Tag: options

COVID-19 was the black swan event that culminated in bringing the worldwide economy to its knees. The spread of the virus globally, along with intermittent spikes, has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail while others are battling to remain in business. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been seen since the Financial Crisis.

Although options trading provides a margin of downside protection and a statistical edge, when hit with a black swan event, no portfolio is immune from the wreckage. Thus, proper portfolio construction and optimal risk management are essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. An agile options based portfolio is essential, and the COVID-19 pandemic is a prime example of why maintaining liquidity, risk-defining trades, staggering options expiration dates, trading across a wide array of uncorrelated tickers, maximizing the number of trades and selling options to collect premium income are keys to an effective long-term options strategy.

Maximizing Return on Capital

Options can be sold with defined risk while leveraging a minimal amount of capital to maximize return on investment. Whether you have a small account or a Continue reading "COVID-19 - An Agile Options Strategy - Part 2" →

In March, I published a piece on taking speculative positions given the complete market meltdown. It was as good a time as any to put on some speculation plays because this COVID-19 black swan event presented a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs. Now many positions have been sold at realized profits between 20%-100% gains as the market bounced back from its lows in late March.

The broader indices have shed approximately a third of their market capitalization into April. Some individual stocks directly related to the COVID-19 pandemic have lost 50%, 60%, 70% and even 80% of their market capitalization. Investors had been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Throughout the market sell-off, I began to speculate on a variety of names with small amounts of capital. Let's not confuse speculation for investment; thus, these trades were purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), Yelp (YELP), Yum Brands (YUM), Chipotle (CMG), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA) and Twitter (TWTR) are some speculative names that have sold off ~40%-85%.

Evaporated Market Capitalization

The COVID-19 pandemic has destroyed entire industries and many individual stocks. Anything related to travel, leisure, retail, industrials, and Continue reading "COVID-19: Speculative Positions Update" →

COVID-19 has become the black swan event that has materialized into a worldwide economic halt. The spread of the virus globally has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail, with others in the crosshairs. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been since the Financial Crisis.

Although options trading provides a margin of downside protection and a statistical edge, no portfolio is immune from the wreckage when hit with a black swan event. Thus, proper portfolio construction is essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. Thus, an agile options-based portfolio is essential. The COVID-19 pandemic is a prime example of why maintaining liquidity is one of the many keys to an effective long-term options strategy.

An Agile Options Strategy

Risk management is paramount when engaging in options trading. A slew of protective measures should be deployed if options are used as a means to drive portfolio results. When selling options and running an options-based portfolio, the following guidelines are essential: Continue reading "COVID-19 - An Agile Options Strategy" →

Now is as good time as any to put on some speculation plays because this COVID-19 black swan event may be a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The broader indices have shed approximately a third of their market capitalization into April. Some individual stocks directly related to the COVID-19 pandemic have lost ~50% to well over 80% of their market capitalization. Investors have been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Throughout this market sell-off, I have begun to speculate on a variety of names with small amounts of capital. Let's not confuse speculation for investment; thus, these trades are purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%.

Evaporated Market Capitalization

The COVID-19 pandemic has destroyed entire industries and many individual stocks. Anything related to travel, leisure, retail, industrials, and discretionary spending has been cut by 50% or more. Companies are being tested like no other time in history where the entire economy is at a standstill under the COVID-19 coast is clear. Amid this economic wreckage, speculation can potentially Continue reading "COVID-19 - Adding Speculative Positions" →

Just before the COVID-19 pandemic struck the S&P 500, Nasdaq, and Dow, Ray Dalio was recklessly dismissive of cash positions, stating "cash is trash." Even Goldman Sachs proclaimed that the economy was recession-proof via "Great Moderation," characterized by low volatility, sustainable growth, and muted inflation. Not only were these assessments incorrect but they were ill-advised in what was an already frothy market with stretched valuations. I'm sure Ray Dalio quickly realized that his "cash is trash" mentality, and public statements were imprudent. The COVID-19 pandemic has been a truly back swan event that no one saw coming. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The S&P 500, Nasdaq, and Dow Jones have shed approximately a third of their market capitalization, with the sell-offs coming in at 33%, 29%, and 36%, respectively, through March 20, 2020. Some individual stocks have lost over 70% of their market capitalization. Other stocks have been hit due to the market-wide meltdown, and many opportunities have been presented as a result.

Investors have been presented with a unique opportunity to start buying stocks and take long positions in high-quality companies. Throughout this market sell-off, I have begun to take long positions in individual stocks, particularly in the technology sector and broad market ETFs that mirror the S&P 500, Nasdaq, and Dow Jones. It's important to put this black swan into perspective and see through this on a long term basis while viewing this as an opportunity that only comes along in decades.

Most Extreme and Rare Sell-Off Ever

The abrupt and drastic economic shutdown and velocity of the U.S. market's ~30% drop within a month bring parallels to the 1930s. This sell-off has been extreme and rare in its breadth, nearly evaporating entire market capitalizations of specific companies. The pace at which stocks have dropped from their peak just last month from all-time highs is the fastest in history. The major averages just posted their worst week since the financial crisis (Figures 1 and 2). The Dow is tracking for its worst month since 1931, the S&P since 1940. As of March 20, the S&P 500, Nasdaq and Dow Jones have sold off 33%, 29%, and 36%, respectively. Continue reading "Seeing Beyond The Black Swan Event" →