Samwise Quick Reference Handbook
To streamline our daily blogs and conserve space, we’ve organized key resources into a convenient, collapsible dropdown menu below. A sort of Quick Reference Handbook if you will -- as our friends in aviation might call it. By clicking the menu below, you’ll have qu...
Please login to view this page.
is it possible NVDA consolidates and breaks out to 200 on a last push before the crash? seems like an opportunity to add shorts on nvda if it does that, hopefully market follows up. My more important questions is that of a bear market development or bubble watch and our streategy. Are we going to play things differently in the long term accounts if those are scenarios that play out. For example if we have a correction down to 550 and a rally to 600 in a large consolidation pattern followed by the start of another correction that leads to 550, would be then be more conservative about selling hedges and going fully long on a 8-12% correction?
Based on my understanding of Sam’s strategy, I think a bear market would actually be a really good outcome because part of his strategy specifically hedges against this very scenario (> 30% drop). The $500 hedges we’re buying right now would drastically inflate on the way down and offset any value loss on our long positions.
SO obviously, we’d prefer the market move higher. But we’ll hedge and position assuming a bear market can happen at any time.
If one does occur, then we should end up doing really well. The bulk of bear markets play out over hte course of a year and we’ll generally be h edged for it.
For example, suppose the QQQ has a 40% bear market with a top at $600. We bought the $500 puts at $15.00. IF the QQQ falls to $350 a share, those go un to $150 which would be far above any calls we bought ($75-$85). Alternatively, if the QQQ rises, then we’re only in for $15.00 and will make money on the long side. More so on the long side than on the short side. But we make money in both directions.
My more important questions is that of a bear market development or bubble watch and our streategy. Are we going to play things differently in the long term accounts if those are scenarios that play out.
No. Because bear markets really extremely difficult to predict. Even if we have all of the evidence, often they sneak up on us.
Think back to what happened in February. We couldn’t start thinking “maybe this is a bear market” until the QQQ got all the way down to $400. Down 25% at that point.
And then all we did different was double hte number of March 2026 $400 puts we’d normally buy. We just essentially bought more protection than we really needed.
But we were still overwhelmingly long.
We went 100% long at the lows. On the bounce, we reduced slightly and then used the capital to buy double the contracts on March 2026 $400 -puts. We were long 8 contracts in leaps. Long 16 contracts in 1-year expiring puts.
That means, our puts would appreciate at a pace of 2-1 versus our long leaps if the QQQ fell under $400 a share.
We are a long oriented publication. Our model portfolio are long biased. We’re always going to be long but will set ourselves up to do well in a bear market.
We won’t make as much money in a bear market. But here’s what will happen. we will make a huge chunk of change that we could then roll into long positions with the market down 40%.
That’s the position we’d be in. But I don’t think capitalizing on the expectation of a bear market happening is a wise move.
You can see just how hard it was to get this correction right and we only put up 9% so far.
Can you imagine trying to invest core capital toward a potential bear market. It’s a losing proposition for sure.
The best way to approach is to set up the portfolio such that if the market rallies, we make a huge amount of money. If the market crashes, we offset with hedges, produce a sizable profit and then go long at the lows. That’s the goal.
I feel like it’s a never ending story at this point. We went from July to now December as the point at which we expect the correction to have bottomed.
I know this is all based on probabilities and likelihoods etc. The problem is the market has consistently screwed with us since February by ignoring what’s likely. It honestly feels like a correction bottom with capitulation etc. is the only thing I would trust right now. My experience is limited and these last 8 months have done nothing to increase my confidence in relying on reliable patterns in the stock market. Aside from long term investing of course which luckily is my main investment.
I’m sure you must be similarly annoyed with the constant curveballs the market throws at us..
Yes, it’s like rolling a die and getting heads over and over. Each additional time you roll a head, the probability of getting another head should, in theory, get smaller. But in reality, it seems the opposite — after rolling 10 heads in a row, it somehow feels like more heads are coming.
Long post here. It involves mind-set and approach to the markets when dealing with outlier situations:
So here’s the key to getting through situations like this. What we’ve done in Arryn, Stark and Lannister and in the common stock portfolios (Tarly, Tyrell and Frey) is exactly how to approach the environment.
