Friday Already – What Next?

That's why we are focusing this year on demonstrating the value of long-term investing.

Don't you just love short weeks?

That's why, as of March 19th, I will be officially retiring from Mondays. Despite all the fun discussions of quick trades, the bulk of the trade ideas at PSW are long-term, fundamental value plays that we pretty much don't even touch month-to-month. We're always looking for opportunities of course but Mondays are usually silly, low-volume days in the markets and poorly attended by our Members as well – as they like to have their Mondays off too. So, as I turn 55 next year, I've decided to move into stage one of my retirement and cut Mondays off my schedule. That will make every week a 4-day week but still plenty of time to make money!

That's why we are focusing this year on demonstrating the value of long-term investing. The new portfolio we're doing for Money Talk is another example of the "set and forget" trading style which dominates our portfolios and, if we can make 40% returns working 4 days a week – why not put it to our advantage and take 3 days off? Only 5 more years before I cut out Friday too!

All of America would benefit from a shorter week. First of all, if we all worked 4 days a week, they'd need 20% more people to do the jobs. The people who have an extra day off would have more time to shop and go out – putting more money into the economy and everyone would be in a better mood – America solved. Even if we all worked 4, 10-hour days instead of 5, 8-hour days, things would be better off and we'd save 20% of our commuting costs and fuel consumption as well. Personally, I already work 12-hour days – so I'm REALLY looking forward to cutting one out…

I could have skipped yesterday morning as our Dollar play /DX is down $300 per contract at 91.10 and the Sept $22.50 calls are $1.30, down $100 per contract. That's not terrible but we're very spoiled as it's the first Futures trade we've missed in two weeks, though we did expect a rough start as Fisher quit in the morning but at least we all got great entries and plenty of time to get in (we doubled down on /DX this morning in our Live Member Chat Room to bring the average down to 91.25).

Do you know what causes sudden, surging demand for Dollars? A stock market correction. You see, people THINK they are holding $500Bn worth of Amazon (AMZN) stock at $980, but that's only because they haven't actually tried to sell it. In reality, there are not $500Bn worth of buyers waiting to trade their cash for shares. In fact, 3M shares a day is a lot of trading in AMZN, just 0.6% of the shares and THAT is what is used to set the price for the other 99.4% of the shares. Just because one idiot (or 6/10th of an idiot) out of 100 thinks AMZN is worth $500Bn – doesn't mean there are 99.4 other idiots just a stupid. I gave my premise for Amazon's long-term demise in yesterday's Live Trading Webinar.

AMZN has earnings the last week in October and they will not make any money and they will be lucky to finish the year with $4 in profit for a p/e of over 200 – ridiculous! So, if you would like an AGGRESSIVE short on AMZN, I would play the following:

  • Sell 2 AMZN Nov $990 calls for $40 ($8,000)
  • Buy 5 AMZN Nov $1,030 puts for $72 ($36,000)
  • Sell 5 AMZN Nov $980 puts for $42 ($21,000)

The net cost of that spread is just $7,000 and it pays $25,000 if AMZN is below $980 (where it is now) in November for a gain of $18,000 (257%). The margin is steep on this trade ($20,000) and you can quickly lose $27,000 if AMZN goes up 10% to $1,090 so it's a risky trade but a good hedge against a bullish portfolio. We already sold 3 Jan $1,015 calls in our Short-Term Portfolio (STP) back on July 24th as part of a successful bear spread then and we still have the short calls, now up $10,440 with $13,560 left to gain – so we don't need the new hedge, nor is it as safe as it was when our Members caught the dead top on our previous call.

That was easy money as we sold into the earnings spike, which we thought was very silly at the time, when I said:

Amazon (AMZN) is not in the Dow but, at almost $500Bn, it's 2% of the S&P 500 and AMZN is up 66.6% from $600 to $1,000 so, if it was a Dow component, it would have added 3,400 points by itself – see how silly the Dow is? Earnings-wise, AMZN has been impressive with sales going from $107Bn in 2015 to $136Bn last year and on track for $142Bn this year (slowing drastically, which is why Bezos got desperate and bought Whole Foods (WFM)). Earnings went from $600M to $2.4Bn to maybe $2.6Bn this year (oops again), but investors don't care about profits, do they? Why not pay 200 times earnings?

