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???: QQQ is inevitable
at 630+:
buy both 15 contracts 500puts &15 contracts 550puts (ur earlier statement indicated this)
or
buy 15 contracts 550 puts only?
So for sure, we’re gonna buy 15 contracts of the 500 puts when the QQQ reaches the low 630s. We probably do this at around 630-633 a share as we originally contemplated way back when the QQQ is still trading under 600.
The whole 550s thing will be added depending on the circumstances. So for example, if the QQQ gaps up to around 630 tomorrow morning, we’re probably not going to do that.
A move like that tells me the market is gonna go exuberant into the fed.
The first position is all about securing a low entry price so we have to take that position at 630 to 632.
But the second position is more discretionary, and if the QQQ gaps up to 630 it tells me that the market probably wants to run going into the fed and then would probably get wrecked on the fed or shortly thereafter. The gaps are just too large at that point.
Like no matter what we’re gonna peak under 640 this week
At the end of this week, the segment will have lasted 15 days, which means that we’re close to the end of the segment anyways
We’re also starting a new month. In terms of overall timing we’re likely to top somewhere in the 630 area this week and will probably see something like a 4 to 5% pull-back thereafter.
I can see the SPY making a push to 700 before that happens and that would put the QQQ near 640 a share — mid-century mark. At 640 we’re 100 points above the previous rally’s all-time highs.
But it just depends on how the QQQ ends up trading overnight.
Once we reach 4 AM eastern standard time we tend to see the market pick up and again at 8 AM eastern time.
Those are two points where we see a surge. Just as I’m finishing this comment we can see the QQQ go up 2-3 points to $627.
Or rational minds might prevail and it might come back down to 620 as it should.
Under normal conditions, the QQQ really shouldn’t gap above 620 and if it does, it should be a minor gap above 620 with a quick gap fill. The QQQ should realistically battle the 620s. Gap based breakouts of major lines of resistance never feel real. Short of the market gapping up and running seven points during the day it doesn’t feel legitimate.
So we’ll see how it shapes up
Also a big factor in whether we end up adding the 550s depends largely on how overbought the QQQ is.
QQQ is deep into the 80-90 RSI level, it makes it more compelling. Technical factors come into play.
But putting on both positions alongside each other or next to each other makes a lot of sense. It gives us the ability to essentially trade out the last trade we made for entries near 630 a share. That’s way stronger.
It would mean most of our position was purchased at $630+.
last quick one:
IF qqq made it into 630+ zone, you are going to take off the nov21 puts earlier.
is it because a 10% drop from 630 won’t cut it?
& there is no way we are going to know whether it’s gonna fall deeper rite
Yeah, so because of 10% drop from the 630s won’t get us into our strike range AND because of the long amount of time it usually takes to work through the mid-century mark are the main reasons.
Especially because getting into the 630s means we could top anywhere from 630 to 640.
A 10% correction won’t get us down to our strike range.
But I think even more important than that is, I can tell right now that this is gonna be a process
Like we’re gonna get a big pull back down to 600 once we reach a peak this week But then that’s gonna lead to a rebound which is going to lead to another retest of the highest which is then going to lead to a correction by then the November’s will be sort of in a bad place so I’m just heading it off
As I mentioned earlier on the trade can be offset by just using this September expiration which has 11 months of time value
The September expiration is going to skyrocket when we have a correction because of the high increase in volatility plus time value
Whereas right now, it doesn’t reflect the high volatility
So if we get a correction in November for example or December since there will be 10 months to expiration at that point then volatility as a larger outsized impact
So if the QQQ, where did peak at 6:40 and fall to like 570 that would have a huge impact in return rate from a $630 entry entry so much so that it will offset the entire trade, especially if we cut losses on November
Because if you’re able to cut November in half, then we’re essentially in at 9% we’ll produce that with the September puts
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Cutting the November’s is also about just ending the in moving it on to the longer dated options.
We had our thesis we put out the trades based on that thesis and we will do so again every time the market reaches 100 trading days like this because when we reach out trading days we’re going to win that trade in the overwhelming majority of the time.
It took the QQQ going to extreme outliers and setting new all-time records in terms of a duration for the trade to fail. That’s not gonna happen every time that QQQ rallies 80-90-100 days.
Going today 141 breaking out like this tells us it’s an outlier. And that is also another big contributing reason to cutting the trade up until last week. It was still up in the air.
