Samwise Quick Reference Handbook
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Thank you Sam! just hit 70.02 hourly RSI
With today kicking off a new month, doesn’t that mean that it’s likely for new money to be invested over the next several trading days, and in turn leading to the rally continuing forward across $500?
It very well could.
$486.50 looking very strong
Breaking down at 70RSI
Gap up!
Now the positive news is flowing, but Sam was right — the wheels were already in motion. Just in now, NVDA making adjustments to sell chips to China, “there will be a deal with China”, non farm payroll
With AAPL and AMZN behind us, I think its time to run
Sam, could you suggest Stark an anternate way to sell calls against NVDL instead of against the QQQ 520 calls ? Thanks.
So we wouldn’t sell calls against NVDL down here. It just does’t make sense. Also, if we sold calls against our NVDL position, it would be against almost our entire position. We only have 160 shares or something like that which means we’d have to sell 1 contract which covers MOST of the shares.
So for now, we’re not hedging out individual stocks just yet. The positions aren’t large enough and the hedges in the QQQ are now large enough to handle market-related risk.
Once Nvidia gets back up closer to $130, we’ll look to hedge it directly.
I think Stark has 600 x NVDL.
My Stark here can only sell _real_ covered calls, meaning against stocks.
Nevermind, I’ve found a way.
Instead of my registered account, I used my margin account to both sell the call and buy the put. It worked in this case because the selling of the call raised enough cash to buy the put.
I’ve decided to undo these transactions. What I ended up with was a short call QQQ 520 that wasn’t covered at all because I could not sell the 400 call and move the cash to the margin (the money in the registered account is kinda “locked” fiscally). I would have been in trouble if QQQ reached 520.
Sam, I may misunderstand things. What covers these short 520 calls? Is it the June 2027 400 calls or the Jan 2027 500 calls or it doesn’t matter? Because I have the 500 calls in the margin account, they would be used to cover the 520 in the event they get ITM ?
Any QQQ call with the same or later expiration and a lower strike price can be exercised to cover the 520 call.
Thanks CG. I’ve re-entered the positions.
Okay. So with Stark, we do have 600 shares which represents about 27% of the entire portfolio at cost.
The thing with the NVDL and why we’re not so fast to hedge it is because the NVDL does not have an expiration date. There will be a point sometime in the next year or two where the NVDL goes on a massive tear. At some point, Nvidia will really back to its highs.
We don’t have any strict time horizon for that. With options, it’s different. Because the time value and other variables can impact price. So there’s a greater urgency to hedge those out.
My concern with leveraged ETFs like NVDL is that beta slippage is substantial over time periods that span months when there is sideways volatility.
For example, 10 months ago on July 25, 2024, NVDL was $19 higher.when NVDA was about the same price as today. But even 2 months ago on Mar 7, NVDL was $5 higher than today.
All of that is true when it’s trading sideways to down. But you get the exact opposite one the upside. When Nvidia made its huge run in early 2024, the NVDL produced something like 400% returns. I can’t remember the exact number, but it was far far greater than 2-1 over the period. You get the same thing on the way up.
If Nvidia goes on a parabolic rally back up to $140-$150, you could end up seeing far greater than 2-1 returns which would off-set the price decay that occurred when it was trading down to sideways.
Hey Sam, what would be your signal to pull the trigger on the May spreads?
So right now there worth about $0.18. In Baratheon that would give us roughly $450. That’s actually getting a lot closer to material.
But here’s what we have to think about right now. Momentum is very strong. We’ve seen the market make massive moves before like after Covid for example. The QQQ isn’t all that far away from $500 a share. Suppose earning comes in strong and the QQQ surges to $500 a share. Now we’re about $25.00 out of the money at that point. The QQq can make e up $25 in 2-3 sessions. The market know that. Up $12 one day and up $13 the next, you’re at $25.
So it’s a question of whether we get a material benefit by closing out at $0.18 versus what could potentially happen which is a surge that takes it back up to $1.00 or something like that. That’s the worry.
We need to gain something material out of the position for us to close it out. At $450 ($0.18) we are starting to reach that point. Because with $450, we can turn that into $4,000 on 3 successful big trades. So it is getting very close to that point where we might close out.
If we had held close to $487 today, we may have closed it. At least near-term. Like if the QQQ had made a run attempt at $490, it would have been time to close out. At $0.30, we close out. That’s very material and no longer worth holding.
Suggesting the QQQ can hit $525-$530 range before May 16? WOW
Sure, why not. Based on where the QQQ is trading right now, it could very easily get there.
Let me draw you out a scenario. We are 11 days out from May expiration, excluding today.
Let’s say it takes the QQQ the next three sessions to test 500. That’s something that can happen since we’re sitting here in the 480s right now.