I also had a good diatribe on AMZN in our Live Member Chat Room on the 25th as well as the 19th, laying out my case for why AMZN is over-hyped and retail is over-sold. I just discussed LB as a potential Stock of the Year pick for 2019 on Money Talk Wednesday night and, last week, on Wednesday, I mentioned that we had called a long on the Retail ETF (XRT) for our Options Opportunity Portfolio subscribers over at Seeking Alpha on 8/24 and we nailed the bottom but you can still make good money picking up the scraps our Members leave behind. Our trade idea was:

So I wouldn't look for a big move up but we don't need one if we are BEING THE HOUSE. So, for the OOP, let's:
Sell 10 XRT Jan $36 puts for $1 ($1,000)
Buy 10 XRT Jan $37 calls for $3.40 ($3,400)
Sell 10 XRT Jan $42 calls for $0.850 ($850) That's net $1,550 on the $5,000 spread that's $3,500 in the money to start. Upside potential at $42 is $3,450 (222%) in 148 days – not too shabby.

XRT is up just $2 since our call but that has been enough to drive the puts down to 0.80 ($800) while the long $37 calls are now $4.20 ($4,200) and the short $42 calls are now $1.20 ($1,200) for net $2,200, whihc is arleady up $650 (42%) in 10 days but the good news is, even if you are too cheap to subscribe, you can still get into this trade for $2,200 with an upside potential of $2,800 if $42 holds through January. See – even the leftovers from our Member trades are the best trading ideas you can follow!

So what if you "only" make 127% instead of the 222% our Members make – at least you saved $3/day by NOT SUBSCRIBING HERE!

Enjoy the free trade ideas while you can – earnings season is coming up again and we don't give them away during earnings. If the last two weeks of free trades haven't convinced you to join us and learn our trading system – nothing will anyway…

Tomorrow is North Korea's Foundation Day, so we'll be expecting some "fireworks" over the weekend – another good reason to be long the Dollar as we got a spike from 91.50 to 93.25 into the Holiday on their last launch. Even if Kim decides to celebrate quietly, we still have the Fed Rate Decision coming on the 20th, which is the same day the October Oil Contracts (/CL) will roll over (and we'll talk more about that looming disaster next week).

Hurricane Irma is, of course, still heading to Florida (in case WWIII doesn't bother you enough) and Florida's Governor Rick Scott could not have been more clear in his warning, which was:

"If you live in any evacuation zones and you're still at home, leave! Do not try to ride out this storm … we can't save you once the storm hits. Look at the size of this storm. It is wider than our entire state," Scott said. "Every Floridian should take this serious and protect your family."

You'll have to forgive Scott for the poor grammar. He is, after all, a Republican and, appropriately, he has orderd all the schools closed in the State. Shifting forecasts have also raised the threat to the Southeast from Irma, prompting emergency declarations in the Carolinas and coastal Georgia, including areas that haven't suffered a direct hit from a major hurricane in more than a century. Georgia Gov. Nathan Deal ordered a mandatory evacuation starting on Saturday from the state's Atlantic coast ahead of Hurricane Irma, including the city of Savannah. Nearly 540,000 residents on the coast were ordered to evacuate inland.

This is great for our Lowes (LOW) and Home Depot (HD) trades and can't be good for Carnival (CCL) or Royal Caribbean (RCL) cruise lines so, if you want to be mean, you can short those, as they will be dealing with tons of cancellations for the quarter and have been trading near highs. CCL has earnings at the end of this month and the Oct $60 puts make for a fun gamble at 0.55 as Hurricane Jose is right behind Irma so the whole month of Sept is likely to be a loss for them.

Warren Buffett picked the wrong year to buy airlines as well and we'll talk about more storm plays today in our Live Member Chat Room.

Have a great weekend,

  • Phil
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