Nvidia now.” We got covered called out of the stock in September in some portfolios and not in others.
Tarly owns a 200 share position in Nvidia that it bought in August 2024. Tyrell owns a 200 share position bought in September 2024. Frey owns a 100 share position bought in January.
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Also, we don’t need it to drop to $120-$130. We dont need it to come down to $150. Hell, we can buy at $200.
Where we buy it has zero impact on our strategy whatsoever. What matters is how far of a retracement it sustains before we buy it. Has it dropped 20-30%? that’s the only relevant question for us. Is it deeply oversold and is down 20-30% from its highs.. that’s the only thing that really matters. That and its valuation.
Like think about it.
If we buy 100 contracts in leaps at $120 and it rises 40%, it’s the same thing. The same thing as being 100 contracts in leaps at $170 and it rising 40%. It’s the same return.
With leaps, all that matters is that we’re buying at a sufficiently oversold level that we can expect a future major rally to ensue and that we’re hedged. That’s it.
That’s what we’re doing. That’s our strategy. If you’re doing some other strategy that depends on pricing, that’s not what we’re doing. Our analysis is based on how we’re trading it.
Well, this is exactly why you wanna stay long. $580 effective QQQ exit to $632 is 10% returns. These are the times when being in the market matters.
This is a really good reminder why being long and staying long WINS. Hopefully we can all learn from this.
We continue to short the market to cover ground lost on the long side of the trade.
I guess the mid century, century analysis no longer holds either.
I do agree with this, although the returns like 10% or possible 15% are small in comparison the the bulk of the rally and also arguments like such as QQQ hasnt gone anywhere in three months and we will repeat the same setup in the future do apply its not good psychology. The selling covered calls is why we are in this situation to begin with.
I am starting to see that if these portfolios get an effective exit at a higher price from when the covered calls were sold, the goal should always be to buy back immediately and sell covered calls again. Alternatively do what I do and never sell the covered calls. Just be happy with gains on stocks and just hedge with puts.
The one thing I have learned in this blog is the importance of timing entries on corrections and holding puts on a bounce to hedge rather than selling so you get the tax benefits of rolling positions. After reading the initial few months of posts and also the investment basics I was convinced. Arryn was amazing and so were all the common stock portfolios even stark did great!
The exits at higher price are instead causing the model ports to use it as an opportunity to short the market. I never thought Id see something like this on the blog. I thought entering spreads on the main portfolios is a big mistake and it has gone the same way as short calls between march and April. Those were supposed to stay in short term portfolios.
And now we have moved from the idea of prebuying hedges and sitting on hands to actively using capital to short the market. I dont care if we double or triple the portfolio. Its not what I am ever going to be doing and all this analysis seems frivilous. Arryn can go 1000% and I still wont ever be doing this. Investment basics: Never short the market. Thats why we will always be long the market resonated with me and I stuck around. Now we have devolved into buying leap puts and trading them. Its strayed too far for my liking but what is my opinion worth.
Agreed
We have to sell covered calls no matter what. There’s no two ways round it. Here’s why. When a rally goes far enough, our hedge starts to lose all effectiveness. By the time the QQQ had reached $530 a share, the hedge protects onlyt our cost-base, but not the $80,000 and 70% in gains we generated in the rally. That would evaporate in a correction.
So how do you protect $80,000 in gains, particularly when the QQQ looks liek it could be forming a double-top as one distinct possibility? We had to sell covered calls and use capital to add to our hedges. We did the same thing ahead of the February correction and it is precisely what put us in the position to get super long at the lows. No covered call sales. No hedge in Jan/Feb. No huge gains on our puts. No super new long positions. We literally paid for the June 2027 $400 calls with the gains we made from the puts we bought in January ahead of the correction…
Furthermore, the times it doesn’t work perfectly, it won’t make even one bit of difference in the end because we’ll be able to buy back anyway. At the end of this rally is a correction where we will get long and there’s a very strong probability that we’ll generate enough of a return in our puts that our re-entry is essentially close to our original exit point. And even if it isn’t, it’s going to be a very very marginal difference.
We’re not going to neglect selling covered calls, reduce our basis by 25% and be able to pay for our cost of hedging just because 1 in 20 rallies (3 in 59 over 26-years) may result in us having to buy back at a marginal higher price than where we sold. That makes no sense.. We sold covered calls that put us out at 40% QQQ returns which is greater than 95% of all QQQ rallies going back 26-years. Especially so for non bear-marketrecovery rallies.
So, we will, as a strategy continue to sell covered calls and use the capital to buy protection when the rally extends to extremes and we’ll reduce our basis in 19/20 rallies doing so.
Cumulatively the impact and return rate will be so much greater than a portfolio that doesn’t do so.
