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Sam, if this is accurate, do you think nvidia is rocketing? 😉
I think it’s going to depend a lot on what management says. The market is going to want to hear how Deep Seek won’t impact the long-term business model. That’s the whole ball game for Nvidia right now. Sales won’t make a difference if management can’t reassure the market about the future. That’s what this entire sell-off has been all about.
No one doubts the current earnings trajectory. As we’ve shown, Nvidia is slated to surpass both Apple and Microsoft in earnings THIS year. The key is in convincing the market that this trend will continue in spite of Deep Seek’s threat of optimization.
With GOOGL oversold after earnings, is it worth consideration as well?
Not yet. We talked about Google yesterday. We’d like to see it get a lot more oversold and then form a base like Microsoft did.
Do you plan to hedge Stark today or tomorrow?
We may do that actually really soon. For Stark, I’m watching the January 2026 $480 calls. The problem with Stark is that the QQQ still hasn’t rallied quite enough to get a full hedge going cheaply.
We’ve created some distance between our entry near $500 and the current trading price at $527. But the puts are still relatively expensive as compared to our entry.
So we won’t be able to fully off-set the loss of a crash. But we can very well substantially off-set it to a high degree. Making it still worth it for us if a crash occurs given the massive reduction in overall cost-basis.
Like a hit to the portfolio is always worth the trade off of being able to buy asset son the cheap.
If the QQQ falls 40%, a 20% portfolio is definitely worth it. Now we wouldn’t get hit that bad. I think for us, we’d take maybe a 6-7% hit to the portfolio. but the point is that it’s wroth the trade-off because then you end up with a very cheap position.
Like right now if someone said, would you be willing to take a 20% hit to your assets in order to buy QQQ options at $330, I’d say YES! no problem. because we’d be able to buy for the inevitable run back up to $500 which in option terms is like 300-400% gains.
So that’s where we sort of stand when it comes to Stark.
We’d buy 2 contracts in the $480’s. we own 3 contracts in the $500’s.
For now, we’d not hedge the NVDL or Apple. we’re going to wait a bit on those. NVDL has no expiration data. so we’d be more inclined to hedge Apple before we hedge NVDL. Still, given the $40k cash, we wouldn’t hedge either until we’ve reached a high enough level where it makes sense to do so.
Actually we’re going to do the $500 puts. Not the $480 puts. January 2026 $500 puts is what we’re going to do in Stark. In Frey, we’re looking at the January 2026 $450 puts. That gives us 11.5 months of protection in both portfolios against our core postions.
Hi Sam, I’m a little perplexed by the wording as you say that this could be the beginning of a bear market but expect Nada to pullback and go on a pre-earnings run. Would the start of a bear market not drag it down along and cause more potential downside than 113?
So you’re mixing up the difference between RISK and what is likely. When you get on airplane there’s a risk that it could crash yeah? The risk is small. It’s something like 1 in 7,000,000. Suppose something happened that caused that number to increase to 1 in 1,000,000. You’d still be concerned about the increased risk.
But what is LIKELY to happen is very different than what will actually happen. You still have to get from point A to point B and the risk is till relatively small.
Right now, the bear market risk has increased. Our short, intermediate and long-term outlook is still UP. We’re still expecting that this will be a regular situation. But it’s worth hedging out the RISK.
Similar to perhaps buying life insurance before getting on an airplane when the odds have increased from 1 in 7 million to 1 in 1 million.
All the hedging we do is to clear out risk of bad things happening. But our expectation based on the totality of circumstances is long. If it weren’t, we wouldn’t be long at all yeah?
Thank you for explaining this to me
Thanks, never getting on an airplane after this ????
So hopefully this restores some confidence. In order to be involved in a plane crash, here are the odds in concrete terms.
If someone boarded a commercial passenger aircraft with a take-off and landing cycle every day for 22,000 years consecutively, then at that point, they’ll have participated in enough flights to experience 1 single plane crash. That’s 8,030,000 flights. 1 in 8 million.
