Market Outlook 2015-2045 - Men Vs. Machines [View article]
We actually addressed that in Member Chat last night. Here is my note to Members on using a scaling/rolling discipline with options that applies just as well to stocks:
"Sizing/Jr – Of course, if you intend to pursue a rolling strategy, you MUST pursue a sizing strategy. I shouldn't be used by people with serious margin constraints in the first place. As it says in the Strategy Section (which no one reads), you start with a 1/4 position and then each 20% move against you (or for you) is an inflection point where you should be making a choice to roll or DD or stop out. If your position is $10,000 and you start with $3K, if it drops to $2,400 and you DD, you are in for $5,400 and down $600. BEFORE you DD, you should already know what you will do if it drops another 20% – to $4,320 and, if you DD there, you'd be in for $9,720 in a 4x position with a $1,464 loss and your limit should be no more than another $1,000 for a $2,500 loss on a full position.
If you started with a $1 call, then you bought 30 at $1 and then 30 more at .80 and 60 more at .64 for a total of 120 at an average of .77 with the options at .64 so down 17% at 4x, even though the option dropped 36%. Then you could put a stop at .50 and you'd get back $8,000 plus the $280 you never spent and that's ALL you lose ($1,720) on an option that goes 50% against you with a $10,000 allocation.
That's a simple example without rolling but the concept is always the same – don't put more money in unless you are ready, willing AND ABLE to deal with the consequences of another move against you. If you are not comfortable with the move AFTER the move you're making now, you shouldn't make the move you're making now. If you stick to that criteria, you should limit your losses to far less than 25% on the average loss while, of course, there's no limit on gains.
CLEARLY, very few people actually follow this system. That's what I'm trying to correct in the new STP – no matter how many times I need to hammer this point home. "
Market Outlook 2015-2045 - Men Vs. Machines [View article]
South African miners just went on strike asking for 60% wage increases. They'll likely end up with 15% but, until resolved, the whole region is being dumped. I agree with adding more but you could have sold Jan $4 puts for .80 so you'd get .80 per share you promise to buy at $4 so you either net in at $3.20 or, if HMY goes back up, you just keep the .80 if the short put expires worthless.
As to the bottom - that's why I'd rather sell puts - want to save firepower for a massive dip (if it ever happens). Figure it costs an average of $1,100 to pull gold out of the ground (whole sector) so that should be a good long-term floor. Short-term, there's too much speculative gold to stop a major sell-off if sentiment shifts negative but we're playing for $1,350 to hold (see above trade ideas).
Market Outlook 2015-2045 - Men Vs. Machines [View article]
I say that all the time. This article isn't about that though, this is about which way we should invest now, which does not take into consideration the societal repercussions, which would be a whole other huge post. As I noted, expect unrest to build 2015-2035 and I assume it's solved by then by either violent revolution or changes in society where it's your "job" to consume.
We complain about "the welfare state" but, realistically, we're already paying tons of people not to work. Not just because they are old or sick or uneducated, but because there simply aren't enough jobs to go around and we're better off paying people to keep consuming than leaving them broke with nothing to do but revolt - especially as there's more of them than there are of "us".
I'm just quoting the other article - I have not done a study but, as Peter says above you - why sell stock to pay off a very cheap loan other than to break a covenant?
What's the win? Just a Billion or so. I'm sure he'll be selling some for "tax purposes" or to start buying SCTY shares while they're still cheap (up 26%% today) because he hasn't begun hyping those yet.
This is not about TSLA, which is a great company and will continue to grow - this is simply a warning that the current valuation is too high and likely to correct so I'd like people not to get burned wishing for $100+ when it may not come for a long, long time. I wasn't saying this a month ago, when it was 50% lower than it is now - but I am saying it here and, frankly, I'm done now as our Members got the message and moved on to other fields as we've been in this thing since the $30s.
I was very public in my love of them and I just want to make sure the people who followed me in know I am out (and don't tell anyone, but I'm long on AAPL).
I don't want to anger any TSLA fans here BUT, please be aware of the things that bother us about this: http://read.bi/106TBRA
"UPDATE: A sharp reader points out that something else is also going on here, namely that Tesla is using the capital it raises in the deal to pay off its government debt--and that that debt requires Musk to maintain more than 65% ownership of Tesla. By putting some money where his mouth is, Musk is arguably increasing investor confidence in Tesla, which will make it easier for the company to raise capital at a high price. And by paying off the government debt, Musk is also "unlocking" his stake in the company, which can now be sold. So that actually reduces Musk's risk somewhat."
Tesla just announced they are pricing secondary at $92.24 for 3.39M shares (about 3% of current shares) and Musk immediately pledges to buy the first Million, which is damned nice of him as it pumps the value of his other 22M shares to just over $2Bn.
So, if his proclamation that he would buy 1M shares for $100M boosted the stock by just $5 - then the 1M new shares were net free. Nice work if you can get it!