So let’s suppose on Tuesday of next week earnings goes well and now we’ve tested the 500 level
The QQQ pushes above 500 and gets up till like 501 or 502
If that happens, there could be a momentum based breakout that occurs.
In fact, I can’t count how many times we’ve seen the QQQ push past a key level of resistance like 400 and then immediately surge to 414. Or 500 and surge to $513.
We see that type of thing happen all the time on breakout.
The floodgates just open like you saw today and the stock runs
Like today, the key breakout point was 476 and the QQQ simply gapped up way above it and pushed all the way up to 487. It went way past 480.
So suppose we get the QQQ screwing around with 500 in 3-4 days from now.
We get some sort of good news and all of a sudden we gap up to 508 one day. That day that we gap up to 508 deep into the 500s could very easily lead to a run to the $513-$514 range. And once that happens, it does open a path into the 520s.
Now you have strong momentum behind the stock and 520s is going to happen.
Does it mean that we can get to 535 no.
But it does put the QQQ in a spot where it could be at 520 with a week until expiration.
The question is can QQQ run 36 points and five sessions. The answer to that is yes it can. It’s all about resistance levels when one resistance level is taken out. The stock can easily surge several points in a session.
Today is a prime example of that so is last week.
I mean, consider this we were at 428 only 10 calendar days ago.
Not 10 trading days ago, but 10 calendar days ago. April 21 = $428.
No, this isn’t to say that it’s likely it’s just that there is a possibility.
And not only is there a possibility in this particular environment that possibilities is higher than usual
There’s always a chance the QQQ can run 35 in 5 days.
That chance generally speaking is higher right now than it is in the most marketed environments
The chance is on the small end of the spectrum but high relative to other environments.
Hi Sam,
Can you elaborate on how you decided the strike and expiration date for the calls you sold?
Thanks!
Sure. We need a price-point where we’d be happy to close out 1 contract of our long position. That’s $520. We want enough capital to be able to actual buy the March puts. That’s also the $520’s. There needed to be enough time value for hte market to give us something of substance for selling the $520’s.
It’s all of those things. Notice that if the QQQ cross $520 and we’re forced to close out 1 contract at expiration, our effective exit is really $536.15 because we gained $16.15 in premium.
Totally worth it. Given all that has happened, if we’re forced out at an effective exit on 1 single contract at $536.15, fine. We’re good with that.
Also, notice that if the QQQ collapses back down, we’ll be able to cover that $520 call on the dirt cheap. so best of all worlds.
That is the reasoning. I scoped out the July calls, didn’t like the premium. So went out to September. Was happy with the trade-off there. $520’s for $16 is good.
Thanks! And just to reaffirm my understanding: $520 is not really a magical resistance level or anything like that. Sounds like $520 is just a price you feel happy with selling at and nothing more than that, right?
Yeah, there’s no resistance at $520. It’s just a price point where if things go against us, we are happy taking profits at those levels.
Remember, it’s only one single contract here and in most cases we will be able to buy that contract back.
In reality, we may not even sell that contract
We will probably opt to cover the September $520.
It’s still a long ways away from now.
So you believe that QQQ won’t reach 520 by September 19 ?
well technically it’s $536, but also he’s selling premium today to generate cash with the expectation either he exits the trade at profit, or QQQ rises 13% in 6 months and he still profits
First Name’s right. that’s the way I see it. It’s not that I don’t think the QQQ can’t reach $520. Whether it can or can’t DOES NOT AT ALL enter into the analysis. We’re just asking ourselves, if ti cross $520, am I good closing out 1 contract at those levels? The answer? YES. I am. I’m good closing out 1 contract at $520 with an effective exit at $536.15. In return, I can buy a march put. If the QQQ falls, I can cover the call on the cheap. If the QQQ we make money on the way up on everything else we’re long.
It’s all pretty measured.
—
The only time we think about whether the QQQ can or can’t make a target when selling premium is when we sell heavy premium. Like when we sell 5 contracts against just as a general way to reduce basis.
We did that quite a bit when the QQQ had rallied to $530-$540. We sold heavy premium in the NVDL. We sold the $90 calls in the $NVDL at one point. But yeah, here in this scenario, it doesn’t speak to whether we expect the QQQ is going to reach $520. We just consider the outcomes and whether it makes sense.
Side question: Why is the effective exit at $536.15 if we’re using the cash generated from selling the call to purchase the put? If the QQQ goes go on a rip and takes out $520 before September the hedges we purchased would be down in value? I understand the exit would be effectively $536.15 if we had kept the cash generated as additional profit on the trade, but we’re not doing that here? Sorry if that’s a stupid question, thanks!
It’s effective either way because we gained the cash. The fact that we used it to buy pots, doesn’t really matter.
Sure, we might have lost money using it to buy puts, but we still gained the money
The end result is that by selling the 520s at 16. We have an effective exit at 536.
What we do with that $16 is irrelevant as to the exit.