QQQ peaked at 613 last week and started to slide back down to 600. Then this was just a longer rally with a top that took some time but not quite outlier status and also at 6:13 a 10% correction puts us in the 540’s. So just a very different situation all around.
We’ve seen what occurs when the QQQ breaks out into a new century mark and the biggest problem is it takes a long time for the QQQ to top at this point.
In March 2024, it took the QQQ nearly 3 months to top after it broke through the 400 for the first time.
In December 20 24 to February 2025 it took nearly 3 months for the QQQ to top out at $540. Though at least they are we saw big 7-8% swings up and down. There was heavy volatility and a lot of opportunities in that period of time.
Here I’m expecting at a bare minimum a top, a pull back to the lows near 600 and then another attempt at 640 a share before we ultimately peak.
Of course what makes this situation different is that the QQQ is sitting here at day 141 and that is a novel situation. We haven’t both seen a Century Mark breakout and the market sit here at day 141 in the rally which normally would spell an almost immediate top in terms of timing, right.
How can you be sure it’s going to be a process? This late in the rally…
So I should say, it won’t “definitely” be a process. The risk of the QQQ going though a process has gone up drastically.
Whereas again, we’ve seen so many instances of the QQQ and other assets reach as high as $597, $601, $603, $608 and $613. We’ve seen those EXACT numbers before. X08 isn’t new as a resistance line and neigher is X13. I’ve seen X13 not only in the QQQ but in other assets.
AT that point, there’s no breakout. In fact, that’s how century mark tests end. They end at those points.
So until just 3-4 sessions ago, the QQQ had spent a lot of time testing the $600 level and could have very easily broken down. We were at hte precipice of a breakdown yes?
Consider this. The last time the QQQ tried to breakdown, it reversed rom $610 all the way down to $598. That was LAST Wednesday. On Thursday, the QQQ made up ALL OF THAT ground right back up bringing it up to $610. On Friday, it broke out by gapping up above $613 resistance closing at $617.
Very very obvious set-up. If I had better sense, I would hav just put on a tiny near-term trade on Friday long because that set-up, we’ve seen it before. A push to $630 before the fed on that breakout made all types of sense.
But setting that aside. The point is that after Friday morning, the entire calculous changed. I explained that over the weekend.
The moment the QQQ broke out above $613, it means we have a higher peak to deal with which means a higher downside target.
While the QQQ can certainly peak at $640 and then sustain a 17% correction down to $531, we can’t bank on that. In fact, we can only truly bank on 8% (20% chance) or 11.5%+ (80% chance). That’s the breakdown for rallies like that. 1 in 5 chances of an 8% correction. 4/5 of an 11.5%+.
That’s $588.80 from $640 at 8% or $566 on 11.5% from $640.
^This is why we want out of the Novembers. What we might do is this. We might close out the Novembers on the next pull-back and if the QQQ happens to run back up to $640 again — if we get that happening — we might look at December spreads. It depends on how much is preserved.
But at this point, I’d rather just move on. We did the trade. It didn’t work, now our goal is to (1) recover the loss through long-dated options; and (2) have a hedge we can use to get long when the QQQ does sustain a correction.
Next time the QQQ does a run like this, we’ll take another shot at put-spreads.
When the trade works, it’s going to add 30-40% to the portfolio. That’s why it’s worth doing. That and becuase done correctly, we can recover the cost of the trade anyway in the next correction with very low allocation risk by being in long dated options.
What’s behind the decision to now exit the Nov spreads that have basically a whole trading month left?
I hope it wasn’t something I said that changed your mind so easily.
My whole point was we had multiple spreads of varying duration sometimes holding several at once, we didn’t need to hold them all. The near term exp should’ve been cut to recover some cost and then we could’ve held the longer dated spread.
We outlined our reasoning in teh post. No point in me repeating here. Take a look at the post.
We’ve belabored this. There’s no way I’m going to be able to explain it to you. But just know that every time we reach 100-days in a rally, we’re going to do the exact same trade in every way we’ve done it.
@First please tune it down. We want to keep Sam for a long time.
Recall that if one is not confident in the trades of the model portfolio, nothing’s binding anybody.
Yeah, and there’s nothing wrong with that. Everyone here is free to follow the portfolios exactly, sometimes, or never at all and treat this as pure education. Asking questions should be encouraged as that’s where a lot of learning comes from but if you’re set on doing things a certain way, do them with the understanding that you’re ultimately responsible for whether the move works out or doesn’t (and that includes all the moves posted here).
