Samwise Quick Reference Handbook
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Hey Sam,
what are your current short-term expectations for MSFT (which started rallying since yesterday) in the context of the ongoing QQQ correction cycle?
Do you expect another pull-back off of overbought conditions or could it align with the next QQQ rebound in such a way that it ignores overbought RSI and fills up part of that recent earnings gap?
buying nvda calls?
It seems like we’re testing the lows every day now. Is that part of a bottoming process?
Market will get worse before it gets better lol
Yeah just try to follow the analysis. Look up positive divergence and three push. That will give you sense of where we’re at.
You just have to be patient. It’ll all unfold higher ultimately and the positions we’re holding right now will be deep green. You just have to wait it out.
It’s uncertain as to precise timing until we have daily oversold indicators. This isn’t some long-drawn out process however. It may feel that way. but it’s not. we’re 11-days in and the whole thing typically ends at day 20 and we fully recover within a few weeks after that.
I’m going to post something that will illustrate this well in a moment.
I think there’s a lot of anxiety as we approach April/May, and theta will start kicking in quickly.
How do you stay confident in your decision making in the short term trades, while we are in a bear market like this? Seems sentiment is low and there are many negative catalyst ahead of us.
I’m confident in what we’re doing and in our trades. I feel like we’ll end up with very positive gains.
Let give some perspective here. The may expiration is 52 trading days from now minus holidays. I’l have to look up easier and good Friday. Minus those days, it’s 52 days from now.
The correction has been 11-days long so far and we still havent’ had our regular dividing rebound that we’ve had in every single past correction, crash and bear market. Usually by the point we’re at now.
For example, go to 2022 bear market. During that correction, the market erased HALF of the losses on the first rebound. The QQQ erased half of the first leg down. Same with August.
Those rebounds take 3-5 days. we’re 11-days. 3-5 days for the refund. It might start on day 11, 12, 13 or even 14. It’s still only a 5-10 sessions window we’re talking about here.
It’s easy for time to feel very prolonged in corrections when in reality, it all plays out very fast.
I know you are going to update soon. I feel like I want balance my NVDL in Lannister and Stark with a little buying. What risk level would attribute?
We’d only buy in long-term portfolios at correction lows. Long-term positions we’d wait on. That’s just us. We’re not adding to Stark or Frey until we have a full bottom in teh stock market. To get that, we need overbought $VIX, low $NYMO, second leg lower and capitulation. We just don’t have that yet. We’ll buy after the market has its regular rebound and retest.
when would be a good time to load up on Tesla . Are you thinking it will break 250?
So we may add to the Tesla July call-spread if we feel the QQQ has bottomed. Tesla is tied to the market atm.
If today ends up being deep red, does this add to the probability of being in the single leg case? And if we are indeed in the single leg case then how much further do you anticipate it will go?
The single leg case skyrockets if we see long-term indicates flare up. So if the $VIX pushes overbought, the $NYMO hits -100, the QQQ RSI drops to under 30 and we’re past 10% on the correction line (which I think we may have just crossed). These things happen, then we have a higher likelihood of a single leg correction. Because those are major bottoming indicators.
If we have capitulation, that’s another one. Capitulation is massive down day followed by an instant intraday recovery of hte losses.
I think we were are at -9,4% at today’s low.
540.81 − 486.20 = 54.61 / 540.81 = -9.4%
I get 10.10% loll. Same exact math. $540.81 – $486.20 =$54.61/540.81 = 10.097%.
But I haven’t long handed it. Maybe Apple’s calculator is broken.
Holy you’re right. I must have had a chair-computer interface issue 😉
Have you noticed that Androids are starting to get notifications more immediately? Mine has been instant lately after we reached out to our platform developer. They havent’ gotten back to me yet, but they’re usually really good about doing so. I noticed over the past 2 days it has been instant on android. It’s always instant on iOS.
I don’t think so, but I will pay attention to it and come back to you.
This morning I’ve installed the Android March update on my Pixel. It has a new Linux kernel. I will keep a record of the notifications time.
It’s nice to see that USA delayed tarrifs for anything that falls under CUSMA with Mexico. Canada is being more firm and saying they want all tarrifs lifted, and they want to ensure they dont “go through this psychodrama every 30 days”. Add to that the jobs report tomorrow with all the recent federal lay offs, i’m not sure we’re getting much relief anytime soon.
