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...
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Great to hear as always Sam. It’s always tempting to jump in when prices are high!
This is very illuminating. It’s funny how hype works in the stock market. 3 months ago it was all doom and now it seems like the rally will never stop. Looing at our puts, it seems like we are bleeding money, but we have already seen how these things play out.
Hopefully not bleeding. It should be a very small position. For example, in my account I bought a 3% position in the Nvidia puts. If it works out, I make 2-3% on it. Which is fine for a between correction trade. It’ll add cash.
The key thing to understand with the Nvidia puts is this. If the QQQ rally extends to 100+ days — extreme rare — it could put those Nvidia puts in a bad spot. Because then we only have a tight 2-3 week window for the correction.
SO the biggest threat to them is the QQQ rally extending beyond July. If the QQQ peaks at the end of July as expected, then they’ll do very well. There’s a good chance they’ll double in value if we correct right on schedule.
Even at 90-days, we’re still in very good shape because it gives us a full correction period (26 days). 90-days is August 13. Sep expiration is at 116 days. So that’s 26-days.
So the biggest risk is going past mid-August. Price wise, Nvidia is likely to fall pretty significantly. So not worried about price. Just time.
Well, bleeding was a strong word. I follow your model portfolios (Stark and Frey). So I am net green today by a decent margin, but the hedges are certainly eating into the profits a bit.
In other news, I got the Options Tier 2 in Fidelity approved today finally. Very excited about that as it should allow me to follow the spread strategies as well. When you do them next time, can you please spell out both legs of the trade? I’m new to it and I wanna make I get it right.
Sam – great analysis. I love how data-backed all your decisions are. One high level / broad question. Probabilistically speaking, there’s roughly a 30% chance we see a red year (negative SPY returns) in any given year. At some point in the next 5 years, I have to assume we’ll see at least one of those. How do you approach that? Put another way: What if the next correction doesn’t follow the playbook? You’ve shown how dips often recover – and they have, historically – but at some point there’s not a bounce back as expected, right? Not because it’s “the end of the world,” but because we enter a longer grind, a sideways market, or something more structurally challenging. How does your analysis take that into account? I understand the puts are there for hedging, but more curious how you take red years into account for how you think about where we are in a given year and the likelihood of a green finish? Thanks
So we’ve discussed this a number of times. The market can do one of a few different things at any given time.
(1) Intermediate-Term Rallies
First, the market can rise via high volatility rallies. Something it does 80-90% of the time. If stepped into a time machine and went back in random point in time at any point in the last 40-years, you’re most likely to land on a day during a random intermeidate-term rally. The market is almost always doing what we’re seeing right now. Moving higher in a clear-cut up trend. During these rallies, you get 8-20% corrections with regularity happening at intervals of 70-100 days. We’re currently at day 69 as you can see by the title of today’s daily briefing. Our strategy works in this extremely common environment.
(2) Melt-UP Rallies
There are periods of time –though rare — where the market just likes to grind higher in a very low volatility environment. It will climb at HALF the rate or less than high volatility environments. For example, the current QQQ rally climbs at a rate of nearly 0.5%. A melt-up rally climbs at a rate of 0.15-0.21%. That’s less than half the current rate and double the time. Corrections are non-existent and the grind higher is slow and frustrating.
Our strategy works well in this environment, but my publication would have a difficult time surviving it because you go through months of time where the market just does the same up $0.20 a day nonsense. I’m more afraid of melt-ups due to boredom and threat to the publication than I am to threat to performance. Our hedges would deteriorate over time. With low volatility, our covered calls would work tremendously well. With fewer corrections, we face less risk.
(3) Bear Markets
Bear markets will have the same exact end result impact or even better than when we’re long. That’s because puts are inherently undervalued due to the asymmetry of upside to downside risk. If you look up the cost of the QQQ $520 puts (40 points away) and then look up the cost for the $600 calls of any distant expiration, you’l see exactly what I mean. Puts are far cheaper than calls.