I think any kind of recall can send the stock down 20%. Auto companies have recalls every month - it's not a big deal - unless you only have one model and they all get pulled. Could be brakes, floor mats (TM's big recall), something electronic (no, nothing ever goes wrong with complex computer systems)... etc. Again, nothing long-term but it's a risk factor obviously not priced in at $90 (or is it $100 today?).
Long-term, the thing that got me to go bullish on them last year was taking a good look at the car as it was laid open in the showroom. The design is pretty similar to any toy electric car - it's a base with a battery and wheels and a top part that snaps on. That's a fantastic design and probably will have far less reliability issues than most cars.
I agree on the battery, millions and millions of computers and phones are sold with similar systems and only a handful ever have defects and TSLA has safeties in place that those guys don't bother with.
It's not about comparisons, it's about getting a reasonable return on equity. I love TSLA, I love the car, I think they are fantastic and I've written very positive articles about them for years BUT - there's still a realistic value you have to place on them as a company.
We set up a trade on TSLA on Jan 15th to lay out about net $7,500 on a spread with the anticipation that, by Jan 2015, we'd net $60,000. The long spread was a 2015 $30/42 bull call spread and we sold $23 puts to pay for it and a few short calls that expired right on target in March ($34). That trade was up 589% on Tuesday!
TSLA did not "discover" anything this quarter and they only made a profit because of tax credits that wind down at the end of this year. We loved the company at $30 and that trade set-up was very bullish - but this is silly.
I'm thrilled TSLA is doing well and congratulations to all who have been in them with us but we're done here and, if you don't want to take your profits off the table, at least consider taking some of your gains and buying some protective puts or, as I noted, we flipped a very small portion of our gains into an $85/115 bull call spread for $7 and, if the stock goes up $30, we can add a $115/145 bull call spread for $7 and I'd rather give up $7 out of each $30 they go higher than risk the gains we've already accumulated.
Just something to consider, even for the mega-bulls.
While we were long on TSLA, we took the money and ran at $85 - not having the "vision" to see them worth this much, this soon. Now we're essentially short - taking advantage of the very cheap 2015 $85/115 bull call spread ($7) and selling short-term calls against it (the June $90s are an insane $10).
TSLA has done everything we thought they would do and more as far as turning things positive this year but, as you note, even with that, this is a silly valuation at $10Bn. Selling stock to suckers is a very wise move at this point but, like 1999 - they still could double or triple as there's no shortage of money at the moment. But it won't change what they're really worth and, eventually, they're likely to be back at $60 again.
Barrick Gold And Harmony Gold Can Inflate Your Portfolio [View article]
Well, I'm sorry you bought it at $6.20 but, at $4.62, we're willing to buy it back from you. Also, note our hedge nets us in at $3.81, so we do expect more trouble ahead as gold tests lows but, over the next 18 months, we think we'll get back over $5, which is all the trade has to do.
The point of these articles is to teach you to use these kinds of set-ups to lower your entry point. Had you sold the $5 puts and calls for $2 when you bought the stock for $6.20, your net would have been $4.20 and, if assigned, 2x at net $4.60 - 25% better off than you are now.
Market Outlook 2015-2045 - Men Vs. Machines [View article]
Up a virtual $1,498 from start at 5/17 so far.
Market Outlook 2015-2045 - Men Vs. Machines [View article]
"Sizing/Jr – Of course, if you intend to pursue a rolling strategy, you MUST pursue a sizing strategy. I shouldn't be used by people with serious margin constraints in the first place. As it says in the Strategy Section (which no one reads), you start with a 1/4 position and then each 20% move against you (or for you) is an inflection point where you should be making a choice to roll or DD or stop out. If your position is $10,000 and you start with $3K, if it drops to $2,400 and you DD, you are in for $5,400 and down $600. BEFORE you DD, you should already know what you will do if it drops another 20% – to $4,320 and, if you DD there, you'd be in for $9,720 in a 4x position with a $1,464 loss and your limit should be no more than another $1,000 for a $2,500 loss on a full position.
If you started with a $1 call, then you bought 30 at $1 and then 30 more at .80 and 60 more at .64 for a total of 120 at an average of .77 with the options at .64 so down 17% at 4x, even though the option dropped 36%. Then you could put a stop at .50 and you'd get back $8,000 plus the $280 you never spent and that's ALL you lose ($1,720) on an option that goes 50% against you with a $10,000 allocation.
That's a simple example without rolling but the concept is always the same – don't put more money in unless you are ready, willing AND ABLE to deal with the consequences of another move against you. If you are not comfortable with the move AFTER the move you're making now, you shouldn't make the move you're making now. If you stick to that criteria, you should limit your losses to far less than 25% on the average loss while, of course, there's no limit on gains.
