Samwise Model Portfolios
The portfolios below are separated by launch dates. Each portfolio is entirely independent and has no bearing on any other model portfolio. We launch entirely new portfolios during each market correction as an illustrative tool for new subscribers who weren't present during...
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In your mind, does the coming transition of power in the branches of government have an effect on the likelihood of a correction in January? If so, does that merely decrease or increase the extent of the correction or could it have more impact?
So I do think it’s just another factor that could contribute to volatility. The market doesn’t seem to care all that much what happens within government leadership. We still haven’t seen many past instances where the market has reacted negatively to perceived turmoil within the executive branch.
During President Trump’s last term, there was a lot of turnover within his cabinet and that had virtually zero impact on the stock market.
I think the market just wants to make sure the federal government doesn’t have its hand in the cookie jar, so to speak.
Policy has a much larger impact. Look at the market today. We’re making new all-time highs right now and yet the market also knows that there’ll be a change in government next month.
It’s known information today. The market neither sells-off nor rallies on known information. That info could act as an accelerant in the sense that it may contribute as a factor in the selling process.
Or if the transition goes very poorly in some unexpected way. There needs to be some surprise in store and that surprise need to somehow materially impact the stock market.
Thanks. With QQQ and NVDA coming out of overbought on the hourly and trading slightly down for the day, along with SPY, what do you think the chances are that we have an end of the week selloff tomorrow that takes us right into that pullback?
It’s very high. In most cases, we need to go through negative divergence first. So you get a slight pull-back, then new highs first. But other times, you get a straight sell-off.
Once you get to overbought territory like this, the risk for a pull-back happening at any moment is high.
Whether it begins now or early next week, we really won’t know until the index is down 3-4%. So for example if the QQQ falls under $515, then we’re probably on the pull-back already.
With a peak at $524.04, the QQQ should fall to around $508-$510 if it has already started its typical pull-back.
Note the Nvidia update at 12:55 PM EST.
See 3:00 PM comment on December seasonality.
This is great stuff matching he historic Decembers trends with the tax avoidance explanation.
I am sitting on some short term gains from earlier this year and it makes me reluctant to sell anything in December because I don’t want to pay the higher short term gains.
What are your thoughts about selling some stocks and capturing long term gains in early January, even if it hasn’t been 2 years yet, and then waiting for the ever more likely correction to buy back in come February, vs just holding for another year?
I know the running advice is to buy and hold for 2 years so I am curious to get your thoughts!
So strategically, I can tell you what we’re going to do in the same situation.
Instead of selling our core position, we can sell DITM calls which has the same exact effect as selling.
For example, suppose we think Nvidia is going to drop due to a correction in January. Rather than selling the stock outright, we might sell the January 2027 $50 leaps.
Doing so would essential put us in cash. After the correction ends, we cover the $50 leaps.
It’s the same exact outcome. We avoid the correction. We essentially do the same thing as selling our position. Except we never realized anything. There’s no tax event. Only on the profits generated from the short sale.
But as to our core long position, we still have long-term capital gains
ah that makes sense! I unfortunately only bought common stock but it seems to me that having a mix of common stock and leaps is probably the best strategic mix of lower volatility while being able to catch the correction waves.
Thanks! Your comments are appreciated!????
Not sure if you’ve read the information in investing basic. Core investment principles. But I do think there’s a lot to get out of it. That and the section on options.
So I probably could have been a little more clear. Let me give an example as it might help out here.
Take a close look at the Tarly Portfolio by clicking the tabs above at the top of the article.
If you look at the portfolio, we own 250 common stock shares in Nvidia bought on August 5.
Now let’s play out some scenarios. Let’s image we believed Nvidia was going to top here and let’s further suppose we had bought these shares over a year ago. Let’s say we bought them in July 2023.
Now if we sell them right here at $142 a share, we’d produce a $42 per share profit and have to pay long-term capital gains on $10,500 profit right? With me?
With me so far?
Now we’re never ever going to do that. In fact, we probably don’t sell this position for a decade. But we’ll take profits. Just not a way that forces us to sell our shares.
Allow me to explain how. If you look at the January 2026 $70 call-options in Nvidia, they’re trading at $78.50 per contract.
Now since I own 250 shares of Nvidia, I’m allowed to “sell-short” or “write” 2 contracts (representing 200 shares) of the Nvidia January 2026 $70 call-options for $78.50 per contract.
These options have a “delta” of 0.93. What does that mean? It means these options will drop in value by $0.93 for every $1.00 Nvidia drops. Think about that.
If we felt Nvidia was about to sustain a big correction and we wanted to sell our shares — but we’re worried about paying taxes — one way to be able to effective “sell” the shares without really “selling them” is to simply just short/write the $70 calls in Nvidia at $78.50.
Now here’s what happens in a correction. If Nvidia falls $30 from $142 down to $112, we’d lose $30.00 x 250 shares or $7500 right?
But by selling the January 2026 $70 calls short, those options would also drop in value by $23.50 down to $55 or lower (if things get bearish).
Those 2 contracts would yield a profit of $4700. That would reduce our loss down to $2800.
While selling would have obviously been better, it’s important to realize that we get to continuing holding our shares and can use the off-set to buy more shares at the lows. What’s more, the hedge works even better if one has a round number of shares. At a flat 200 shares (instead of 250), we lose $6000 and still off-set $4700 resulting in a net loss of $1300. But we can then use the gain on the short sale to buy more shares and we get to remain long the entire time.
And you an also go deeper in the money to get an even stronger hedge.