Samwise Quick Reference Handbook
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thank you for the analysis!
I don’t think the app notification went off for the daily briefing
What would invalidate this and make your turn more bearish? QQQ already at $514.26
So bearish require a time-frame. Short-term, nothing is will turn me bearish because I’ve been in a lot of corrections and know how they operate in the near-term. So first step, we have to observe how the QQQ rebounds and then I’ll have an opinion about intermediate-term (what comes after). But rebound is now inevitable.
gotcha. guess i’m just confused about when the bounce is expected – just seems to keep dropping
just started
did it? 511 right now
I guess it’s a bumpy road not a straight line jump
I wouldn’t set an expectation for everything always happening immediately. Oversold set-ups in the QQQ are extremely reliable indicators. You can see it for yourself in the chart. But that doesn’t mean it will always with100% accuracy rebound precisely the moment you expect or want it to. In the trading portfolio, we play the odds and try to put ourselves in positions so that it doesn’t have to be perfect. Hence why we bought spreads yesterday.
When it rebounds, it’ll rebound at least $10-12 if it’s a weak rebound. If it’s a strong rebound, it’ll rebound 20. when it does, we’ll lighten up and then consider whether the market is likely to take a second leg lower or whether it’s done.
But I do sense anxieties in the comments here and you’ve got to keep those anxieties in check. Remember, these are trading portfolios with 10% and 5% portfolio allocations.
Trading requires going through a lot of near-term volatility. The amount of volatility we’re seeing right is nothing. It’s at yawn level. The $VIX is barely up.. If this amount of volatility (-1.57% on the QQQ) raises your anxiety levels, just keep in mind that corrections are 10-12-16%+.
It’s why we cap trading at 15%. If we went any higher, we’d be doing it wrong. Straight up. Always keep that in mind. And even at 15%, we’re still at 30-40% cash levels after a sell-off.
the puts in the portfolio are up… still hold?
Which portfolio? If we own puts, those are permanent positions. Our long-term portfolios own puts as a hedge.
Hi Sam,
how sure are you about Tesla? Do they really have the fundamentals to bounce back up? They seem to be more in the Palantir category right now in terms of how over inflated they are with the risk of not bouncing back
I don’t know much about Tesla, but do you have any concerns long-term regarding Musk’s political involvement and declining sales (including, but not limited to, Europe’s boycott)? I get the trading appeal in Targaryen and Baratheon, but have some concern with the long-term given that we’re still above the gap line and hype from the election results and would appreciate any thoughts you have as a long-time researcher/analyst of Tesla.
Agreed. I am concerned about adding Tesla to long term portfolios as well with the recent events. Would love to hear Sam’s thoughts on it
Not concerned. Those are normal anxieties. Tesla is a cyclical stock that goes through bull-bear cycles and massive swings. Just look at its history. This is par for the course for Tesla. Down 35% is a normal cycle for Tesla. Right now, it’s trading down hard with the market because the market is down 5%. Tesla has a really high beta which means it’s going to sell-off harder with the market. Don’t read too much into that.
Given that you mentioned anxiety here and in another comment, I want to clarify that my question didn’t come out of concern from the market selling off this week, as I was looking forward to putting some cash to use.
The concern is Tesla as a long-term investment in Stark, as I’m not sure it’s a decision I would be stoked about making myself with my limited knowledge and the current sentiment. It’s a question of faith in Musk and noticing the changing sentiment in the EV market for Tesla, as well as evolving competition. I see that Tesla has traded above 300 before the election, but my concern is that we’re still above the gap up from the election hype. I don’t really trust Musk to keep his shit together. I know you’re a fan of Tesla stock and recognize that you know so much more about them than I do. Given all of this, do you see any reason to question Tesla’s long-term performance moving forward? Do you still view Tesla as a priority for Musk as he seems to focus more and more on space and government?
So definitely NOT directed at any one person. Just can sense it across different comments starting yesterday.
And my update wasn’t about Tesla specially, just about the fact the market is down and oversold timing isn’t perfect right now.
As Tesla is concerned, it’s now a bellwether. The company is not going anywhere any time soon. It innovates and a general mainstay of the market.
Every several months, it comes under heavy scrutiny. Your scrutiny right now may be right on point. But that is rarely game ending for the company. Take a look at this Tesla chart I’ve attached. Now think back to each one of these massive sell-offs we’ve seen in the stock. In each one of those major swings, you can for sure find game-ending commentary like the one you’re outlining right now. I’ve heard this current one plenty right now.
