Samwise Quick Reference Handbook
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So, no 160$ for NVDA yet ? the 160+ trade area for NVDA is such a dream
So long-term sure. But our short-term trading is very different. Nvidia from a value point of view can go far north of $160.
In fact, once it takes out its previous all-time highs, the first thing it’s going to do on that run is take a shot at $170. That’s the top of the next trading range on a breakout run.
on the flip side, seems like $120-125 is the lowest it will dip before earnings? I don’t think we will see $113 again
Yeah I think we’d need really bad news out of earnings on the Deep Seek front to push the stock back down to $113 again. Nvidia has likely bottomed already.
Earnings will determine if it makes its breakout run through its previous highs. Short-term it may pull-back off of overbought and then likely take another shot at $140+ ahead of the results.
That’s sort of how I see things playing out right now. Sharp pull-back off of overbought conditions and then a surge ahead of earnings.
Our option expire around April. Do you think it’s wise to hold after earning, with the IV crash ?
IV crush is only a major concern for calls. It is not a concern for call spreads
Since we are short the 140 April calls, IV crush hits both fairly equally. The gain in the April 140s will offset the loss in the April 125.
And in fact, there will be a greater impact to the 140s than there will be to the 125 because the 125s have intrinsic value.
Generally speaking, spreads that are close to the money or in the money have minimal impact from IV crush.
i’m not sure whether we’re going to end up holding or not. It will largely depend on how NVDA trades between now and then and what we’re holding at the time.
There are some purely call NVDA on my other portfolio, which exposure to more risk. Is it better to consider selling it when I am closer to earning then ?
Hi Sam,
What are your thoughts on those QQQ puts we purchased to hedge against a potential bear market? Given the increasingly strong evidence the correction is over should we keep aim to unload that position? If so, what is the general game plan on doing so? I’m thinking we can keep those around and sell them out on the next segment rally pull back?
We’re never going to sell those put. Not until much much later down the line. That’s a permanent hedge to the portfolio.
Our entire long-term strategy revolves around being able to remain long at all times and we can only do that if we hedge out the potential risk of a crash or bear market. It is a necessary cost for being able to remain long at all times. See the four-part framework.
Arryn is perfectly well balanced right now to both produce returns on the market moving higher and to mitigate losses in the event of a crash.
In a major correction, what we’ll do is likely transition the position. So for example, we might close out the old hedge and then add a different hedge on the oversold bounce.
But the protection we’ve purchased in Arryn are permanent fixtures. Even if our expectations are for the market to rally 20% and even if we had a 90% confidence in that outcome, we still have to hedge because we can’t afford the alternative — a crash while we’re unhedged. those are existential risks to the entire portfolio.
Notice that when we bought those, Arryn was up around 57-60%. It’s now up 82%. So the profit has no problem producing gains on the upside. We own two puts. The January 2026 $450 puts and the January 2026 $500 puts. They’re down $1,084 and $2,340 respectively. So down about $3,400. But our QQQ is up $43,710. At market value, the puts are about a $13,000 postion while the calls are an $88,710 position. That’s 88-12% call-to-put ratio.
Finally, the way to reduce the cost of that insurance is to sell covered calls down the line against our Dec 2026 $430 calls in Arryn. So during the end of the next intermediate-term ally, we’ll do what we did when we sold the February $530’s and sell something similar down the line. We’ll get something like $12 in premium x 6 contracts or $7200. If we cover at $2,000, we make $5,200 which offsets the $13,000 cost to hedge.
But that cost is gone. It’s life insurance premiums essentially.
Are you taking long-term positions? So for long-term positions, deep in the money gives us less leverage. Out of the money is to much risk.
There’s no strong reason for slightly in and slightly out of the money for long-term options. Like today if we want to buy long-term options in the QQQ, there’s no real difference between the $530’s or the $540’s. There’s a difference, but it’s minor.
Though I think if we did buy today, I’d probably buy the $500 calls in the QQQ. So we’d buying $30 in the money.
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For short-term options, there is a big difference in each situation. And difference call for different positions.
We don’t always buy slightly out of he money or slightly in the money. we’ve bought well out of the money before (call-speeds) and well in the money.
We’ll mostly choose just in the money because a fully out of the money options declines more rapidly on a sell-off. Suppose for example, Nvidia were oversold right now and we wanted to buy an option. The April $140’s will perform better on a further leg lower than will the April $150’s.
What’s more, suppose Nvidia does fall to $130 after we buy, the $140’s will recovery more rapidly than will the $150’s. The $150’s might lose all profitability due to volatility.