Hey Sam, you said that lately we have had more and more longer rallies and generally more extremes.
How confident are you in the data going back 25 years as still being a good enough guide going forward? I am not suggesting that everything goes out the window but maybe it’s a bit like climate change: what used to be an above average event maybe is the new average now?
This type of question is one that anyone and everyone can answer differently. Like I’m in no better position to know than you.
YOu’re asking how do we know the data for the last 26 years is still relevant going forward and can it be relied upon. I don’t know. That’s a very metaphysical type question.
There’s no way to know until we get there.
What do you think?
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The problem with the question is that you’re asking whether the trend will fully depart in the future. It’s an unknowable question and everyone is equally qualified to answer yet.
I think when you consider the odds, it’s far less than 50-50.It’s not a coin toss. the markets don’t just up and depart from long established trends like that.
What we’ve seen is taht in THIS bull market from 2023 to 2025, the market has had a tendency to push toward 89-100-110 days for hte rally when that used to be on teh rarer side.
But it’s still not extreme. We had plenty of rallies like this in the past going all the way back to 2000. Dot-com was 108 days long. So it’s not like a new thing here. It’s just happening more frequently.
At the same time, we’ve also had normal short-lived rallies as well. The rally between March 2024 and July 2024 was both shorter duration and a lot smaller at 22-24%.
It’s guess one way or the other, but I’d say unlikely that you won’t be able to forecast based on it.
One single event were the QQQ rises 60% — which has only occurred THREE total times in 26-years — isn’t enough to establish that the data is no longer useful.
If we get three or four more rallies like this, then one might question it.As we start to see a trend.
but then again, different bull market have their thing that separate it from other bull markets. between 2011 and 2018, it was melt-up rallies. We had melt-up rallies every other year. I think something liek 5-6 melt-up rallies in taht 6-7 year period. 2017 was one long ass 280 day rally separated by a 6% correction. Two back to back melt-up rallies.
Thank you, I mean I’m asking you since I have less experience than you.
Maybe if the average rally size/lenght went up the last 5 years and the 5 year period before one could assume it’s changing slightly. Iguess with only 3 rallies a year on average it’s not a huge sample size, so I don’t know how much sense it makes statistically.
So all I can say is that historically I have been in this exact situation just in a different context
For example, I used to do this analysis for individual stocks and there would be a situation where a particular bellwether like Microsoft or Apple or Google, for example used to trade in a very particular range, didn’t have particular size corrections and anytime it did it would rebound etc.
We had a very clear established trend. I remember one time in the 2018 correction, Apple I think was down 40% and I was long Apple and I remember having a very similar table as the NASDAQ 100 tables and Apple had gone way off the trend like way way off. As did Google and a few other stocks. I can’t remember what trend was violated, but there was a major violation I think, in terms of both percentage loss and in terms of duration relative to the QQQ. The QQQ had sustained a 23% correction but Apple was down a lot more than that. Apple Google and a few others I think we’re down at what could be viewed as near financial crisis level selling.
Now the point is this. We had a violation of the tend and then Apple went back to normal. Every subsequent pull back and rally followed the general trend afterward. We just had that one event.
Like no different than what we saw in April. Back in April if you remember correctly, most corrections averaged something like 15 to 25 days and in April it went to 36 days.
The April correction violated a lot of different well established trends in its own right. It didn’t go to the extremes as this rally has, but we did see a lot of violations. I think most of it had to do with oversold conditions.
But that’s gonna happen. You’regonna have one off events like that
In my experience when you have a one off event like that it doesn’t destroy an otherwise well established trend.
I actually think I remember what happened in April now. There’s a trend in the NASDAQ 100 that whenever the QQQ reaches a 30 RSI on the daily chart, it generally bottoms within five days of when it first reaches a 30 RSI. I know that 50-50 time the QQQ reaches a 30 RSI it bottoms and literally half the cases. That part I am certain about.
But there was this other trend that we discussed about how even if the QQQ continues lower it almost bottoms in like 90% of the cases within five days of when it first touched a 30-RSI. We could probably go look at the tables and figure this out.
And I think in April it went on for another 15 days or something like that. Like I think the April correction totally blasted through that trend.
That doesn’t invalidate the RSI table that we posted or any of the data that came before, it it just makes April an outlier situation.