In other big 30-40-50% sell-offs investors, there was underlying negative commentary.
But at the end of the day, people are still going to buy their produces and the company is still going to innovate.
Investors will see the 40% sell-off as an opportunity, buy and take it higher. See attached. Note the swings. A. good experiment would be to go back to each of the low-points of this chart and read the news and commentary on Tesla during those sell-offs.
This sell-off is par for the course. There will be a fundamental reason attached to it. But it’s cyclical. The sentiment swings hard from bearish to bullish back to bearish etc. That’s how Tesla has always traded. Look at 2023-2024. Those were very bullish years for the market. You think many investors this time last year would have forecasted Tesla would rally from $130 to $470?
Since 2021, the stock has been extremely volatility. It goes through phases of crashes and rallies. So the idea here is to capture the next big move up. That’s the long-term thesis. At $300, it’s down 36%. For me, the biggest reason not to buy long-term is that it’s simply not oversold enough on the daily chart. We’re just not there yet. If it gets down toward a 20-RSI, we might do that at that point. Down 40% is attractive for Tesla.
Thanks for the thoughtful and thorough reply. I wasn’t imagining you directing anything at me, but wanted to clarify my position as it had nothing to do with this week/month, but more of a macro perspective, and wanted your take. Thanks for obliging.
Sam are you still expecting a bounce to $530+?
So QQQ oversold rebounds are $10-$12 at the low-end of the range. At the high end of the range they go for 20+ points. So it just depends on how the market responds when it does start to rebound.
lol NVidia just isn’t going to make that jump to 170/200 range as easy as it did in the past.
Yeah because the company has reached a $3.5 trillion market cap. It’s going to take a lot longer now to accomplish the same sort of strides. It’s now a bellwether. It’s not going to rally 100% in a few weeks anymore. That’s all behind it.
So you think the price targets of 200 by EOY are a little too positive?
So EOY is SOOO far into the future. So much can happen between now and the. We’re only at the end of February. That’s 10-months from now. The market is likely to go on another big rally at some point between now and then and when that happens, Nvidia is going to rally with it. Then you have summer earnings and next fall.
I think it’s a little optimistic. I’m more in the $170 camp. It just feels crappy now because the market has been in a corrective heading since mid-December. When that happens, sentiments shift. But between now and then, we could easily have 2-3 huge rallies.
Here’s hoping. I am still confident in NVDA……but its more or less been just marking time since the end of June as a stock.
So because the stock and company have matured — reached a $3.5 trillion market cap — the rallies will be shorter and the consolidations will be longer. The same h append with Apple.
Apple was the Nvidia of the 2010 – 2020 decade. Apple still produces big time, but when it’s consolidating, it trades sideways for very long periods of time.
Nvidia is in the same boat now.
I have a question regarding MSTR. In your experience do you think going long with deep in the money calls expiring in January 2027 is a reasonable investment. Currently with bitcoin tanking it seems like a good time to make investment. If the trade is acceptable in your mind would you hedge by buying puts or writing covered calls to bring down your cost basis.
So generally speaking, we like January 2027 calls. If you look at all of our long-term portfolios, we’re invested in December 2026 and January 2027 calls. We’ve also fully hedge out our positions so that if a crash in one of them does happen, it limits the impact to the portfolio.
When making long-term investments, as we have in our portfolios, we can heavily capitalize on the long-term investment and protect ourselves at the same time by purchasing a very small amount of puts.
Look a the QQQ position in our Arryn Portfolio for example. We bought it at $75 and it’s now up to $139 a contract. THat’s up $38k or 85.33%. we’ve reduced and taken profits by having sold 1 contract and we used that capital to purchase al long-term hedge. We own about $15k worth of puts at market value and $85k worth of QQQ calls. That’s an 15-85 put-to-call ratio.
What this does is it allows us to capitalize on the QQQ as it rallies while ensuring that if it did crash in the long-term, we’d make money. In fact, we’re so hedged that a crash would put us deep in the green. We’ve done the math on it.
If the QQQ fell 30-40%, we’d be NET POSITIVE. We can then pay for those puts by selling covered calls during major rallies. We did this in December and collected nearly $5,000 in premium ahead of this recent peak. Do this 2-3 times and we’ll have fully paid for our protection.