If we have 2 portfolios, 1 that doesn’t reduce basis becuase they’re worried about 1/20 cases and another that does, the ones that do will collect $20 in premium x 19 rallies. That will off-set any $30-$40 point shortfall. Hell just two-three covered call sales will cover the short-fall of bubble rally like Covid, Dot-Come or this one.
Can’t jump back in. The risk is crazy high. You would be jumping back in entirely unhedged and with a much higher cost-basis. It would be like closing the leaps at $560 and buying them back at $590 without a hedge. And to buy an effective hedge would be extremely costly. For example, you couldn’t just buy the Sep $500 puts as an effective hedge for buying at $590. We showed this. if you bought QQQ $500 calls, it would cost you like $85-$100 at $590 on the QQQ. If the QQQ fell to $500 in a correction, those would drop 50% or lose about $50 in value. The puts would only gain $20-$30 in value. So you wood’s be able to off-set. You’d essentially be getting long at what could be the peak of a rally — at what would be the peak of every other rally historically — and setting up to take a 30% haircut just to claw pennies on the dollar. Because a 20-30 point upside move isn’t worth taking a potential 30% haircut.
So jumping back in simply won’t work. We set it up so that we’re out at 40% returns and we’ll buy back at the next correction.
So we’re always short the market if your definition of being short means holding ANY short positions at all. We always have “short” positions of some kind. We just have some without calls right now.
We’re in cash with a very small allocation of puts. I wouldnt’ say we’re short the market. For us to be short the market, we need to be like 51% short. Hell even 40% short. We’r not even that. We own marginal short position in the 3rd largest rally of the last 25-years. And only after the rally extended to +50%.
Finally, 10-15% of our portfolio is allocated to short-term trading in the options portfolio. In fact, we’re considering moving baratheon/targarian to Arryn/Stark/Lannister to stress allocations.
The spreads are not a big mistake at all. You’re just looking at this ONE SPECIFIC market environment and concluding that the same will be the case in every other market environment. The spread trades in 99% of market environments would have produce 800% returns. In almost every other market environment expect for Covid, dot-com and this one, the spread trade works.
Do you think it’s better to design strategy that work in 3/59 market environments or in 56/59 environments.
We’ll continue to make trades that carry a high probability of working under most environments. Even if it means a few might not work.
We’ll allocate to small to all 59 and make out in 56/59.
Fair enough. We see the opportunity given the rare circumstances. But sitting in cash with the QQQ up 60% is just as viable.
We’ve outlined our strategy and thinking. Especially today.
I agree 100% about selling the covered calls. It has to be done, and it is hard, but the strategy doesn’t really work without it. The whole idea is they are so effective it will reduce the basis near $0.
I am more so just saying this is why being long wins in general because these are the times that really carry a portfolio.
It’s just the other stuff like taking huge short positions now etc.
Of course we could’ve re entered the positions immediately after being called away and the market crashed.
Agreed
NVDA ATH closing in on $200
QQQ ATH
both 83+ RSI on hourly
QQQ overbought daily
NVDA $201 +10
Just like we all checked on Chris in April, can someone check on Smiley?
I’ve been good thank for checking! I did say I would never post again when/if I was proven wrong I’m just here to say all is well thank you
Come back!
Hi Sam,
I’ve noticed in the last week or so we’ve talked about our hedges as potential offsets against the loss we’re taking on the put spread trade. My impression is these hedges are being purchased as insurance to allow us to confidently go long on the next correction.
However; it sounds like we plan on selling some of these hedges to offset the put spread trade loss.
If that’s the case, is the 40 contracts target size accounting for this? Would love to hear more about our exit strategy on these hedges if we plan on using some of them to offset losses.
Apologies if this was hashed out in previous briefings. I don’t think it has (?), but maybe there is some misunderstanding on my end too.
Thanks!
Yeah so when we did the analysis initially, here’s what we determined. As a hedge, we only need about 18-21 contracts or thereabouts in Arryn. That’s how many contract we’ll need to hedge a future trade.
Here’s how we determined that. If the Arryn Portfolio is at $240-$250k at the bottom of the correction, and if look at the capital breakdown, let’s imagine we set aside 18-21 contracts at a price of $15.00 at cost. That’s $27,000 – $31,500 at cost.
But then of that $240k value, we’re also consider the increase in value of the puts themselves up to $25.00. So the puts — even though purchased as a hedge at a cost of $15 — are now valued at $25 at the depths of a correction or $45,000 to $52,500.
If hte portfolio is thus estimated to be valued at $240,000 at the bottom of the correction, well then only $195,000 to $187,500 is cash allocated to the long trade. Since the puts are valued at $45,000 to $52,500 with built-in profits.
That means we can buy a $92,85 position x 21 contracts hedged by a $15.00 position at 21 contracts.