It’s important to realize that in most cases, this is business as usual. When we get a correction The QQQ generally reaches a 30-RSI, then bottoms right then and there or within a few days thereafter. If we have one single event that that trend it doesn’t invalidate the trend and in my experience, the trend just resumes in future rallies.
Like this whole RSI thing we’ve seen the QQQ spend more than five days trading under a 30 RSI it’s just that in the overwhelming majority of cases it doesn’t do that
I think that is a trend that won’t be invalidated because it’s just a behavioral aspect of the market. I think too many people look at the RSI and think that’s where I’m gonna put my buy orders and it creates demand and I don’t think that even one or two or three events are going to invalidate that.
At least again that’s just been my experience. The hard part for me is when someone asks hey is this rally gonna go to XY extreme even though all of the data overwhelmingly says no. Then we have the market do something dumb like make that extreme in this one case.
Of course it’s gonna be very difficult for that person to ever trust that data that anymore because their experiences with one single event they haven’t gone through all of the events to see like oh yeah, this works.
Like I can’t even begin to tell you how many times I’ve relied on the status and it produced exactly as expected
If you remember back to December, what did I say in December? In December, I said that this rally will be over by the end of January no later than the end of January. I explained in December that the end of January Marks day, 100 of the rally. So that if we go into the end of January or early February, we’re going to see a problem in the market.
And what happened we got to just right mid February with the rally at 111 days and we topped.
That experience reinforces the data.
When we look at the March 2024, rally to July 2024 rally and the QQQ reaches 503 just as it also reaches the end of the rally duration curve and we say we’re topping right here in the market tops that reinforces the data
But if somebody has not seen this work practice, but has only seen this one bad event they’re gonna be very dissuade. Which again is very unfortunate because the data is very powerful. We’ve seen it work firsthand repeatedly over and over and over and over and over again. The trend established here is overwhelmingly successful as a trade tool. Anytime we reach 100 days.
The reason this up is because there’s going to be different levels of bias based on experiencing the data firsthand.
If you’re there and you’ve seen it work nine times in a row and then you see it not work once you’re gonna be less inclined to say this data is screwed
Whereas if you’ve only experienced it one time and that one time happens to be the failure, you’re gonna be like what the hell is this nonsense.
——
Here’s another experience that I’ve had with data sets like this
I’ve had this experience where the market as the years have gone on has had a tendency to want make more and more extremes in some part of the dataset.
We’ve seen that in this rally right. Until July 20 23, for example the largest rally was 33.93% I believe. If we set Covid aside, given the number of 7% cell off we saw during that rally realistically speaking the largest rally I think was 33.93%. We’ve had multiple 3536% rallies in this bull market alone. I think we’ve had a 35% rally a 36% rally and now is 60% rally. So you can see how the data that is putting greater and greater extreme in terms of the rally size now.
Before you can get to 35% and think we’re pretty much now at the top now we have to think well we have a 60% rally on top of a 35% rally on top of a 36% rally that all occurred in close succession. We now have to rethink whether 35% is going to cut it going forward. Which is going to make things more difficult from a risk reduction point of view because now we have to rethink whether selling covered calls at 35% makes sense.
And this isn’t the only time I’ve seen this type of thing occur across all different types of data sets. Dumb things like the number of days in a segment. If you remember going into this rally, I think the maximum was 20 days and then we have a 28 day segment.
An example of this might be something like the QQQ always bottoms within five days of reaching a 30 RI is the general thesis and then you have the next four or five rallies where it goes to six days and then seven and then maybe nine
You’ll tend to see situations where the boundaries are being pushed on a more consistent basis.
But what you never see is a full departure of a 26 year trend and data where the market is telling you that across several different environments , the stock market tends to rally no more than 100 days in most cases. Just because this particular rally went 141 days doesn’t mean future rallies are going to follow suit.
The next 12 rallies can very easily at sub-100 days and that would be consistent with long established trends.
You know one thing I might do based on this conversation we’re having here is I might go to the table that shows rally duration and color-code by half decades. 2000 2005 is one color 2006 to 2010 is another 2010 to 2015; 2016 to 2020, and 2021 to 2025. With that might do is show us whether there has been a shift in the general trend of duration. Were we seeing smaller shorter duration rallies in the past then we do now. That is an indication that there might be a shift in the trend if we’re saying a heavier amount of the 2021 – 2025 color at the end of the curve. I think this would be a good exercise on both percentage returns and on duration.