So it’s all about striking a balance between wanting to shield ourselves in the event of further downside while at the same time ensuring profitability on the upside.
In corrections, we usually opt for well in the money options to protect from IV crush.
we discussed this a lot in December when the QQQ sold-off and volatility skyrocketed. The big problem with buying near-term options in a correction is that once stocks bottom and begin to rebound, volatility comes crashing down. This could cause call-options to actually lose value in a rebound in extreme cases. I’ve seen this happen in the covid-crash and in the U.S. Debt Downgrade crash of 2011. Those were two very notable times where I’ve had positions that while the underlying skyrocketed, I saw my positions lose value. The crazy thing with the covid crash, I owned January SPY options expiring a FULL year later. Even those got hit hard. they were out of the money SPY options. The ended up doing fine because the SPY recovered, but I think the SPY rallied some 10% with those losing actual value due to the volatility collapse.
So how do you fix this? You do what we did back in December. We bought short-term expiring options that were deep in the money. We bough DIA options that were $30 in the money I believe and that were expiring at a shorter duration than what we usually buy.
Doing it that way ensures a few things. First, that the option has a lot of intrinsic value. Second, that there would be less theta (time premium) in the option thereby increasing the intrinsic value.
Intrinsic value is basically the value of the options if it expired at this exact minute.
For example, take the April $125 calls in Nvidia. Since Nvidia is trading at $138.85, its intrinsic value is $13.85. $138.85 – $125 = $13.85. The premium on the option is whatever amount is above that. That premium could be due to theta, volatility and other factors. Right now it’s at $18.14. That’s a mere $4.29 of premium.
The April $140 calls is ALL 100% premium. Why because Nviida is below $140.
here’s why that’s dangerous in a correction. A large part of that premium is likely dominated by a large amount of volatility that gets wiped out on the first big rebound.
So how do we fix? We buy in the money options that have a lot of intrinsic value and ensure that we get a return on a rally. A lot of intrinsic value means no volatility crush disproportionately impacting the option.
Look back at our mid-December trades when the QQQ had initially sold-off. We choose options that had a short-term duration expiration and for some we bought pretty deep in the money options to shield against volatitly crush.
I jumped the gun there. Totally misread that one word. Sorry about that.
So let’s distinguish a few things.
(1) Intermediate-Term
When I use the intermediate-term, I generally mean 70 to 100 trading days rally. For example, the last intermediate term rally lasted from September 4 all the way until December 16 or 17th.
It lasted something like 70-80 days. The rally started at around 447 a share and rallied to a high of 539.
In situations where we want to hedge our long-term portfolios against a potential correction, we’re gonna sell pretty well out of the money calls. Probably something like 20 points higher and something expiring a few months down the line.
We do this specifically because we want to participate on the upside if we’re wrong.
If we sell an in the money call in that situation, we’re kind of screwed If the market continues higher.
Expectation is one thing, and strategy is a different thing entirely.
So just because we think the market’s gonna pull back, doesn’t mean we bet the farm on that.
From selling a covered call perspective, that’s what we’re doing if we sell an in the money call just because we think a pullback is gonna happen.
So instead what we do there is we try to give ourselves another 20 or so points of upside and use time value to collect our premium. That served well in the last correction. In doing so, we also add the premium to the strike. So we get a pretty big cushion.
When we got to the low 500 that’s when we sold the 520s and the 530s The QQQ ended up rallying to like $540 almost.
It ended up working out but had we sold like the 500’s in that situation or the 510s, we would’ve been in trouble.
With Nvidia, we sold the January 170s and for the NVDL, we sold the $100’s I believe.
It all worked out pretty well.
(2) Short-Term Segmented Rally
It’s the same sort of principal, but on a shorter time scale with a smaller margin of error. On the short term, we have to be very precise and there’s no good reason to ever sell an ITM call on a short term trade over just closing the underlying position. If you feel the stock is going to pull back that strongly then why remain long at all in the near-term? If the stock goes up, you gain nothing because you’ve sold an in the money call.
So for example, recently, we sold the 135’s against the Nvidia $125’s right. That’s when NVDA was at $129. NVDA ended up rocking way past 130. We ended up covering as it came back down to 130. So all good. But suppose we made the mistake of not doing so, at least we would be in the 135 and not the 130s or the 125s. We are able to profit up to 135+ the premium If we were wrong. And that’s all we really wanted anyways on the trade.
There’s a balance here. When it comes to Selling covered calls you always want to give yourself additional upside. By selling out of the money, you’re selling 100% premium and giving yourself additional gains on the upside if you’re wrong.