Every day for 22,000 years. For context, 22,000 years is this big:
-If a worker who helped build the Pyramids of Giza began this experiment 2,500 BC, they’d only be 1/5th of the way through. They’ll be on flight 1,642,500 out of 8,030,000 flights needed.
-If someone rode a plane every day from the moment they were born until the day they died as a centenarian (someone who lives to 100), they would only complete a mere half-of-1% (0.5%) of the required flights. Everyday, birth to 100 years old and not even 1%. One would have to live to 200 and do this and then they’d reach 1% of the required flights.
Any chance we gap up on amazon earnings on nvda and then see a downside/straight run up? should we wait until after to hedge or hedge right now for Baratheon. Frey stark options make sense on the qqq.
Sold my Nvidia call so now it won’t pullback and will moon to 150$. You’re welcome guys????
Same with me and NVDL, lol.
Lmao! There’s hope for us tho, NVDA reached an RSI of 68 on my chart, super close to overbought, might have another good entry point soon????
If I understand this correctly, our $240 calls from the $230-240 spread could be assigned? Would it be better to sell the spread and wait until after the ex-dividend date? Robinhood will not let me close out the short end of the spread separately, but I could sell the spread and buy the contracts individually. Maybe I could sell the $240 calls again after the ex-dividend date?
Hi Josh — so I’m not super familiar with how Robinhood operates. One should always be able to cover the short side of a spread if they have the capital to do so. If Robinhood doesn’t allow that, I would very strongly consider finding a new broker. Charles Schwab and the thinkorswim platform works really well. in terms of this idea of being assigned the $240 calls, read the thread at the bottom of this page here. It’s very short. Look at Julie Tran’s final follow up comment and my response. It’s exactly on point here and concerns the idea of being assigned the $240 calls. My response is the literal final comment on the page. So very easy to find:
https://sam-weiss.com/trade-alert-baratheon-portfolio-2/#comments
Okay, thank you!
Hi Sam,
Could you explain your mental framework on the strike and expiration date for the QQQ puts you purchased in Stark? I’m trying to develop a step-by-step mental model so I could perform a similar hedge in the future without relying on external guidance (“learning how to fish” as you might say) 🙂
Thanks!
You should take this question and post it here:
https://sam-weiss.com/investing-basics/chapter-3-qa/
Add more details to the question, such as what we bought, what we owned, etc. That way, I can provide a response that can be referenced in the future beyond today’s daily briefing.
But here’s the answer (grammar/spelling edited with Ai and then response re-edited by me).
How to Construct an Effective Hedge
When putting together a hedge, you need to run different hypotheticals.
• What exactly are we protecting against?
• What is our biggest concern?
• What doesn’t matter all that much?
In this case, we’re primarily concerned about a 2022-style bear market or a 2008-type financial crisis. We’re not worried about a basic 10-20% correction that will be recovered anyway.
If a bear market happens, we would expect QQQ to decline by 40-60%.
• In 2022, QQQ dropped from a high of $408 to a low of $250, a 39% decline over 6-10 months.
• If we apply that to today, a similar 39% drop from QQQ’s current high of $539 would bring it down to $330.
——–
Impact on Our January 2027 $500 Calls
We own 3 contracts of the January 2027 $500 calls, purchased in Stark for $25,260 ($85 per contract).
To estimate what happens to these calls in a crash, we use an options calculator like this:
https://www.barchart.com/options/options-calculator
Adjustments in the Option Calculator for the Crash Scenario:
1. Increase volatility to 35% → Volatility spikes in bear markets so we increase volatility in the options calculation.
2. Reduce time until expiration by ~6 months → Since we expect the crash to take time to unfold, we reduce the number of days in the option calculator. We then compare the final price to an option TODAY that would be similarly out of the money with the same time to expiration. For example, the $670 June 2026 calls are $170 out of the money and have similar time remaining until expiration. That comparison helps give us a comparison to the option calculator results.
Based on this:
• If QQQ drops to $330 over 230 days and volatility rises to 35%, the calculator estimates our calls would drop from $85 to $15 per contract.
