Samwise Model Portfolios
The portfolios below are separated by launch dates. Each portfolio is entirely independent and has no bearing on any other model portfolio. We launch entirely new portfolios during each market correction as an illustrative tool for new subscribers who weren't present during...
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Thanks for all the updates. I guess putting on hedges ahead of time for the new portfolios depends on wether we get a final segment higher right?
Yeah we need the market at its highs for that. Otherwise, we do it the other way around.
What type of hedges are you planning to use? Baretheon a trailing stop? Targaryen a Put? I’m asking because depending on the type of edge I can enter the trades with more or less funds.
No hedges. With volatility up as much as it is, the cost to hedge would erase any profits we could make. The market went down too far too fast to be able to hedge this type of trade with puts. Implied volatility is too high.
Maybe. We’ll have to see what happens when we open. Those gains can be erased in seconds.
Thank you for your very informative posts across the website. The content is worth every penny of that subscription.
Are there any plans to allow shadow trading of any of your Samwise Model Portfolios through some sort of automated trade feature between your alerts and a list of brokers in your upcoming app or the website? This would help simplify the investment experience overall since not everyone is available to manually execute trades themselves immediately when your alerts come out.
Also, while I would guess that your principles won’t change, how would you adjust your investments and timing of your posts and updates based on extended trading hours in the future if major exchanges decide to switch over to a ’24-hour’ exchange?
Thanks for the kind words. Appreciate it!
Regarding automated system. That I’d have to look into. Something like that would take a lot of development and I think it may violate the Rule 202(a)(11)(D) exemption. Something like that start to get really close to advisory services. Need to look into this more.
If the exchanges went to 24-hours, we’d be open essentially 24-hours. What that will depend on is how reliable the 24-hour exchange are relative to regular trading hours. Often times after-hours doesn’t represent how things go down during the regular trading sessions.
Liquidity concern will also drive much of how active we are in the after hours. Especially with options. If we get a broad widening of bid/ask spreads then it might not be functionally relevant for us. But if we do see a lot of liquidity and trades can be made, then we’d stay fairly active in the sense that we’d use after-hours to make trades and/or investments at times.
That also brings us to technicals and how they’ll be impacted. Because a lot of trading is based around the technical picture which only uses data from the regular trading sessions.
If you were going to adjust the Baratheon trades for half the allocation (5K), how would you handle a trade like the QQQ February 21, 2025 $500 Calls @ $30.00 x 1 contract?
Would you simply change the strike price to give you half the cost basis (in this case whatever is selling for $15)?
Or does this make the trade much less attractive given the change in the greeks?
The plan on Baratheon is one contract each of DIA, QQQ and SPY. Perhaps you could just do DIA or DIA and QQQ?
Well in Baratheon, it would be 3k at $30 x 1 and then the total allocation increase to $5k by purchasing the DIA calls.
Right now, we’re leaning toward 1 contract in the QQQ calls at around $31-$32 and 1 contraction teh DIA calls at around $23 for a total allocation of $53 for a total allocation of around $55.
Without getting too deep into volatility crush and its impact on options, to avoid volatility crush there are two ways to go.
(1) one can buy in the money calls with a lot of intrinsic value (options that are in the money). For example, the DIA $410 calls trades at $426.31 right now and the DIA calls are $24.50. That means about $16.31 of the $24.50 options value is intrinsic value. Can’t be lost due to implied volatility crush alone. Because even with no other premium, it’s wroth a minimum of $16.31 right now.
That’s not the case with OTM options. The higher you move up in strikes, the less intrinsic value you have and the more subject the option is to premium deterioration factors like theta decay and importantly volatility crush;
(2) one can also opt to buy vertical call-spreads which are pretty much immune to volatility factors altogether. Because both the long call and short call are hit fairly equally.
If one’s not careful on the option chosen, you could end up in situations where you’re right about the direction and produce no profits at all.
I learned that the hard way in the August 2011 crash due to the U.S. credit downgrade. I bought SPY calls, the market rallied huge and I made no money at all. For a long time too. the market would go up every day and the drop in volatilty offset the gains.
This happens to OTM leaps too. I remember January 2021 SPY calls not going up at all during the covid crash even as the SPY was skyrocketing. They stayed where they were value wise as the SPY collapsed and then started drifting lower as the SPY went up and VIX came down.
Intrinsic value is the key when you have skyrocketing volatility.