If the QQQ had peaked at $476 and then crashed to $350 a share, for example, we would have crushed it given the 16 contracts in teh March $400 puts we bought on the rebound.
Everything just happens in reverse in a bear market. We’d always be more long than short, but our short would produce such large amounts of money that it would off-set and produce gains. And in a deep sell-off, they’d produce insane gains.
Like I mentioned earlier, if the QQQ were to fall to $300 a share right now, the Arryn portfolio would rise to like $400,000 or something obscene liek that. We’d make a ton of money on the result. You can do quick math on that right now. We own 16 contracts in the March $400’s which would be worth $160,000 alone (1600 x $100). Then we bought 10 contracts in the June 2026 $500 puts which would be worth $200,000 (10 x $200). That’s $360,000 in the two put positions and then we also have $37,000 in cash. So that’s $400,000 assuming our leaps are zero. But our 2027 leaps would most assuredly not be $0.00. They’d be worth like $25-$50k total. SO that’s $400-$450k if the market crashes right now. Not to mentionable all of the covered calls and other puts we own like in Nvidia for example.
A bear market would be good for us. We’d do well in a bear market due to how they unfold. They don’t just go straight down. They unfold the way we saw in April. You get a big leg down. A big rebound. Another bigger leg down. Another rebound. Another bigger leg down. Like check out 2022 for example. In a bear market, the corrections are larger than the rallies. That’s the only difference between a bull market and bear market. The reverse is true in a bull market.
Those environments above are the only real environments we ever have. If you go back and look at the last 40-years, the market follows on of those three courses above. See the attached 40-year chart of the S&P 500 from 1985 to 2025. Notice how the market is either climbing in a bull market or dropping in a bear market.
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(4) Sideways Hypothetical
So whether the market closes red or green on the year doesn’t matter to me at all and doesn’t impact anything at all.
let me illustrate. Right now, the QQQ is up $51 (9.9%) on the year. It closed out last year at $508.90. If the QQQ closes out this year at $500, we’d still end up deeply in the green.
If the QQQ closes out the year at $470, we’d still be deeply in the green. Even if it closes out in the low $400’s, in the green.
It’s easy to write the statement, “what happens if the market grinds sideways and the QQQ closes out the year down 6%.” But in that year, our strategy could be up 87%. Because if the QQQ experienced heavy volatility, well then we probably made a ton of money. The market can grind sideways with huge swings up down.
The QQQ doesn’t just teleport from start of the year at $508 to end of the year at $470. There’s trading action that happens between $508 and $470. That could mean a high of $680 and a low of $400 or it could mean a high of $525 and a low of $470 with 8 corrections and opportunities to have made a ton of money on every move up and down selling covered calls and buying and exchanging puts.
It’s hard to explain how the strategy will take on a particular environment on without some very concrete hypothetical situation laid out.
I need a hypothetical. A sideways year doesn’t mean anything at all. It could mean we profited greatly or not at all. It depends on how that sideways year unfolds and the decisions we make at various overbought/oversold points. It matters if the market reached overbought and oversold levels at all. There’s a lot that goes into this. It’s not a simple “what if the market closes red on the year.”
For example, right now we’ve sold the September $540 calls right? Suppose the QQQ sustains a correction down to $500, those calls expire worthless and we’ll have made 25% return son our $85 investment in the June calls. Suppose the QQQ then rallies back to $580. We sell covered calls again, the QQQ sustains noter correction we make another $20 on the covered calls yet again. That’s 50% total returns on the sale of two covered calls at different points in time with the QQQ having gone nowhere.
We can have the QQQ starting off the year at $560, not travel very far up or down all year, and still end the year with massive gains if we’ve sold $19.55 worth of covered calls multiple times throughout the year. I mean look. The entire damn June 2027 $400 leaps only cost us $85. If we sell covered calls 4 times for $19.55, we’ll have nearly doubled our money with QQQ trades fully sideways all year. In melt-up environments, that’s exactly what will happen.
The QQQ will melt-up very slowly, we’ll sell covers calls, the covered calls expire worthless, rinse and repeat.