• That’s a loss of $70 per contract x 3 contracts = $21,000 total loss.
The $670 June 2026 Calls are $10.00 without the increase in volatility. So the option calculator is right.
——-
So How Do We Hedge This Loss?
Now that we know our $25,000 long position could experience a $21,000 loss in a bear market, we need an effective and cost-efficient way to protect against that. We can’t pay for too much or too little insurance. Too much insurance eats into our profits. Too little and we can get crushed in a bear market.
Since we own the $500 calls, we start by looking at the $500 puts. The key is:
• Buying puts each year to hedge our position.
• Selling premium to cover the cost of the puts so protection remains affordable.
• Avoiding excessive protection that eats into profits.
——
Evaluating the $500 Puts
Today, the $500 puts cost $24.15 per contract.
Let’s first consider buying 3 contracts (to match our 3 calls):
• 3 contracts at $24.00 = $7,200 total cost.
• If QQQ rallies to $600 instead of crashing, we would lose this full $7,200.
• Our long position is $25,260, meaning we would need to generate at least a 28.5% return just to break even.
Let’s see what happens if QQQ actually crashes to $330:
• At $330, the $500 puts would be worth $170 intrinsically.
• So, $170 – $24 = $146 profit per contract.
• $146 x 3 contracts = $43,800 in profit.
That’s way too much protection—we only need to hedge a $21,000 loss.
How to Make the Hedge More Affordable
• Cost of 2 contracts = $4,800 ($24 x 2 contracts).
• We can offset this cost by selling covered calls throughout the year.
• If we can reduce the net cost to $2,000, we’ll still profit massively if QQQ rallies to $600.
Final Takeaway: Running the Math is Essential
This is how you systematically determine the right hedge:
✔️ Run bear market scenarios using historical declines.
✔️ Use options calculators to estimate the impact on existing positions.
✔️ Identify the right number of put contracts to match expected losses.
✔️ Offset hedging costs with strategic premium selling.
Each year, this process needs to be re-evaluated to ensure the hedge remains cost-effective without sacrificing too much upside.
Thanks Sam! Sorry for the delay, but I finally got my question up on the Q&A section (https://sam-weiss.com/investing-basics/chapter-3-qa/#comment-1788). Waiting for approval right now. Hopefully I gave enough context for future readers!
Any opinions on QCOM ? Earnings were good but stock is down.
I don’t follow QCOM closely. I can say this. From a purely technical point of view, it’s not oversold on the hourly or daily and there are some key levels for QCOM to go down and test. If I had to guess, QCOM looks like it wants to trade down to the mid-to-low $160’s before beginning a rebound. There’s even a big gap to fill down near $160.
With the NASDAQ-100 possibly setting up for a peak here soon, we could see QCOM push lower in the coming days. See attached image.
The good news is that QCOM does closely follow oversold indicators. If it falls back to the low $160’s it likely rebounds back up to $170+ right afterward.
A couple key things to watch. First, if the QQQ can push past $530 and make a run back to the highs, chances are everything goes on a run with the market. If QCOM’s earnings were really good, then it will push back up to its highs on that breakout run.
At the moment, we’re very skeptical on whether the QQQ can make that breakout move. It’s why we just hedged our NVDA $125 calls a few moments ago.
Thank you for the detailed response. Very helpful!
Any ideas for Baratheon if restricted? DeRisk?
in general of course.
In Baratheon, if we couldn’t sell covered calls, we’d sell our position.
Fourth green day in a row ! We haven’t seen this in some time. Let’s push through 530 now. Daily RSI is still just at 57 so there’s a lot of room to expand.
You spoke too fast. Market pulling back due to inflation concerns. QQQ miserably failed breaking though $530 resistance level.
So we’ve also reached key lines of resistance in both the QQQ and in Nvidia right? Those were the key areas the market was going to run into trouble.
We didn’t quite get overbought enough, but it’s clear there’s strong resistance at that $530/$130 level for QQQ/NVDA.