What did we know back in May as the potential ways the market can play out? We knew back then that the average rally lasts 55-days. That’s average.
We knew at the time that this would NOT be an average rally. Why? Because in bull markets, rallies usually go past the previous highs +4%. That’s the standard minimum run. Often more than 4%. But in a large 25% correction, recovery + 4% should be the expiation.
So that’s $560 a share minimum or 40% returns (off the charts). 20+540 =560. Our expectation was a peak near $550-$560 a share. That’s where we thought the QQQ would peak.
What else did we know? We knew that markets are like to top in July. We know that the September – October period is among the most bearish periods in the markets’ history. I think October is actually net-net the only negative month overall. Where the market has an average negative return.
We also knew the market would have an incredibly difficult time to push past $600 because that would correspond to an extremely long duration rally + 50% returns not to mention all of the things that surround century mark tests. Getting to $600 means we’d be at incredible extremes making it less likely the QQQ would get through. That part is very much true and continues to be true.
If you go back and read some of the briefings in May – June, a lot of the risk variables we considered as the outside extreme risk was $600 a share and 114+ day rally.
Okay so we know that while unlikely, the biggest risk in terms of maximum upside was around $600 a share and 114-days on the rally — that was our reasonable ceiling of risk. We knew highs + 4% = $560. We knew at day 80-100 we start to get into the top end of the range in terms of rally duration.
^all of these things are true when confronted with each and every rally in teh future. These variables are never going to change. When the next rally happens, all of these things will be true because they are true of every previous rally we’ve seen. It’s taking in all of the data we have on the market.
Next rally is probably going to peak at Day 80-100 on the outside. 20-30% returns depending on how large the correction is.
Okay. So how do we deal with outlier situations when they occur?
We want to make the same moves regardless of whether we’re in an outlier situation or in a typical situation because there’s really just no way to know when an outlier event is going to occur.
We want to capitalize on the totality of all rallies. If we’re confronted with this same situation 10 times in teh future, in 9 of those times, things are going to play out precisely as we’ve outlined. We’re not going to reach day 100 or 40% returns. The market will peak way before then and we’ll make a big chunk of money on that.
In the circumstances where that isn’t true, the goal is to minimize the damage. That’s the key to this entire thing.
So the way to address that is to positions such that if an outlier occurs, it does’t have a major impact on what we’r doing overall.
When we buy positions, we think, if this shit fails, what does the portfolio look like? If it succeeds, what then?
The whole reason we choose to buy a 9% position in put-spreads, instead of buying an 805% position in long-dated puts hedged by calls is that the downside risk to the portfolio was too great. If hte QQQ rallied, the hedge wouldn’t off-set the damage enough and we could end up with a 20-30% loss. That was WAY WAY too much. That’s why we opted for a 9% position in put-spreads. Because we can get the same outcome with a fraction of the risk to the portfolio. If we’re Wong on a 9% position, it’s a 9% loss. Not a 20-30% loss due to being long 80% in long dated puts.
And confronted with the same situation again 10 times in the future, guess what? A roll over will happen just on time. So the key is to limit exposure such that when we’re right, we make out big time. And when we’r not due to an outlier, our damage is limited to 9%. Notice that 9% position had the potential produce 40% portfolio returns if the QQQ peaked and corrected.
The same goes for managing our long positions. Selling the $540 covered calls at $20 puts us out of the market at $560. In the common stock pogtofiko we sold the $560’s for $18 putting us out at $578. We participated in the entire rally from $401 up to $578 a share in teh common stock portfolios. The QQQ is going to trade below $578 at some point in the future allowing us to re-enter common stock positions. That is as sure as the sun rises. we will see sub $578 at some point in the future.
For exiting at $560 on the leaps, what would be required for that to be damaging? The QQQ would need to rally well past the high risk point of $600. Because if it were only able to reach $600, a correction takes the QQQ well below $560 a share giving us an easy re-enter below our exit point.
Thus, the way to confront the situation now and in the future was to (1) limit capital risk by setting a 9-12% cap on short-term put-spread trades; (2) setting a cap to the long-term puts we buy to 12-20%; (3) selling covered calls that we’re confident will lead to a positive outcome even in the most unlikely of circumstances.