CLEARLY, very few people actually follow this system. That's what I'm trying to correct in the new STP – no matter how many times I need to hammer this point home. "
Market Outlook 2015-2045 - Men Vs. Machines [View article]
As to the bottom - that's why I'd rather sell puts - want to save firepower for a massive dip (if it ever happens). Figure it costs an average of $1,100 to pull gold out of the ground (whole sector) so that should be a good long-term floor. Short-term, there's too much speculative gold to stop a major sell-off if sentiment shifts negative but we're playing for $1,350 to hold (see above trade ideas).
Market Outlook 2015-2045 - Men Vs. Machines [View article]
We complain about "the welfare state" but, realistically, we're already paying tons of people not to work. Not just because they are old or sick or uneducated, but because there simply aren't enough jobs to go around and we're better off paying people to keep consuming than leaving them broke with nothing to do but revolt - especially as there's more of them than there are of "us".
Market Outlook 2015-2045 - Men Vs. Machines [View article]
Was correct in my original post, some SA robot checker screwed it up!
Tesla: 1999 Revisited [View article]
Tesla: 1999 Revisited [View article]
This is not about TSLA, which is a great company and will continue to grow - this is simply a warning that the current valuation is too high and likely to correct so I'd like people not to get burned wishing for $100+ when it may not come for a long, long time. I wasn't saying this a month ago, when it was 50% lower than it is now - but I am saying it here and, frankly, I'm done now as our Members got the message and moved on to other fields as we've been in this thing since the $30s.
I was very public in my love of them and I just want to make sure the people who followed me in know I am out (and don't tell anyone, but I'm long on AAPL).
Have a great weekend,
- Phil
Tesla: 1999 Revisited [View article]
"UPDATE: A sharp reader points out that something else is also going on here, namely that Tesla is using the capital it raises in the deal to pay off its government debt--and that that debt requires Musk to maintain more than 65% ownership of Tesla. By putting some money where his mouth is, Musk is arguably increasing investor confidence in Tesla, which will make it easier for the company to raise capital at a high price. And by paying off the government debt, Musk is also "unlocking" his stake in the company, which can now be sold. So that actually reduces Musk's risk somewhat."
Tesla: 1999 Revisited [View article]
So, if his proclamation that he would buy 1M shares for $100M boosted the stock by just $5 - then the 1M new shares were net free. Nice work if you can get it!
Tesla: 1999 Revisited [View article]
Long-term, the thing that got me to go bullish on them last year was taking a good look at the car as it was laid open in the showroom. The design is pretty similar to any toy electric car - it's a base with a battery and wheels and a top part that snaps on. That's a fantastic design and probably will have far less reliability issues than most cars.
I agree on the battery, millions and millions of computers and phones are sold with similar systems and only a handful ever have defects and TSLA has safeties in place that those guys don't bother with.
Tesla: 1999 Revisited [View article]
We set up a trade on TSLA on Jan 15th to lay out about net $7,500 on a spread with the anticipation that, by Jan 2015, we'd net $60,000. The long spread was a 2015 $30/42 bull call spread and we sold $23 puts to pay for it and a few short calls that expired right on target in March ($34). That trade was up 589% on Tuesday!
http://bit.ly/V815GN
TSLA did not "discover" anything this quarter and they only made a profit because of tax credits that wind down at the end of this year. We loved the company at $30 and that trade set-up was very bullish - but this is silly.
I'm thrilled TSLA is doing well and congratulations to all who have been in them with us but we're done here and, if you don't want to take your profits off the table, at least consider taking some of your gains and buying some protective puts or, as I noted, we flipped a very small portion of our gains into an $85/115 bull call spread for $7 and, if the stock goes up $30, we can add a $115/145 bull call spread for $7 and I'd rather give up $7 out of each $30 they go higher than risk the gains we've already accumulated.
Just something to consider, even for the mega-bulls.
Tesla: 1999 Revisited [View article]
While we were long on TSLA, we took the money and ran at $85 - not having the "vision" to see them worth this much, this soon. Now we're essentially short - taking advantage of the very cheap 2015 $85/115 bull call spread ($7) and selling short-term calls against it (the June $90s are an insane $10).
We discussed this play on TV Tuesday: http://bit.ly/12uDNeg
TSLA has done everything we thought they would do and more as far as turning things positive this year but, as you note, even with that, this is a silly valuation at $10Bn. Selling stock to suckers is a very wise move at this point but, like 1999 - they still could double or triple as there's no shortage of money at the moment. But it won't change what they're really worth and, eventually, they're likely to be back at $60 again.
Barrick Gold And Harmony Gold Can Inflate Your Portfolio [View article]
Barrick Gold And Harmony Gold Can Inflate Your Portfolio [View article]
The point of these articles is to teach you to use these kinds of set-ups to lower your entry point. Had you sold the $5 puts and calls for $2 when you bought the stock for $6.20, your net would have been $4.20 and, if assigned, 2x at net $4.60 - 25% better off than you are now.
To The Moon Tuesday: Driven By Tesla [View article]