So it all comes down to the number of contracts we’ll hold onto after the correction ends.
And really, we just don’t know what the number are going to end up being. We can just estimate.
For example, suppose our portfolio gets valued at $281,000 because all of the other puts were holding skyrockets.
Remember, the whole point of buying the puts up here and then going long at the lows of hte next correction is to create built-in profits ahead of time.
So the math will also involve, cost = $15.00 and subtracting the built-in profits from the puts from the total value we’d allocate long.
But the math above I the general idea. 18-21 contracts. That can change.
The Sep puts serve two purposes now. Off-set and future hedge.
Just so we have actual numbers to discuss about let’s say we own 40 hedge contracts at the bottom of the next correction.
Sounds like the plan would be to trim down the hedge position to the desired 18-21 contract sizing at the bottom of the next correction. If so, would we sell half of the remaining excess 19-22 contracts and use the cash generated to purchase more insured leaps?
Is that correct?
Right
So the plan is actually to trim the position AND we would use the capital to go long. So we would go long with the trim.
Imagine a scenario where we get to the bottom of the next correction and we have 40 contracts at $30.00.
Those would be valued at $120,000. Bought at $15.00 they’re worth $60,000 at cost
Just tossing out arbitrary numbers. Suppose we have $200k cash
So $200k cash
$120k puts
$320,000 total value.
At $320,000 total value, we want to go long $320,000 x 87.5% =$280,000.00
But it’s not quite $280,0000 because you have to assume the 12.5% position has its gains. Remember, we assumed that we bought the pots at 15 and they’ve gone up to 30 and value.
So you have to take that out.
In this case, you would be removing $80k from the equation
$80,000 in puts at $30 and $240k long. That would be the ratio.
Otherwise, why would we buy the puts ahead of the costs if not to create more value in the puts ahead of time
Showing in this case under this scenario, we would reduce our put position by $40,000 holding an $80,000 position to hedge out a 240 K long position
That’s how we would do it.
You could also simply close out the put altogether, —- which we would eventually, if the QQQ kept declining — and consider the gains we made as the offset. Then we would re-purchase new hedges at $15 on the rebound.
But if we’re talking purely, we bought the put up in the 630s and bought the calls in the 550s or something, that’s how we would do it
This would be the math above .
You can extrapolate number of contracts, but looking at the cash values.
The math will be very similar, but we won’t know until once we get there
Hi Sam,
Perhaps I’m missing something really crucial to options pricing models, but I recall your goal is to purchase slightly ITM QQQ leaps 2 years out for ~$84. We purchased them at the bottom for $75 in August 2024, $84 in January 2025, $63 in March 2025, and $85 in April 2025. However; the slightly ITM ($620) QQQ leaps 2 years out (Dec 2027) right now with QQQ trading at $633 are trading at like $112. Is there something about being at the bottom of a correction that skews the pricing of leap call options lower compared to at the top of a rally? Sorry if this is a dumb question 🙂
Thanks!
Thanks for the resource! I read the article, watched YT videos, and did some ChatGPT conversations to learn more about this. Since the leap options we’d be purchasing are slightly ITM wouldn’t the IV for them be derived within the put wing portion (left of ATM) of the strike vs. IV chart? This means the IV would still be higher since the negative skew curve keeps IV higher for OTM for puts and ITM for calls? Hopefully my question makes sense!
So much for the Nvidia top, Nvidia is almost at $207 right now. Nothings stopping Nvidia or the Qqq from going higher & higher. I’ll say it again like I said it a bunch of times interest rate cuts, Trump ending tariffs or making deals, markets best months coming up, tons of new money coming in. I’ll also add stocks perform well during shutdowns, Probably will never see another time like this to make such easy money. I really wish I would have taken more advantage of it. Unbelievable
The whole thing was definitely different this time. The crash and rally absolutely was different this time. Everything is different now and adjustments should be made accordingly. I don’t understand how people say it’s not different. Hopefully you will adapt
Which data should we be looking at and putting more of a focus on instead? How exactly should we adapt?
Trump social tweets
Yes, this time is really different. Since Trump came to power, the stock market has started to act a bit differently. Trump clearly doesn’t want to be just an average president — I believe there will be more “surprises” coming. It’s time we admit that. At the very least, we shouldn’t just use old data from the past for today’s situation. We should realize that we’re in a bull market and focus on the data that fits this kind of market.Otherwise, we’ll end up being the only clowns in this once-in-a-millennium bull market.
QQQ ath
NVDA ath
QQQ up 10%; NVDA up 30+ points, that is a big deal
EDIT: thank you for the downvotes
QQQ deeply overbought on weekly
NVDA hit 90RSI on hourly
With so much positivity already baked into QQQ, I would expect even the slightest hawkishness from the FED or the slightest uncertainty on the China deal to result in a sell off.