You have to be very content to close out your position at whatever strike you sell.
Finally, another reason we sell an out of the money calls instead of ITM calls is what’s the point?
If you’re so convinced that the stock is gonna pull back that you’re willing to sell an ITM call it mean you have no further upside It’s effectively the same as selling the position. You only get the additional premium minus the intrinsic value of the call that you sell that’s in the money.
If we sell an it in the money call that has a lot of intrinsic value, what is really being gained? In a short term trade, it’s not really worth it. It’s essentially the same as closing the position. Mostly because the more in the money you go, the less premium there is and the more in intrinsic value there is. So there’s not really a strong basis for selling an in the money call on a short term trade.
However, in a situation where we’re at the end of an intermediate term rally and we’re holding long-term positions, I can see the value in selling an ITM call to gain more premium — since it’s a long-term position that we don’t plan to close — But only if you’re willing to take the risk of being closed out of your position and ending up on the sidelines. Which again I think is not a great idea
The risk is too high.
The whole foundation of our core strategy is based on the idea that you don’t want be on the sidelines even if you feel the market is going to peak. The reason for that is simple. None of us are infallible and it’s very possible that the market could flat out prove us wrong.
Just because the last 15 years of data shows that rallies end at 70-100 days and 20-30%, doesn’t mean that we can’t have another dot-com situation emerge where stocks go up 70% in 50 days or something.
So the idea is to always remain long and hedged. We use our forecasting skills to make “measured” bets. The word “measured” is the operative term here.
Say we’re right 90% of the time. It is better to make moderate bets on being right 90% of the time, then it is to bet the house on any one idea that the 10% were wrong event won’t happen this time.
The reason we always take that $1000-$2000 bet In the Baratheon portfolio and never a $10,000 bet, is because we know that we’re going to be right more often than we’re not.
Even if the idea is a good one, and even if the set up is really strong, we still take measured bets every time. That way, we capitalize on our win rates and don’t allow our mistakes to end us.
For every small losing trade we make, we execute 3 to 4 successful trades.
If all trades are at the same capital level, then we’re bound to succeed.
But if we be big on any one situation and we’re wrong, then that’s game over.
Now if we apply this to the covered call situation, selling it in the money call on a long-term position starts to push the boundary of a dangerous situation.
It’s similar to betting the house on one simple idea. That’s because it is very tricky to get out of a covered call that you are underwater on. Especially if you’re not happy with the exit. Again, anytime we sell covered call. We have to be happy with the exit.
When we sell covered calls on our long-term positions, we are extremely careful on what we’re selling and for how long.
So that’s what’s going on with the intermediate term and why we generally sell out of the money calls even if we believe the market is going to roll over.
Are we selling covered calls against our NVDA $125 April calls in Baratheon to protect against the short term pullback or for protection going into earnings? The latter suggests we’e be trying to hold through earnings, which sounds particularly risky? My thinking is we’d sell the covered calls to protect against the short term pullback, close out for a profit if it dips, and sell the position right before earnings. Thoughts? ????
So by selling the calls today, we no longe have a lot at risk anymore. We bought the Nvidia $125 calls in Baratheon at $11.95. we just sold the $140’s at $11.25. That’s a $0.70 at risk at cost-basis. The spread is worth $7.47 today which would mean a $7.47 loss if Nviida closed under $125 at expiration. That’s less than the profit we made on the trade already.
So there’s not much risk at this point to our portfolio from the Nvidia trade. We have $747 at risk at the moment and that $747 could be worth $2,500 if Nvidia closes above $140 at expiration.
There’s still a lot of gains to be had and not nearly as much risk. As the Baratheon Portfolio is concerned at our allocation levels, we’re good holding through earnings.
Allow me to add the following.
Portfolio value: $13,385.00
Nvidia $125-$140 Call-Spread value: $820
Allocation: 6.13%
It’s the allocation level that makes it lower risk. Also even if Nvidia were to gap-down big after earnings and sell-off, the April call-spread would have about 1.5 months until expiration. They’d have a lot of time value. We’d probably be able to close it at around $3-$4 or $300 to $400. So at risk we have probably something like $400 or 3%.
Allocated as we have it, not worried about earnings risk.
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That being said, we have to see where Nvidia is trading as we go into the results. We still have a ways to go.
Could you elaborate on this piece?
You mention a $7.47 loss if NVDA closed under $125 at expiration. I’m assuming that’s if you bought the spread today, correct? Since we purchased the 125 call for $11.95 and sold the 140 call for $11.25 then our spread’s max loss would be $0.70 ($11.95 – $11.25)?