So not really sure how to answer your question without a very specific hypothetical situation.
How the strategy performs really depends on volatility, overbought/oversold and trading ranges. Ultimate prices matter but not to the extent that you might think. The success in Arryn is MOSTLY attributed to us producing nearly $70,000 in gains from our puts! Closing out our hedges with the QQQ down 25% from its highs is what made the Arryn Portoflio so successful. Without the Feb – April crash, we can’t close those puts out and then go long. Suppose the QQQ ends this year at $600. Not suppose in a differnet world, the QQQ doesn’t sustain a 25% correction, but rather just rallies to $630. We’d do WORSE in the year where the QQQ simply climbs to $630 than in the year where the QQQ fell from $540 down to $400 and then up to $600. We do better in the crash year because of the profits derived from volatility itself.
Again a sideways market or even a market that ends down marginally or down significantly or marginal or up significantly can help or hurt us depending on how things actually unfold and the actions we take during each of those moves.
A lot of what we do is skill dependent. Knowing for example that on April 7 we should close out our long-term puts and buy June 2027 calls. That’s a skill-based decision made with experience with prior markets and based on certain key indicators triggering. We don’t make that decision, we’re not up nearly as much as we are right now. instead of being up $150k on Arryn, we’d be up $80k or $100k.
great answer – thanks for this
NVDA puts cooked
Hello Sam,
Thank you again for your detailed analysis of NVIDIA and the comparison of NVIDIA’s price situation with historical prices.
I completely agree with you that the current upside is low, potentially reaching $180. However, your May analyses mentioned a probable threshold of $140 to $150, and the scenario of reaching $170-$180 today was very likely, if I remember correctly.
Also, the scenario of a sharp correction to less than $100 in April was unlikely, but it fell to less than $90.
Given these two factors and this explosive and historic rally since 2010, isn’t it relevant to also consider a scenario where NVIDIA corrects to less than $120 or even $110?
Let’s also remember that TSMC’s financial statements outperformed expectations by 40%, and NVIDIA’s results for the end of August 2025 will likely reflect this.
We’ve already seen NVIDIA decline very sharply before the releases, only to rebound sharply afterwards.
Is it possible to weight the analysis with a probabilistic approach, as the opportunity cost and risk seem very significant to me if the scenarios of April 2025, August 2024, and September 2024 are repeated, i.e., a sharper decline?
For my part, I consider it much more likely that NVIDIA will reach $100-$110 with a price of $170-$180.
Best regards,
Karl
So I’m just drawing conclusion based on what the data is saying. I outlined the two big rallies Nvidia had right? One went from $48 to $97 in a 100% returning rally. Nviia pulled back to somewhere around $74 from $97. So it’s like a 23% pull-back. This after a 100% returning rallying. So it wasn’t small rally by any stretch of the imagination.
The QQQ had sustained a small 8% correction at the time. So that probably had a lot to do with why the Nvidia correction as limited. I’m sure if the QQQ fell another 4% down to under $400 a share or to $400 at the time, Nvidia would have probably dropped to $670-$680 at the time which would have been something like a 28-30% correction. But that’s not what occurred. What happened was a 23% correction.
Then in the next run from $75 up to $140 produced 90% returns and Nvidia gave back 50 points because the market had seen a major sell-off. The QQQ fell 16%, Nvidia fell 35.7%.
So there are a few things you need to keep in mind. First, how much Nvidai drops is going to be highly dependent on teh QQQ correction,
We’ve seen rallies like we’re seeing right now where the market refuses to sustain a large correction. After the 36% move up back in 2023 where the QQQ rallied for 89-days. One would have expected a larger 12-14% correction afterward. But the QQQ only dropped like 8-9% on that rally. It eventually fall 11% total but an after 71-days of heavy volatilty and swings.
The core correction after that move was only 8-9%.
We can see that happen here. It’s probably unlikely. In most cases, the QQQ will sustain a heavier correction after a larger rally. But there are times when the QQQ will go up 30-35% and only sustain a small 8% correction.