Thanks for the explanation. I hadn’t checked the chain to see that adjusting the strike would have put it OTM. I was really just wanting to know how to adjust for a fractional allocation. It seems pick and choose is the answer.
Does it make more sense to buy a leveraged fund like nvdl or itm leaps? Hypothetically if qqq crashes 30 percent would it pay out more to buy itm leaps or buy tqqq? Is there a a safe way to create a 10x leverage via options without volatility crash and decay
NVDL and ITM leaps are very similar. NVDL is marketed as a “daily trading” tool and they make no guarantees as a long-term investment. Though we have a small portion in NVDL because I’ve found that over the life of the ETFs, it has far exceeded its implied benchmark.
NVDL is a good substitute for ITM leaps and produces similar leverage.
I just saw your comment about spread while preparing the illustration attached. Anyhow, here’s the question: how have you chosen the Feb 21 expirations instead of the Jan 24? The outcomes, percentage-wise, seem more favorables. There must be an explanation and this may be the occasion to learn something. However, as you pointed out, the spread on the Jan 24 is even worse.
So I wanted time to reduce theta decay in the event the markets trends lower, become even more oversold before finally rebounding.
Since we’re not putting on a hedge for these trades, what we need is the ability to exit the trade while they’re in the money with a lot of time remaining.
For example, suppose we go long at $515 on the QQQ. The QQQ further falls to $501. At that point, it’s near record oversold territory. 3-4 days have past. We get a rebound back up to $515, we exit for a loss.
Now in that cycle, being in February’s ensure we get a much better value overall when exiting than if we’re in January options that have almost no time remaining. The February expiration being deep in the month is more than double the time.
The February’s will be in substantially better shape on the rebound than would be the January calls as a relatively smaller amount of theta decay would hit the February calls as would the January’s.
A big reason we’re going in with half allocation is so we could buy a second set of calls in the event the QQQ/DIA rolls over. It will give us the opportunity to then buy at $500 QQQ and/or $415 DIA.
the idea would be to profit on that second set of options while closing out the others at a small loss on the eventual rebound. And the markets will rebound. It’s just a matter of where that happens.
DIA is being traded around $24.85 already (2/21 call $410 strike). Ok to enter an automated order you think?
I can’t really get into execution related topics on a specific basis. I may write a general article on execution risk. But these are topics I can’t really touch on. I can just say what we’re buying, why and when for the model portfolios.
At the moment, we haven’t put in a trade just yet.
Sounds good, thank you!
Thanks for that last update. Let’s see some red. Winter is coming. I’m ready to declare my allegiance to the Stark banner.
“Again, what we’d like to see today is the markets turn red on the session. A slightly green close isn’t great.”
Do you mean we want to see it turn red during the day and then proceed to close green again? Or just close red entirely? Would appreciate some clarification on this statement, thank you.
So I’d like to see the markets turn red before putting on a trade. That could have been more clear.
I was trying to express — quite poorly — two entirely separate ideas. I should go fix that.
So one thought is we’d like to see the QQQ/DIA turn red today so we could buy for the trading portfolios. We outlined the reasons for that with the needing deeply oversold to buy with conviction/confidence.
The other thought is this. If the market closes slightly green today and then does the same thing tomorrow and then next, this entire oversold setup is no longer valid. The market likes sustains a hard sell-off afterward. So we wouldn’t buy if all we get is 2-3 flat to green sessions like today.
Ideally, what we want is deeply oversold for several hours. The market turns red becoming deeply oversold and then we go on a major rally immediately afterward. We bounce $10 between now and Christmas. Then we get another leg lower after Christmas. That would be the ideal situation for us here.
Unless I’m missing something, it seems like Nvda is trading more in line with the Dow? Or do you think Nvda is just on its own separate course?
Or it’s the Dow that’s trading with Nvidia lol. So it is a little of both (QQQ & Dow) because Nvidia appears on both indices.
Index based funds have to buy and sell all of the components together. So if there’s pressure on the Dow because some index fund is trimming positions or reducing risk, Nvidia takes an indirect hit proportion to its allocation.
The sword cuts both ways. Nvidia gains the benefit of being on the Dow in rallies, but also incurs the debit in sell-offs.
And that holds true for every index Nvidia trades on. But you’re right to observe that Nvidia has been trading more in line with the Dow than it has the NASDAQ 100.
The last few weeks shows that pretty clearly. The Dow is down 10 days in a row while the NASDAQ was been trading at its all-time highs until just two days ago.