So, I don’t understand what you mean by “That’s less than the profit made on the trade already”. What profit are you referring to? We haven’t closed out of the position yet.
That’s an error. If it went to $0.00 we’d take a $0.70 loss overall. My mind was on the profit on the call side of the trade which is +$755 right now.
But with a cost of $0.70, we’d very likely be able to hold to within a week of expiration and still be in the green even if Nvidia trading below $125.
So we have a tremendous amount of flexility and by selling the $140’s we almost ensure that we’ll end with a profit. A lot has to go wrong at this point for us to lose money on the trade.
Ooo ok, gotcha!
Did you use an options profit calculator to verify this or are you just going based on experience with options pricing?
Side question: Is there a good way to determine call / call-spread options pricing if you’ve opened them a few weeks ago? I’ve been trying to use https://www.optionsprofitcalculator.com/calculator/call-spread.html to determine pricing on call spreads, but I wasn’t sure if it’s accurate if you use it weeks after the long call side of the spread was opened.
Would be super beneficial if you had a section in Chapter 4 of Investing Basics going over how to use these theoretical option pricing tools.
Experience. I did’t calculate it out. But let’s say Nviida were trading at $123 with five days until expiration. here are some spread expiring next Friday that are $15 spreads and out of the money. Nviida closed on Friday at $138.85:
$140-$155 call-spread: $2.34
$142-$157 call-spread: $1.57
$145-$160 call-spread: $0.78
So we’d need to be somewhere around $6.15 out of the money 1-week until expiration to take a loss at this point.
And that makes sense. Options in high volatility stocks do maintain value if slightly out of the money on 1-week until expiration.
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Clearly we’re never going to hold that long. But the point is that by selling a covered call against our $125 call options, we’re very insulated now. The time value remaining after earnings gives us a tremendous amount of cushion.
But again, we’ll have to see how Nvidia trades as it heads into next week. It’s not a clear-cut situations by any stretch. We may very well be out of Nvidia near-term options going into earnings.
Is this what you’re referring to? I put our NVDA 125-140 spread into the link above (http://opcalc.com/4G4). Basically, it would be pretty hard to lose money unless NVDA took a really big nose dive into 120-125 near expiration for us to lose money on this position.
Yeah that’s about right. That we’d never hold with 1 week remaining. we’ll likely be out of Aprils a full 3-4 weeks before expiration.
The only exception might be where we want to hold an in the money call-spread like $140-$145 in Targaryen.
But even then, we’d have to trade it multiple times first like we’re doing now by having sold half.
If you were unable to sell the NVDA $140, how would you handle that? Buy a put instead? Use a different expiration or strike? I’d prefer not to close the NVDA $125 yet. My brokerage won’t allow the sale of a $140 call because I have long positions at the same strike price, even though they’re part of another spread.
So if we had a conflict and couldn’t sell the $140’s in Baratheon, we’d sell the $145’s instead. Or the $135’s or the $150’s. There’s plenty of different ways to play it. For example, the $145’s — which I actually considered — is trading at $9.20. That’s only $2.00 in less premium collected. It’s not much. And you gain the extra $5.00 in upside. So there’s both upside and downside to the $145’s. If Nvidia rallies to $145, then having sold the $145’s would be far better. If Nvidia pulls back, then you have the potential for generate more off-set with the $140’s.
This is my case as well, LOL. I guess it’s a feature that Robinhood doesn’t support.
FYI, I have a different brokerage, so it’s not just Robinhood. I even called to talk to them about it. On one hand, I get it, because it would negate a current position, but on the other hand, that current position is already part of a spread, so I don’t see why it matters.
So a spread is a synthetic asset. It’s not a real thing. You really own 2 different positions. We just talk about them as if they’re a singular asset.
There should be no reason why one can’t own an opening short position and opening long position in the same option. They are two different positions.
But it doest’ really matter all that much. I’ve been in that situation a lot of times over the years. I just sell a different strikes it works out.
As I mentioned above, there are genuine pros and cons to having sold the $145’s versus the $140’s. A strong argument can be made on each.
Selling the $140’s is the more conservative play, but the $145’s may ultimately be the right play. Because Nvidia does have a gap to fill up to $142, it’s getting close to the $140’s and the momentum is strong. There’s a good chance Nvidia does push north of $140 before peaking here near-term.
And if that’s the case, the $145’s is the better play.
Hello Sam, thank you for the daily briefing… Just an ignorant question, as I just started subscribing: In the short term, do you think Nvidia has a higher probability of pulling back before earnings?
