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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Hi Sam, I was wondering if it would be better to trade slightly above the bottom or setup the trade now expecting the lower prices to fill our orders sometime in the next few hours/days? How do the risks for simply buying stock versus performing options trades differ should things not go as predicted in the near term?
Maybe the second question is already answered in the call options section in investment basics but it is a comparison of call options vs leveraged stock and whether it makes sense to hedge even on a deeply oversold buy point.
It always makes sense to hedge, it’s just a question of when. A hedge is going to be more effective if you buy that hedge on a small rebound.
So if we purchase the calls and the hedge at the exact same moment, the hedge will be far less effective, but it will give us a wider degree of coverage from a time perspective.
Suppose we buy Nvidia at $131 and the stock rolls over to $128 and we haven’t hedge. At that point it’s too late.
We use the high probability of a bounce due to oversold conditions as a way to be able to buy a hedge. We assume the small risk of continued selling through oversold conditions. It happens sometimes, but it’s rare. And in most cases, if you wait until things hit extremes, the further selling just leads to an eventual rebound back up to our cost-basis anyway such that we could exit or buy the hedge then.
But overall, the hedge does matter. Last week, we had to absolutely hedge because like we saw in August, there’s always the risk that after a small bounce, the market rolls over.
We did’t see it last week, but it happens all the time. Dissect what happened in the last 5-6 corrections and you can see that quite clearly. The QQQ could have easily rebounded to $504-$505, stopped and then fallen to $482 within a very very short period of time. The hedge we had on last week would guarantee we profit if something like that happens versus losing 50% on the trade. If the QQQ had fallen to $482, our puts go ups o $18 which is more than the cost of the calls ($1500). The calls would be worth $700 and we’d be able to sell our puts for $1800 leading to a $1k profit + the ability to put on an even larger trade. Hence why hedging is fundamentally important.
yes that was very well done last week. Thank you for reiterating the time decay aspect along with the precision needed to execute the trade.
So keep in mind we’re doing all of these things in a relatively small portfolio of $5,000. None of the Targaryen trades would be appropriate at any scale as the risk profile is as high as it gets. Targaryen is an extremely high risk high reward portfolio.
We’re also trading near-term options here which require paper thin margins of error. With the short-term, the biggest worry is time by far. So for example, if we buy February $130 calls expiring on the 21st of February, we need everyting to go right with a 10-15 session period of time or the options start to lose value.
Look at the January QQQ $500 calls we just traded recently. We bought them at $15.00 when the QQQ was at $496. I think we did this just 8 trading days ago. Today’s Wednesday and we bought it the Friday before last.
Here we are with the QQQ literally $7.00 higher from where we bought them and yet they’re trading only at $15.68. So while the QQQ rose $7.00 in 8-days, the options barely moved. This is time (theta) decay impacting the trade.
So the big thing is time. We need everything to happen right on point. The NVDL while more risky than NVDA, is substantially less risky than the February $130 calls.
The February $130 calls could potentially return 50% on a rebound up to $140. That’s why we like them. We expect Nviida to probably rebound up to $140 after testing the $130 level. With NVDA, you get closer to a 16% return without the element of time. We can afford to be less precise. But we also get a smaller overall reward.
So those are the relevant issues and a lot more. There’s no way for me to has out all of the nuances of options trades in a comment however. There’s more to it than that.
In you opinion is there risk of more substantial downside with a potential doubletop from SPY?
The SPY hasn’t quite formed a double-top. It has to retreat all the way back down to the $583 level to fully form a double-top. So far, it has barely retreated off of the $600 level. The risk that it could form a full double-top has gone up. But overall, the SPY is only down half a percent today. The QQQ is down a lot more at 1.4%. So far, I see a QQQ problem more than a broad market issue.
The overall selling here isn’t as “bearish” tilting as it was last week and the QQQ could easily hit oversold conditions and bounce a lot sooner this time around.
One more question: Do you plan hedges in that 2600-3000 allocation for NVIDIA?
So possibly. I’m developing a strategy right now. We may or may not hedge. It depends on a few things.
Thank you!
Post updated at 1:24 PM EST. Click the link or scroll above to find it.
I find myself over here on the sidelines actually cheering for a dip.. is that wrong?
Hoping NVDA dips to 130$. But if it doesn’t it’s all good. If I have to wait months for a good trade, i’ll wait. Better to be safe than sorry.
Hey Sam,
A major difference between the first leg and this one is RVOL. If you notice we are getting half as much volume than when we got on Nov 21 leg. This time around it just normal volume of a typical trading day. That is why I believe we are going to gravitate back to that 505 level. Would this really be a second leg down? or just more of the same choppy action we have been seeing. How plausible is it we just gap down and then on volume do start a 1%-2% real leg down?