Yes, the end impact might be that we rally to 520 in September and the $16 that we gained we lost on the puts.
Or we could also get to September reach 520, exit that one contract and the entire stock market can crash causing our March puts to skyrocket.
I don’t think this is the takeaway. We can always reverse today’s trades when the setup is there and net a profit. Two out of the three scenarios presented would allow for this. If it continues to shoot straight up, then it caps one call in the portfolio, but that’s a pretty big if.
Edit: First Name’s response hadn’t loaded for me yet when I commented.
Any update on NVDA or is it still dependent on the market?
It’s very market dependent. The only times we deviate in the analysis is when Nvidia is deeply overbought (or oversold) while the market isn’t; or when Nvidia is going into earnings. As goes the QQQ, so goes Nvidia. That’s almost always going to be true.
Nvidia is up 4% today because the QQQ is up 1.7%. No up 1.7%, no up 4% for Nvidia. They go hand in hand.
Just to be clear — scenario 1.3 is still very real possibility?
Doesn;t it make sense to trim the spreads now?
Scenario 1.3 would take a long time to play out. This is a bear market scenario, which takes like a year to unfold.
There’s no way to know whether it will happen or won’t happen until it happens.
It is one risk factor out of a large number of risk factors
As near term positioning is concerned, there’s not much we can do.
As a long-term positioning is concerned, we can buy hedges and trim common stock positions, which we have today.
As our may spreads are concerned scenario 1.3 could easily begin several weeks after expiration.
It doesn’t really apply to the near term. It could, but it’s really a long-term type of outlook.
Sam, If 1.3 happens, what would be the most likely timetable on how long the bear market would last and when QQQ would hit 260?
I think it would take another 6-9 months. Suppose for example, the QQQ falls back to 400.
I really don’t know what could drive that as it’s a tremendous amount of selling to get there, but let’s suppose it gets down there over the course of like four weeks
Chances are the QQQ would reach deeply oversold again and then it would rebound 10% back up to 440
It will then decline into the 300s and that would take a long time to sort of work its way down.
Look back to 2022 as an example. This would be a bigger bear market than 2022, but it would probably unfold in much the same way.
Bear markets don’t go straight down they take time to unfold. Take a look at the 2000 to 2003 era for example.
Sam, You said, “We’re probably now due for a pull-back to 30 and that is more likely to happen if we don’t get momentum picking up here soon.” What did you mean by a pull-back to 30″? Do you mean QQQ may drop 30 points?
I believe he’s referring to a pullback to a 30 RSI on the QQQ hourly chart!
Could you explain RSI to me? I don’t know what it means. How do you check the RSI? And if it does hit 30, what would that likely mean for QQQ?
I’d read chapter 5 of investing basics. We talk about the RSI almost every day here.
So the market tends to oscillate between 30 RSI on the low end — meaning it’s oversold — and 70 RSI on the high-end — meaning it’s over bought.
The market often ping-pongs between those two levels.
There are different time frames of over bought and over sold
There is overbought and oversold on an hourly basis
There is overbought and oversold on a daily basis
And there’s overbought and oversold on a weekly basis
While we focus on all three, we spend most of our time on the hourly.
The market rarely goes over bought or over sold on the daily chart
When it does reach over sold on the daily chart, it often means we’re at a long-term bottom.
Do you ever pay attention to the RSI on a minute basis? Perhaps for timing of position entries / exits? Or is all of that just noise and inconsequential in your mind for the long term?
It’s too much noise and not enough to be acted on. The shortest I’ve ever really paid attention to is the 30 min. Even then, not really actionable.
If you’re trading intraday for small points, then the 1-min and 5-minute etc could be useful.
Hi Sam,
If the QQQ were to have this oversold pullback to 30 are there any tells on whether this represents the right shoulder pullback of the inverse head and shoulders pattern vs. a regular pullback right before a final push back to 493 to complete the neckline?
Thanks!
To get an inverse head & shoulders, the pull-back would have to be rather substantial down to around $455-$460.
A pull-back doesn’t mean one thing or another until it goes far enough. We can have oversold pull-backs during parabolic runs. If you look at the post-COVID rally — the most explosive rally I’m aware of — the QQQ regularly had 4-5% pull-backs throughout the entire run. They only lasted a few days and almost immediately recovered. Just like we saw 3-days ago when the QQQ dropped 2.9% intraday and then fully recovered. we saw that quite a bit during the post-covid run.
But to create an actual right shoulder, we need a pull-back down to $450-$460 range as that is where the left shoulder touches. I think at a bare minimum $465 to have a jagged right shoulder. remember, it doesn’t have to be perfect. But if the QQQ only drops to like $475, that’s not really a shoulder.
How are the QQQ/NVDA RSIs looking now?
QQQ hourly down to 43 already lol
well there that… bad earnings $460 we go QQQ
QQQ just hit 490!