Welcome aboard. There are no ignorant questions. Ask anything you’d like. Don’t hesitate. Here’s an answer:
So at the moment it’s not quite overbought enough for us to have high confidence in that outcome. But there’s a significant risk factor that it could happen.
Consider it like this. Nvidia has a long historical pattern of peaking once it reaches deeply overbought conditions. It will then sustain a $10-$15 pull-back after that. It will then reach oversold conditions and then rally back.
That has been the cycle for 8-9 months now. IN most cases, it takes Nvidia reaches deeply overbought conditions on the hourly time-frame. That means reaching as high as an 80-RSI. See the attached imagine and note just how consistent that conclusion is. The probability is very very high of a sharp pull-back once it reaches 80.
Right now, Nvidia is just mildly overbought. Mildly overbought simply increase the risk of a pullback. But it’s not the same as being deeply overbought (80+ RSI).
So at this very moment, the risk is simply high. It’s why we sold covered calls and sold part of our short-term options. On the other side, since it’s not deeply overbought, it doesn’t warrant us selling ALL of our call-spreads (Targaryen) or selling our actual position in the April $125 calls. We merely sold the $140 calls against our position giving us a spread. A spread is a less risky long position than open calls.
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So to answer your question, at the moment, we think the risk is high. But our confidence level in the forecast is low-to-moderate. Why? Because it’s not deeply overbought yet. If it gets to deeply overbought, our forecasting confidence will be higher and we’ll likely close out our short-term trading positions — Targaryen & Baratheon portfolios.
Long-term portfolios, we never sell. We just hold it long-term and hedge when appropriate.
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One final thing. There are considerations that come into play here. For example, Nvidia recently reached extremely overbought at $134 earlier this week. We sold covered calls against our position initially and we considered putting on a put position. I ended up buying a put personally. I can’t remember if we traded it here though.
But here’s what happened. Nvidia pulled back to $129 and it was very clearly bullish. There wasn’t any of the heavy selling interest we normally see off of overbought conditions. It was obvious the market wasn’t feeling the sell-off and the NASDAQ-100 looked very strong. It was set-up to breakout.
So we went against the trend and close out the puts, removed our covered calls and stayed long against the risk factors. This happens sometimes.
With earnings coming up. We could easily see a repeat. We can see Nvidia push up to extremely overbought early next week, begin to pull-back a little and buyers could step right back in. It’s rare, but with earnings around the corner, I think this week is a good candidate for seeing that exact type of thing happen against as it did earlier this week.
Take a close look at the image I’m attaching. Notice how virtually every time Nvidia reaches deeply overbought — signified by the vertical lines on the chart — it sells off pretty hard. It falls a good $10-20 or 10-15%. That’s a big sell-off near-term and presents a lot of opportunity.
Sam, does this mean we’re back to the rally 8.5% and retrace 3.5% cycle? If so, does that mean this current rally goes up to 550-560 range and retraces to 530 range?
Additionally, I think I may have read in past posts that there were 2-3 larger corrections during bull rallies. Do you count this last one towards that? Do you have a gut feeling on the next? Specifically would it be during the March OPEX and/or generally around sector rotation trends this time of the year?
Thanks again, I have learned a ton from your page and appreciate all the in-depth responses.
So not sure just yet. It really depends on whether the QQQ ends up pushing past its all time highs. My gut feeling is that the correction is pretty much over. The QQQ might pull-back one more time to form an inverse head & shoulders type pattern, but I think it’s on its way toward a breakout run.
Once we get going past $539, then we have the whole segmented rally stuff coming into play.
The QQQ needs to first rally 8-10% before we can assess whether a segmented rally has started.
Usually, we get a very strong run off the lows as an indication. We haven’t gotten that just yet. This current run started at $511 around 10-days ago. That’s about 5.5%. So a little more than half of what the first segment should look like.
We need more info before we can conclude whether we’re on a new intermediate-term rally and have started the first segment.
For now, I do think it’s more likely we’re about to start one soon if we haven’t already. Things are looking very positive right now.
In terms of correction, we should see 2-3 corrections a year. What we saw in Dec – January does count as a correction through and through. It reached the minimum percentage loss and it lasted a very long time. I had all the earmarkings of a correct. A very small correction, but a correction nonetheless.
A larger correction would be well over 12%+. What we saw in July-August was a large correction. And we’ve seen even bear-market like corrections at the end of 2018, 2019 and 2020. Each of those years had very substantial corrections. July-August was the closest we’ve seen to that.