Anyways, that’s been my experience. My experience has been that data trends don’t just stop working.
All that changes is the parameters move out a bit. Or we’ll get outliers here and there.
The cumulative impact of this rally is that the average rally duration has moved up from 55 days to 60 days and we can no longer conclude that no previous rally has ever went beyond 114 days
Now every single time we have a rally we’re gonna have to hedge or consider the fact that this rally has gone to 141 days at least.
That fact will have to be dealt with any time we’re in a situation where we want to sell covered calls or get into a put spread trade like we did here
The problem is we have to balance the fact that most cases we’re not gonna see outliers with any type of regularity with the fact that we’ve now seen one in 26 years. Whereas before this really; there were no outliers.
Does this count for Monday’s post? Or was this a bonus Sunday post, and any Monday updates will be in their own post?
Kind of both. They’re will be updates to today’s post.
Hello Sam,
I’m very surprised by the content of your latest analyses.
On several occasions, you mentioned the probabilities of a correction and of the rally not continuing, especially not beyond $610 for QQQ.
Now you seem to be saying quite confidently that it’s certain and okay for QQQ to exceed $620 and reach $630…
The opportunity cost is enormous and the succession of “errors” is significant…
As a subscriber and investor, I’m a little disappointed and scalded.
Flexibility & Discipline Required to Navigate this market
I believe using historical data to predict future trends is important, but when rare events keep occurring, it suggests the market is no longer behaving normally.
In such situations, we need to focus more on conditional probability rather than relying solely on past data and assumptions of independence.
We only have one occurrence at the moment — the same rally — it’s just that this single rally has now violated several different data points.
For example, by lasting longer, it necessarily results in more segmented sub-rallies — that’s part and parcel of being an extended rally.
The return rate is higher simply because the rally has lasted so long. Returning 0.04% per day over a 140-day rally results in roughly a 50–55% gain.
⸻
Having done this for a very long time, I can tell you with certainty that the only objective basis for understanding the market lies in what rallies have in common.
Using fundamentals or news to predict outcomes is entirely useless because they’re not quantifiable. There’s no way to know exactly how a trade deal with China, for example, will impact the market.
There’s no way to say that a trade deal with China is worth exactly 9.7432% for a rally.
There’s no way to know how market participants will react to that event.
There’s no way to conclude that a Fed rate cut will somehow produce a 1.9432% gain.
It’s always interesting when people start making these arguments. They’ll say:
“Inflation is trending lower, the Fed shows no sign of stopping rate cuts, we’re making good trade deals,”
and then add a list of reasons to justify why the market is rallying.
But those same factors exist in every rally. Every single past rally has included some combination of bullish fundamentals, yet there’s no way to define how those factors will affect the market with any precision.
So, in order to make any sort of reliable forecast, we must look at how the market trades as a whole — how it has behaved historically across different environments.
When we look at duration, what we’re really analyzing is human behavior — the repetitive nature of how the market moves in similar ways, regardless of whatever fundamental narrative happens to be driving that particular cycle.
Common across all rallies, for instance, is that each one tends to end around a certain timeframe.
While we can’t know whether this rally will last 50 days or 150 days, what we do know is that as we approach the outer edge of that historical range, rallies tend to end — every single one of them, without exception.
In every rally of the past 26 years, once the duration reaches around 100 days, the market has historically topped out.
Another way to put it: no rally until this one has lasted more than three weeks beyond the 100-day mark.
That point alone is far more precise and empirically grounded than claiming, for example, that the Fed’s rate cuts will drive the market higher for the next 300 days. Do you see the difference?
⸻
These parameters are also defined by the returns the market achieves without retracement.
In every single rally — without exception — there has been at least a 50% retracement of the move. Currently, the 50% retracement level sits near $513 per share.
If this rally doesn’t retrace 50%, then the next rally will.
For example: if the QQQ rises from $400 to $700, the next correction would likely retrace to around $550. If it rises to $800, the retracement would take it down to $600.
The point is that as the QQQ climbs, the magnitude of the correction required to retrace its gains also increases — and this has occurred in 100% of all past rallies.
That’s a far more reliable pattern than claiming the next correction will happen “because of Trump” or “because inflation ticked up.”