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So as Nvidia is concerned, as of right now, it’s likely to drop 22-23% if the QQQ falls 8%. If the QQQ sustains a normal correction, then we probably see 25-27% drop.
That’s the range. Anything else isn’t data based. It’s rolling the dice and hoping. Can Nvidia drop to $100? Sure. But it’s very unlikely imo.
Think about it. Why rally to $170 if you’re just going to head right back to the low of the previous trading range. The whole reason Nvidia has broken out toward the $170 area is due to move the entire bar forward as has been doing for a while now.
This move up to $172 tells me that the new range is $120 at the absolute low point with a likely trading range in the $130-$180 zone. The previous range was in the $100-$150 zone.
Anything more than that isn’t something you can forecast. It’s not something you can build into the analysis based on any hard concrete data. You’re just guessing at that point.
if the QQQ were to sustain a 16% correction — totally unknowable right now — but if it did fall 16%, then sure. Nvidia might fall 35% like it did last August. But that would just be a shot in the dark guess.
Here’s how the QQQ has performed after each of hte top rallies in history:
Mar 2020 +84.34% gain to 14.17% Correction
May 2025 +39.50% gain to TBD Correction
Mar 2023 +36.62% gain to 11.63% Correction (over 71-days)
Aug 2015 +36.59% gain to 17.61% Correction
Dec 2018 +33.60% gain to 11.53% Correction
Nov 2023 +31.76% gain to 08.07% correction
Oct 2019 +30.89% gain to 30.39% correction (covid crash)
Jun 2013 +29.50% gain to 05.91% correction
Nov 2016 +27.48% gain to 05.06% correction
Nov 2020 +26.90% gain to 12.05% correction
Dec 2011 +26.77% gain to 11.38% correction
Note the above is taken right from the NASDAQ tables section of the site. Notice how we have THREE different corrections in the TOP 10 largest rallies where the correction only went for 8.07%, 5.91% and 5.06%.
If that happens here, Nvidia’s pull-back can easily be 12-25%. We can easily see Nvidia drop from $172 down o $150 and then continue higher.
In most cases, 11-12% it looks like. If a rally is north of 26.77%, the tendency is to see an 11-12% correction. Based on that, my guess is Nvidia falls between 25-27%. That’s my best guess based on this data here. Thus, if Nvidia peaks at $172, then $125-$130 is the low-end of the range. If it peaks at $180, $130 to $135 is the low end.
We’re not going to project MORE than what the data above is telling us. Again, Nvidia’s direction and ultimate bottom is determined by the stock market. By how far down the QQQ goes. If the QQQ falls 14%, Nvidia will fall close to 30%.
I’m not going to change my mind on this because there’s no basis for me to change my mind. there’s no data out there telling us that we ought to predict anything more than a standard correction.
The news won’t drive this. This a purely cyclical issue. You have the data above. Go check the Table 4.1 and sort the table for rally size. The top 20 rallies breakdown like so:
14/20 saw corrections of 5-12% (70%).
3/20 saw corrections of 13-17% (15%)
3/20 saw corrections of 20%+ (15%)
Based on historical trends, there’s a 66% chance of this being a small to normal correction. 15% chance of it being a larger correction like August 2024 (13-17%) and a small 15% change of it resulting in a crash like April (3/20).
Let me add one more thing. 7 out of the top 20 rallies lead into a sub-10% correction. That means there’s a full 35% chance (1/3) that the next correction that happens is a smaller sub-10% correction like March 2024 where Nvidia pulls-back closer to 22-23%.
That’s the way to think about this. How far will the QQQ drop. Because that will tell you how far Nvidia will drop.
Not super important, but I think day 66 was skipped in the titles of these posts
It is important. Dammit. That’s another damn day we have to wait. So Groundhog Day tomorrow I guess
A moment of appreciation for all the extremely insightful information along with the precision of your analysis – there were times I was skeptical but this has been tremendously net positive learning experience. Thanks man!