Sam, NVDA is $110, are we loading up?
Sam. Nvidia went down to $110. Are you still going to buy at $110 or did that change? thanks
About TSLA, isn’t it the selloff is more due to weak sales and news about eu and canada tariffs. If it is due to weak sales, rebounds to previous high wouldn’t happen unless there is a blow out number, my confusion point is, when there is a correction all stocks get impacted, so sell off is across the board, but when there is a rebound, rebound is more for stocks with growth than stocks that have weak earnings.
Ex, Meta or Avgo or Nvda, these stocks would rebound when correction period is done. compared to these tsla earnings were pretty damp.
Test out that thesis. See if it holds true. Go back to all of the previous times Tesla dropped 45-60%, find out why it sold and why it ultimately recovered.
The argument you’re laying out is “this time is different.” For this this time to be different, there needs to be something actually different.
If none of those other periods involved any fundamental catalysts and Tesla just randomly crashed 45% for the hell of it, then the argument is strong.
But if there were fundamental catalysts during all of those past sell-offs, then why should this time be any different?
With Call spreads, for ex, the tsla spread , the short leg is now in green , if we are bullish about rebound, wouldn’t it make sense to close out the short leg which is in green and ride the long leg of the spread , essentially make money on both direction of market?
Too much allocation is the issue. So if you close out the short leg, you run into having to allocate. Also, if it continues lower, you no longer have the short leg losing value.
It makes sense in theory. A lot of sense. But then you have to allocate more to the trade. Specially to the may spread. If I’m going allocate to Tesla, I’d rather buy the July spread and close out the May spread when we rebound.
That way when I’m allocating, I’m allocating to July given me a much longer time-frame for Tesla to sustain a full-blown retracement.
100%, good point, didn’t think from allocation perspecive.
with closing short leg, we get into lot of concentration into TSLA. Unless we have a bounce off quickly to exit long leg, we will be stuck.
alright Sam, squeeze my last bit of portfolio to follow the trade. Let’s see if we make it ????
That does not sound good at all. Don’t forget that this is all only a 15% allocation total of our strategy. Trading is a small part of what we’re doing and we’re sitting on 30-40% cash on that 15%.
I’l be honest with you. 99% of our success is based on allocation. I’m not just saying that. It really is. When it comes down to that the one singular determinative factor. How much we’ve allocated. What we’ve bought. And when those purchases were made. Without that, it fall fails.
Early on in the correction for example, we only allocated like 15% long. That’s it. Small trades early on. we didn’t start really going heavy until the QQQ was nearing $509. And even then we sold off a lot of that on the rebound.
Just keep in mind that Baratheon and Targaryen only work because of the allocation issue. We’re still green on both portfolios overall since trading started. we only have that result becuase of those two things.
Thank you Sam ????
You and me, I got a bit too excited during the first few dips and now I’m over-allocated and didn’t sell enough.
Also, maybe I sell my ETF to get some capital back.
What’s your thought between SCHD, VTI and QQQ Sam ? What’s your point of view between long term ETF vs long term option ?
Sam, is Targaryen still green? Not sure how often they are updated, but I am following the portfolio and down slightly. Initial audit for the Apr LONG 140C/SHORT 145C the market price shows $1.20, however it is about 1/3 or half that on my trading platform.
It doesn’t matter much, but did send me into a frenzy that I missed a trade or something!
Targaryen is down slightly right now. That spread has to be updated by hand. It’s a small position now though as we reduced it down significantly. Completed trades on Targaryen amounted to a 55% return on basis. But position wise we’re down right now slightly.
Baratheon I’m pretty sure we’re green on. I got to update some of the legs as the system uses some poor pricing metics depending on where it’s pulling from. Some positions I have to update manually to get it right.
We’re up about $35 on Targaryen. we’ve made $2550 in closed out trades. Which means we’re about 2500 under water on trades right now or about down 30% from our highs. Such is the case when we’re dealing with high yields.
Baratheon has done better in the correction which means if Targaryen is up $35, then Baratheon is deep in the green. I’ll go take al look and adjust positions as needed.