The key here is to be positioned such that outlier or not, the portfolio weathers the environment well. Think about it from the Arryn/Stark/Lannister portfolio’s positioning point of view. Worst case scenario, there’s no real lasting negative impact regardless of what the QQQ does next.
For example, suppose the QQQ continues higher to January even. Inreadibly unlikely considering early November is the absolute peak range for even meetup rallies. But suppose that were to happen. It just goes for 230-days+. Arryn, Stark and Lannister are sitting on over 100k cash each which is more than each portfolio started with. Arryn is sitting on $195k cash. When the rally started, the entire portfolio was valued at $140-$150k. It’s sitting on $195k cash. Lannister traded down to as low as $120k during the correction. It’s now sitting on $128k cash and valued at $170k. Stark was trading near $60k. It was called “the red wedding” portfolio at one point. It’s now sititng on $102k cash and valued at $125k.
A correction will eventually occur. Worst case, even if the 2026 puts were magically wiped out somehow, we’re still sitting on $195k cash in Arryn. It would take a year of this shit for the put leaps to be hit by this.
Positioning and allocation is really the key to everything. Becuase I’ll be honest. next time the market is set-up like this, it’s not going to last no 118 days. That’s an extreme outlier. Rally after rally after rally is going to end at 55-90 days. So the key is to weather the outliers well so that we can capitalize big on every other event.
Hi Sam,
Wanted to get your long term thoughts on consolidation within NVDA. As the market cap and valuation continues to get stretched, do you think we’re going to see NVDA trade within price channels for progressively longer and longer durations of time? Can the extended consolidation behavior we’ve been seeing in NVDA (Dec 2024 -> Feb 2025 and the one in this rally) be part and parcel with the fact that NVDA is maturing and hitting valuation ceilings?
Thanks!
So if we compare Nvidia to what we’ve seen in Microsoft, Google or Apple, what you can expect is that Nvidia will see stretches of time where it will make new highs, but at a much slower pace and with multiple corrections in between.
Like look at Apple right now. Back in February 2020, Apple was a known entity by then and how gone through its entire hyper growth phase. That was all over.
But it went from $51 during the covid crash up to $134 a share during the Covid rally. It was still able to produce big returns despite being one of the largest (if not the largest at the time) market cap company in teh world.
It’s peak in 2021 was $179 and it’s low of hte bear market was at $122. Post bear market, it rallied to $196 down to $164 up to $196 again and back down to $162 over hte course of a year. Multiple big rallies and big corrections.
I then finally took out the $200 level in 2024 getting as high as $260 before crashing to $168 during the 25% February correction. It’s not back to $256 and approaching its all-time highs again.
That’s probably what we’ll see out of Nvidia. Slow stead new highs over the years with a lot of volatility.
Apple’s highs:
2019 = $78
2020 = $134
2021 = $179
2022 = $176
2023 = $198
2024 = $260
2205 = $257
As you can see, Apple progressed over the years. It just didn’t trade sideways forever or stay stagnant. It kept progressing higher
We’ll probably see something similar with Nviida. I think it’s going to peak here before ever getting to $200 a share. It falls probably to $140.
Next rally probably takes it to $200-$220. Correction brings it down again. Next rally takes to $250.
It’ll progress over time as growth slows. As long as cash flows are high and there’s minimal growth, the cash flows will continue to push it higher long-term.
There be more opportunity from a volatility perspective than from a buy and hold perspective. But both will have their merits.
Hi Sam,
Question about the part about buying put spreads in the new strategy:
Would the purchase of the put spreads in this case be more of a trade since we’re already hedged for the downside via long term puts and covered calls we sold against our leaps?
Thanks!
i think the put-spreads are the ones that will be executed if the rally exceeds 100days, like the ones we are doing now.
The near-term call spreads (2nd step) will serve as a cheap hedge for both
the covered calls (1st step)
& the put spreads (3rd step)
Sam this 3-steps strategy is really really genius.
Have you every done this before or you just came out with this during this current rally?
Yes. technically it would be a trade but part of the overall process.