Hey Sam,
Yesterday you wrote after the NYMO broke -100 that we should have bought right then.
Has anything changed that invalidates that since then?
Just being very careful. You know when I’m just making trades on my own, I could afford to take on higher risks. But in a publication like this, I have to be pretty damn flawless.
Even though these are all high risk trades. I still have to raise the bar.
With the long-term portfolios, I’m very happy with how they are positions and how protected they are.
With near-term trades, it’s easy for them to go off the rails.
Ah ok, I just wondered. But that makes perfect sense!
I have to say I really appreciate your approach to this and letting the trades come to us instead of chasing something. That FOMO is important to keep in check.
Sounds like a lot of pressure for you. Appreciate all your work!
Still holding NVDL in Lanister after removing the covered call?
Yeah we’re going to hold that for a long time. The NVDL has been extremely well managed and has outperformed its implied benchmark on the way up by a lot. The NVDL covered call has already run its course. It was basically almost worthless.
We’ll put on another covered call on the next rebound up.
For those of us who are restricted, would you consider simply buying the QQQ or TQQQ for short or medium term?
so we’re expecting about a $10 rebound in the QQQ once it bottoms. It could p potentially rise about $15-$20 as we’ve seen in previous corrections. Given the size of the down move so far, we’re expecting closer to $10. So from today’s entry, something like a move up to $527 or thereabouts.
The Feb21 DIA’s 410 call “open interest”=34 and volume=15. Is this really workable for a realistic trade?
The DIA is a massive $40 billion ETF. That open interest can very quickly change and is based on demand. Brokers make a market in the ETF options and if there’s demand for the option, the market markers will generally write the contracts and off-set/hedge by shorting the common stocks. The widened bid/ask reflects the low open interest and demand. But with a highly traded and liquid ETF, that’s easily resolvable.
Though not as deeply oversold at the moment, it looks rather likely that the QQQ has a down day (-$5 right now). Is that enough to signal the significant rebound you mentioned in today’s briefing? If so, when do you expect we’ll see said rebound?
Our expectation is for a rebound to come within the next few days. You can see the charts for yourself. It’s generally pretty immediate off of oversold conditions. Though there are exception to that rule.
But in the overwhelming majority of the cases, we should see a strong rebound right off of oversold conditions.
The text alert has been fantastic and really came through for me today! After working a night shift, I left my ringtone on so it would wake me up, and it did—right in time for the trade. Super helpful!
Awesome. Glad it was helpful.
It seems like the QQQ rebound failed today. Does it increase the chance to enter correction? I also bought 1 contract QQQ $500 call, I just thought the expiration date is maybe too close?
So we’re trading on the assumption that we’re in a correction right now and that we’re playing the bounce. Even in corrections, there are large rebounds.
The expiration date is close, but this is a relative small trade. What we choose was an in the money short-dated option to leverage the most out of the delta. By choosing in the money options, we avoid heavy impact from volatility crush and also limit theta decade as there’s 45 days until expiration. We plan to hold this for no more than maybe 5-days. 7-days if we have to ride the QQQ down and then back up again.
If this is the correction, does that change the outlook for January then?
Well it just moves everything up a few weeks. So now instead of correcting in January and bottoming in February, we may be correcting at the end of December – beginning of January which means we bottom sooner.
The only thing that changes is we get 1 less segment than we were originally expecting and the correction starts a few weeks ahead of time
“As the technicals are concerned, the market did spend more time at oversold today which is good. We could afford to see deeper oversold conditions and I think that’s what we’re probably going to see tomorrow.”
So the fact that the market closed red today instead of slightly green like you were afraid of is a good sign for a rebound? Trying to wrap my head around this. If the selling continues tomorrow, doesn’t that increase the likelihood of a correction and would not be favorable for us?
Yeah it’s better. Even better that the futures are red. The more aggressive the selling, the higher the likelihood for a rebound AND the further the bounce.
But if the market trades up $2.00 or trades down $1.00 and is barely oversold and continues to oscillate into and out of oversold without triggering extreme indicators, that’s not great because it can go on forever. Or at least it can go on for a substantially longer time than high volatility sell-of.
ON those hourly charts that we post, we want the RSI to get down to 20 and stay there for like 7-8 hours. That would strongly setup the markets for a rebound.
What’s happening AH! Nearly 5.5% from ATH for QQQ