You see, news events aren’t quantifiable. There’s no way to measure exactly how any single headline or fundamental factor will impact the market.
Worse yet, we’ve seen the market peak in the face of ultra-bullish fundamentals.
Every single major top has occurred during periods of optimism — when fundamentals were strong, when sentiment was bullish, and when everyone was convinced the market would keep going higher.
You don’t get the QQQ running to $630 a share without bullish fundamentals.
You don’t get the QQQ rallying to $540 in January and February before crashing to $400 without the same kind of “good news” narratives driving sentiment.
And that’s the problem with basing analysis on fundamentals.
Fundamentals are useful for establishing long-term conviction, not for timing tops and bottoms.
We are long-term bullish — we always will be.
Even with the CAPE ratio at 40, we remain long-term bullish and will be buyers during the next correction.
But when it comes to forecasting when a rally will end, the only valid framework is how the market has historically behaved as a collective system.
Anything else is just guessing.
Just want to air a word of caution, while the targets of 6900 and 7000 (i think its like 633 to 640 on qqq) are reasonable this market can easily get irrational and push to between 7100 and 7300 on SPX without a pullback. On the QQQ 1 year to expiry ill be looking to trade in and out if it goes down and ill be adding as we go up. Not looking to hold anything larger than a 6-7% position there on the 1 year to expiry puts. I really think this is a savage attempt by wallstreet to crash the market for the next couple of years with the massive pre market gap ups and intra day dip buys to hold key levels. We may get that flush to QQQ600 fingers crossed. Also keep in mind that last few times there was a market crash there was always the government to step in and pump cash. This time I am not so sure with that debt looming and job market already being super flat in bubble land.
The one thing that gives me confidence in adding to shorts at 630 or so is that the price of the QQQ 500 puts actually went up the last few hours even though QQQ has been going up in price today
The VIX is very slightly in the red today but recovering intraday. That’s why you’re seeing a bun. We have a hollow red bar on the $VIX.
That volatility increase is because of the fed in a couple of days
After the fed, we’re gonna lose all of that bump unless the market goes lower
Guessing this will be addressed in an update and you sort of alluded to it already, but is the assumption that the market is likely in a holding pattern until the Fed/earnings/trade meeting that all conclude by Thursday? In the sense that we probably don’t see the 5% pullback until then?
I would be surprised if we saw 5% pullback before the fed.
I think what’s most likely to occur is the market is likely to initially move higher after the fed and then top maybe a day or two later.
The market has reacted to the fed in a number of different ways, but that’s what I think is most likely to happen here
Take a look at the chart I posted of the fed. We don’t normally see big sell offs ahead of the fed unless we’re already in a correction.
Although let me just say that because the QQQ has reached in 80 RSI, we could easily see a one or 2% pullback. In fact as we outlined in the chart, we are now due for such a pull-back.
I can see the QQQ pulling back to fill the gap maybe reach below just above the gap at 618 or something like that.
And that pullback can happen before the fed on a day of high volatility.
As we showed in the chart in the update once the QQQ reaches deeply overbought like this it is generally destined to pull back at any moment
Thanks Sam. One thing I hope people are able to take away from the analysis, especially of late, is that one or two things in a vacuum don’t determine what’s likely; the totality of the circumstances need to be taken into account. It makes a lot of sense when you put it like that.
if my question from a few days ago is not being answered, should I assume it was a dumb question hence no answer or should I assume it got lost in conversations and repost? thanks
No, not at all I may have just missed it and there’s so many comments that I could easily just have missed it. Just copy it from a few days ago and post it here or to whatever the newest daily briefing is
ok thnx. I was basically whether or not you’d consider hedging via uvix (as opposed to QQQ puts) to reduce the probability of puts being cooked completely. UVIX is also a leveraged product and will not give the full return on QQQ puts should the market drop like 10% but still you can triple the amount of investment in such a case despite uvix being a leveraged product. thank you
I don’t know enough about UVIX. But I probably wouldn’t use it to hedge because our hedges are designed to be a 1-to-1 point for point hedge of our leaps.
So example, in April we went long the June 2027 $400 leaps at around $85. We then bought an equal number of March 2026 $400 puts at $15.
If the QQQ had fall 100 points below $400, our $400 puts wood add $85 in value being $100 in the money off-set by our $15 cost.
That pays for the entire trade ensuring we don’t take any losses at all whatsoever in a bear market situation or in a crash.