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Now the reason I point all of this out is because the reasonableness of buying any long-term position for our portfolio depends heavily on (1) allocation; (2) diversification and (3) Hedging. Without those three things in place, we’d be rolling the dice big time.
We’d become very heavily dependent on the underlying stock we’re invested in performing as expected. It becomes super important that we have an immaculate understanding of the fundamentals of the stocks we’re invested in because now the stock MUST perform for us to not get wrecked.
So right now if we owned MSTR and we didn’t hedge it or if we owned a massive position in it, then we’d be in trouble. There’d be no easy way through the trade.
A stock MSTR is difficult to fully analyze and understand. It’s also why we employ the hi-pro strategy. In doing so, we have a lot more visibility into the likely future direction of the stocks we buy.
When buying things like MSTR, PLTR, APP, HOOD, RDDT etc., visibility is extremely murky. These are not established companies.
So for us, we wouldn’t own any of these in our long-term portfolios without having hedged them.
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So to answers your question, in terms of the positions we own in Arryn, Lannister and Stark — long-term calls — we hedge by purchasing puts when protection is cheap and by selling covered calls after a long drawn out rally that is nearing the end of the time-price cycle no an intermediate-term basis. We generally sell intermediate-term covered calls — calls that expire in a few months and cover those positions when the market has sustained a correction.
thank you so much!!
The logic makes so much sense.
With the gloomy current market, i wonder how much IV drops would affect on NVDA tomorrow earning report.
Probably a lot. But spreads aren’t as impacted. And if Nvidia rallies after earnings, spreads will go up in value in spite of the iv crush.
What would be the best action here given that I did not buy call-spread for NVDA for Apr option ? Is it better just to cut the loss before earning tomorrow or hold through the IV drops ? Wish Robinhood did not introduce the crap level testing for Call-Spread usage jeez.
“With 1 contract long positions, if the QQQ continues on up to $530 — then we close out the trades and we eke out a gain probably.” — Does this imply the spread will lose $ when closed out at $520?
You had mentioned we can hold them longer because they are spreads. Just want to be clear why we would be anticipating a losing trade when they were just placed?
Not the whole spread. No chance. Our entire positions would be green at $520. But our first entry may be red. It really depends on where we close the entries. Because our first trades were done in the low $520’s. So let’s run through what actually occurred in Baratheon so you can see how this all works.
NASDAQ-100 (QQQ) May $540-$550 Call-Spread Trades Feb 24 -25 (Baratheon Portfolio)
3 contracts @ $4.10 (first entry)
4 contracts @ $3.05 (second entry)
3 contracts @ $3.40 (third entry)
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10 Contracts @ $3.47 ($3,470.00 or 30%)
Now suppose the QQQ rebound to $521.47 or something I’m concerned it’s going to roll over. Suppose our $540-$550 Call-Spread is now trading at $3.90.
Technically, from an average cost-basis we’d be up like $0.43 on 10 contracts or $430 total.
But we’re not going to hold 10 contracts. No chance. So we’d sell the first set we bought. That’s 3 contracts @ $3.90. That can be recorded as a $0.20 loss on 3 contracts, or as a partial sale of 3 contracts on a $0.43 gain.
The way we like to trade it is like so. We like to buy cheaper lots and then as we climb back up, we dump the more expensive lots. Think about what that does for us. It means it’s the same as if we had entered at $511 and never made that original trade to begin with.
That in turn means the QQQ can sustain another leg lower and we’d be able to buy back the positions we sold.
But that’s all just an accounting viewpoint. The reality is that we’re long 10 contract in the spread at an average cost of $3.47. we’ll reduce down on the way back up and use the gains to off-set any potential loss we might take closing out partial positions in the individual stocks we bought.
Thanks, that makes sense. I understand now that while I can think of it in terms of selling the ‘older lots’ for my own tracking, the actual execution is based on the average cost basis. Appreciate the clarification!
Given the length of corrective time and the oversold conditions do you see that the timing of NVDA earnings + inflation data on Friday as a catalyst? Regardless of the outcome on earnings/inflation, have you seen setups like this in the past? Any coorelation to where the market goes as a result?
Say NVDA ER today is not great & the market is dumping.
How low do u think its gonna go if that happens, given that it’s in oversold condition now?