So the thought process is like this. If we’re confronted with the same situation as we’re seeing in this rally. IF we get to the point where we want to sell covered calls against our leap positions, we need to be thinking about hedging the extreme upside secneairo by using a portion of our capital secured by selling covered calls.
If we collect $20k, then we buy near-term call-spreads that will produce a 3-5x return with $5k. That way if the QQQ continues higher, we don’t get priced out. It makes harder to get priced out. For example, imagine if we had bought the QQQ $550-$560 call-spread when the QQQ was trying at $520 a share. The QQQ rallied to $574 a share. We’d have killed it on that trade.
From a timing perspective we should only put on a near-term call-spread at the bottom of a segmented pull-back. Why? Because that is precisely where the risk of having sold covered calls lies. If the QQQ is going to continue higher, it will do so after a segmented pull-back ends. If it goes into a correction, it will happen then.
At the end of the 3-4% pull-back, the QQQ either goes into a correction as expected or it bottoms and then makes new highs. When we sold the $540 covered calls, we should have done so at the the top of the segment — which we did — and then we should have just bought a small position in call-spreads.
Now if the QQQ then rallies another 8%, the reason for buying put-spreads is to capitlize on the expected pull-back. So yes, it’s at trade in a sense. But it’s a question of timing.
The timing once we reach what we feel is the top end of the range for a rally is (1) sell covered calls at X-price during the peak of one segment; (2) buy call-spreads at the bottom of the segmented pull-back at -3% to -4%; and (3) then buy teh put-spread at teh peak of the next segment.
Hi Sam,
Question about the overall new strategy being proposed.
Would this strategy only be relevant if the rally extends to the extremes we’re seeing right now?
Let’s say we have a “normal” rally then our current strategy is golden. We go long with leaps, sell covered calls based on outlier extremes, the correction happens as “normal” and we buy back our covered calls at pennies to the dollar. Money.
As I understand it, this strategy starts to show cracks if the covered calls we sold end up expiring in the money because now we’re not participating in the rally anymore. If this isn’t the case then why would we need to hedge the upside risk since we’d still be participating in the rally if the covered calls weren’t in the money, right?
Maybe I’m missing something 🙂
Thanks!
Sam are you confident on the QQQ Sep 30 Puts?
Those are cooked.
So the key is to layer in and think of the trade as one big position. 3% in the Sep 30, 3% in Oct 17 and 3% in Oct 30 and finally if the QQQ does get back up to $600, 3% in Nov 21.
Any one of those finds themselves in the money, and we’re breakeven to slightly positive depending on timing. If two end up in the money, then we’re up big.
QQQ sliding NLOD
But you see, this is always the case. All of these things are always present.
There are always fundamental cases to argue the market should rally forever. And guess what? it rarely ever applies.
In fact, when most correction happen, it’s rarely driven by anything fundamental. the market just randomly peaks and then sustains a correction.
By necessity, it happens out of left field. think about why? Most rallies top at the peak of positive sentiment.
So all five of these things you point out will inevitably be true during a 55-day 18% rally. All five and then some.
There’s no rhyme or reason to this from a fundamental point of view.
In fact, this eniormenet is nowhere near. Not even remotely close to the sttrongest of fumdanetal environments we’ve seen over the past 25-years and yet this is the 3rd strongest rally ever. Compared to the dot-com and post covid rallies? This environment is positive. But it ain’t that positive.
Remember the bernankne put era? The market actually believed that no matter what happens, the market will be protected. If the economy does poorly, Bernanke will step in and protect the market. If the economy does well then the market does well. Therefore, buy stocks with two fists.
That was the thinking during that Bernanke era.
NONE OF THE RALLIES during the Bernanke era can hold a candle to what we’ve seen here. 50% returns over 119-days now. Not even close. And those were some extremely positive environment both economically and sentiment speaking.
The Trump put can easily become the Trump dump. Remember the entire tariff era. Trump = volatility. One day he’s full blown pro market. The next he could be like screw them all. I hope all you market participants burn. That was the thinking during the tariff era right?
At best, he’s a wild card.
The Fed put has been in existence since 2009. The point is that fundamentals rarely tell us what the rally is going to do. beyond sparking a rally. The fundamentals are no indication for how long they last.