We’d make money in that scenario. So I can just we wouldn’t deviate from our strategy of buying puts to hedge.
Especially as we can calculate with precision the end result.
If I’m understanding correctly, there are two competing forces in terms of the rally duration
1) rally has extended to 141+ days, every passing day greatly increases the chance it tops at any moment
vs
2) we reached outlier status by breaking century mark and in past tests of the century mark it has taken several months to peak
A question I’m assuming is on a lot of people’s minds is what are the chances we see the correction before year’s end given what we know now?
So #1 is correct. And it is a competing force for sure. The speed at which all of these things are occurring, however, means that they might not need to be. The speed at which the QQQ reached $630 means we might be able to get through this entire process very quickly.
#2 is partially right. Breaking the century mark by breaking out above $613 complicates things in multiple ways. First, it paves a path to substantially higher highs fro a point perspective. Not a percentage perceptive, but from added points, we’re now talking another 30-40 points of upside for the QQQ or about 5-6%.
But then it also creates problems becuase it takes time to go through the topping process.
Where I’d take issue with #2 is that it doesn’t necessary take “months.” It can take months. We’ve seen it take months. But we’ve also seen it take nothing at all. Days. It can go both ways.
Remember when Nvidia broke out above $1,000 and ran to $1400. How long did it take for Nvidia to go from $1400 back down to $900 (split adjusted). No time at all. It didn’t spend months at $1400. It just got there, peaked and crashed.
Same sort o thing here.
We could see the QQQ reach $640, never really do a full retest that takes weeks or months and it can just crash from there.
In Covid, the market rallied 84%. One would think after a massive move like that, it should lead to a complex top. Especially seeing as how on the covid rally the QQQ topped t $303 a share. It didn’t.t. The QQQ crashed the next day.
in Fact, within 2-days the QQQ was already down 10%.
So it can take I’d say weeks (instead of months). Or it could take no time at all. While the gut instinct is to think “this rally has taken a long time therefore we should see a complex long topping process.” That is not always the case even for big rallies.
The dot-com rally topped on a hard top as well. Though I think there it was a period of a few weeks. But started declining fight off of the peak, it was just that it took time for the selling to really accelerate after the dot-com rally.
This is why you stay long at all times
Thoughts and prayers for Smiley
I’d say yea that’s true to a point though. You do have take risk reduction measures as we have in this rally because in teh overwhelming majority of the cases, selling covered calls means a 20% reduction in cost almost every single time we get a rally like this.
Think of this in the collective instead of as a single event.
IF the QQQ reaches day 100 10 times in the future, you want to sell covered calls in all 10 instances. If in one instance we end up having to close out position, it’s no big deal for TWO big reasons.
(1) We’ll most assuredly be able to repurchase because we’re closing on the extreme part of hte rally. We’re not closing during the beginning of the rally right? Here, we closed out at 40% returns. That’s far above what we’ve seen in 95% of all past rallies. IN fact, only a tiny handful of returned more than 40% and in virtually every case you would have bee able to buy back in anyway.
For example, the common stock portfolios all exited at $580. The leaps portfolios exited at $560. $560 – $400 = 40% returns. For the leaps portfolios, it’s $400 – $580 =$-180.00 (45% returns).
Getting back in won’t be issue.
(2) If done every time the QQQ reaches extremes, you end up with a cumulative impact from the sale of covered calls.
For example, we did this going into the February correction,. We sold QQQ covered calls there as well on teh same exact basis. We sold the Nvidia $180 calls when Nviida was trading at $150.That reduced our basis in Nivia at the time.
Meaning the collective impact of selling covered calls at extremes at each point will lead to a much much larger cumulative impact. And worst case scenario we *might* re-enter at a very slightly higher level than where we exited. That’s MIGHT. IN most cases, we’ll be able to re-enter at our exit point.
Finally, and this is the most important part, the reason we sell covered calls to reduce basis is because if we get a dot-com situation where we’re long, that helps off-set the risk of a crash. Selling covered calls in a parabolic rally is no guarantee that the calls don’t expire worthless. From a pure timing perspective, the QQQ was trading well under $560 just ahead of our expiration. We could have ended up avoiding being forced out at Sep expiration. Meaning, it’s possible we could still be long right now.
The point is generally true. You want to be long at all times but that doesn’t mean not selling covered calls or not ending up on the sidelines due to extreme circumstances such as these.