Targaryen is flat. Baratheon is up about 10% still from when we stated December 19. Baratheon is down about 25.9% from its highs. Targaryen down about 30% from its highs. That’s about 2.5 to 3-1 leverage on the QQQ.
When you say “ Now if this leg gets down to 12%, we may very well change our entire mind on that. I f the QQQ pushes down to $480, we’ll likley get into longterm positions there.”
Does this mean that the likelihood of a second leg down is reduced?
Not just reduced, but we have to consider opportunity risk at the point. Suppose the market doesn’t have a second leg lower. We can’t go back and then buy.
But at 12% down, we’re happy doing so. Sure it might get down to 14-15% in the end and we dont’ have to buy at the absolute low point.
Remember, our long-term investment strategy calls for buying at a 10% correction to reduce the impact of a bear market.
We’ve already gotten that reduced risk scenario here at 10%.
If we get down to 12%, we may not have another opportunity to buy liek that. So it’s more about managing opportunity risk given that we’ve already offset downside risk by waiting for 10%.
Basically the balance of opportunity risk v. capital risk shifts to the buy side at -12%.
Look at the table we posted above. Note just how few corrections go further than -12%. It’s rare. And after -14%, we’re talking less than 15-20% of all corrections go further than 14%.
Hi Sam,
Just want to better understand the reasons behind why we wouldn’t close out the short legs on our NVDA April call spreads if we’re expecting an aggressive rebound from NVDA in the short / intermediate-ish term. The short legs on those NVDA April call spreads have lost ~90% of their value and would be cheap to buy back. I took a look at the options profit calculator and the options profit table doesn’t look the best so I can understand the argument for not wanting to close them out. I’m also aware of the time and time decay component of having open ended calls this close to expiration. With that said; I understand both sides of the coin here and mainly want to deepen my understanding so I can navigate these situations with more conviction in the future. Thanks! 🙂
So we simply don’t want to allocate toward April anymore at all. Right now we have limited risk in April given that we went short hte April calls right. We’ve reduced down our basis considerably in doing that.
But July calls sure. So it’s just a question of where best to place our capital. we can use some capital toward closing out the April short call or toward July spreads. We decided July spreads.
Thanks Sam! This makes a lot of sense to me, greatly appreciate the extra rationale / clarification.
So on this trade specifically also you have to consider this.
From a timing perspective, the 140 calls may have a very, very limited recovery.
So we might have a situation where the 125 calls go up considerably and the 140s don’t recover as much given time until expiration.
Also, we’re getting that return from the July call spread.
Now obviously if Nvidia rebounds all the way to 130 in the next week or two, which is very possible, than the 140 April calls are going to perform better than the July call spread
However, we still do have the issue of risk. Right now the entire position is not that valuable. If we buy back the calls, it costs us $100 that we’re adding into the trade.
That hundred dollars that were paying may do a lot better buying back those April calls, but it’s just a high risk position now.
If we were holding the May expiration then there would be a good argument Especially if it’s only $100 like that
Gotcha, just to summarize to verify my understanding:
This sounds like it’s a balance between risk and reward. If we were to transition our April spreads to open ended calls we’d be taking on substantially more risk than the potential reward. The open ended April calls might perform better if NVDA starts rallying hardcore, but we add unnecessary risk as we would be making a very directional and time sensitive bet on NVDA. This is in stark contrast to the July spreads where there is less risk due to the additional time for us to be correct on NVDA’s eventual price movements. However; the open ended April calls might perform better than the July spreads if everything goes perfectly so we’re sacrificing some potential reward, although probably not by much given the risk we’d be taking on.
Does my understanding align with everything you said?
So I was talking the $140 calls specifically. Right now, dollar for dollar, if we buy back the $140 calls, it would cost us $100 right? I’m saying that the $100 investment in the $140 calls will probably do better as they probably appreciate to $300 on the rebound than would the July spread which might double on the rebound. So July spread maybe up 80-100%. April $140’s potentially up 200%.
however, there are three other issues at play:
(1) the risk that the $140’s don’t appreciate at all due to theta decay impacting the recovery. So while the $125’s might rapidly recover, the $140’s might not depending on timing;
(2) the risk that the Nvidia rebound is delayed causing the $140’s to decline and off-set our losses in the $125’s near-term.
(3) The risk of total losses. Right now, we only have a mere $0.70 at cost-basis in the trade. $70 is all we’ve put in since the start of this entire trade. We bought the $125’s at $11.95 and sold the $140’s at $11.25. we should have just close out the dumb trade up near $140. My gut instinct was right at the time. We should have just called it.
Anyway, those are the three issues at play. It’s only $100, however. So it’s all minor anyhow.
It might be better if the most recent briefing updates showed up at the top of the page, less scrolling for people checking the page throughout the day
I’ve thought about that. And I’ve thought about a system of having it both ways. The problem is that it’s extremely distracted for anyone who hasn’t read the last 5-6 updates. If they come back later in the day, reading non chronological ordered blog posts is really distracting.
Trying to figure out a way to make it so that we get the best of both worlds. I’ve thought about a sorting system maybe.
If I’m viewing your Daily Briefing article on my personal computer then I just press the green plus button that brings me all the way down to the comment section and then I scroll up to get the latest update.
If I’m viewing your Daily Briefing article on my mobile phone then I have to scroll all the way to the bottom so that’s unfortunate. It would be great if there was a button on the mobile app that brings you to the bottom as that would solve this problem in a loose way.
im on mobile app and definitely prefer chronological since I check updates throughout the day
I think it’s fine to leave as is for default setting and add an option in settings to switch to most recent at top of page for those that want it
yeah, that would make sense. When you get the push notification of the briefing update and you click on it you have to search for it.
Maybe I’ll hold a poll on the issue. This is an extremely easy fix by the way. I can fix this with no effort. So let me hold a poll and see if people would rather have updates at the top of the page instead of chronologically as a default. Then we’ll work on a way to give preference so people can flip it.
Regarding this statement “ Our plan with Tesla right now is to unload it on the inevitable rebound off of deeply oversold territory or we may unload after the corrections ends in a few weeks”
Would it be better just wait for the correction to end as May expiration is still far?
It depends. I don’t want to take unnecessary risks. The most ideal situation would be to buy more July spreads at a point where we feel confident that a near-term bounce is on the way and then sell the may spreads. That way we’re just in a comfortable position to capitalize on the eventual full run.
Last time we did it in reverse and it worked out really well. But we were lucky there. Like the next time the market rallies it may not go back.
So I think we may buy more July contracts soon and then use the rip to sell the may contracts hopefully. near even or at a small loss.
If QQQ retraces 50% do you expect NVDA to retrace 50% of it’s losses? (Roughly 140 to 110 so 50% would be back to 125)
Yeah, that makes a lot of sense. Maybe a little higher. Nvidia has tended to rally about 20 points off of oversold. We’ve seen that very very consistently. And we’ve seen that off of a small rally in the market. A much smaller rally than we’re expecting on the QQQ.
So I think we could see Nvidia snap back to 130 even. So far, we haven’t seen more than an intraday rally on the QQQ and maybe one green close.
The environment is a lot more positive when we’re going up three or four days in a row.
And the retracement will probably happen before the second leg down, right? So 110->125->100ish->135ish? (Spread out over the course of a couple weeks)
Yeah. the only thing I worry about is the 2nd leg down part. These things don’t normally go single legged liek this. It’s not normal for the QQQ to drop 10% in one big leg down and then not continue to the downside.
Ignoring oversold codifies has only ever happened on multi-legged corrections. That’s the only time we’ve ever seen that happen in any recent time-frame.
Why are you worried about it? Won’t we be long enough to profit even if it starts rallying from here?
Frey and Stark aren’t fully invested yet. Also, we have a big chunk of change on teh sidelines in the trading portfolios that we haven’t deployed.
Thank you Sam for today. My comment got buried so I am asking again here:
What’s your thought between SCHD, VTI and QQQ Sam ? What’s your experience trading other non-tech sector ? What’s your point of view between long term ETF vs long term option ?
All three are excellent. I like all three. We just choose to go with the QQQ given the alpha. In terms of stability the Vanguard fund is probably the best overall.
Long-term common stock versus longterm options just depends on one’s goals, risk tolerance and time horizon.
Vanguard and QQQ generally follow the market. If you place the SPY, QQQ and VTI on a chart together, they have the same exact trend with only difference in total performance. But it’s the same general direction.
Here you go. SPY/QQQ/VTI all tougher. The look identical.
so tired of all these orange swan events