Summary
Stephen Cox presented a market update, covering successful SPY put trades, strategies for Entain, Coterra Energy, and WeatherSpoons, and short-term watchlist stocks like Morningstar and Booking Holdings; the team also discussed the impact of bond yields and interest rates on TLT and a Euro dollar put option trade. No specific next steps were identified beyond the ongoing monitoring of positions and market conditions.
Details
SPY 590/580/560 Finance Bear Put Spread: Stephen made a good call closing out the 590 put, especially since the SPY hit a record high yesterday.We're keeping the $580 and $560 short puts "naked" (unprotected) to take advantage of time decay, which works in our favor. If you're uneasy about the level of risk with the naked puts, you can close the $560 put and just manage the $580 put. Should the SPY (now at $609) fall to $590, Stephen recommends adjusting the $580 put by rolling it down to $560 and extending it to the March expiry.He anticipates this strategy will bring in around $340 profit per contract when it expires.
Nanik suggested closing all short Puts now. Stephen outlined that these were part of an overall strategy involving the long $590 put also and closing them out will interfere with profit potential. Stephen highlighted that there is nothing wrong with closing them but just be aware that the profit potential is being reduced.Long Term Buy Watchlist:
We also analyzed Entain and WeatherSpoons, suggesting dollar-cost averaging for both. Coterra Energy is a hold now but not a buy.Short Term Active Trade Watchlist: Regarding the short-term active watchlist, we focused on Morningstar and Booking Holdings, noting Morningstar's tradability despite being underwater. Here is the current short term watchlist with recommendations with profit taker and stop losses:
TLT Trade and Interest Rate Outlook: Stephen explained how bond yields, interest rates, and the TLT ETF are all connected. Basically, when interest rates rise, bond prices fall (and TLT falls too). When interest rates drop, bond prices (and TLT) go up.
He thinks US interest rates will bounce between 4% and 5% this year. This means TLT will likely move between $83 (when rates hit 5%) and $96 (when rates drop to 4%).
Our current strategy of selling the $84 puts is a winner. We received $100 per contract for agreeing to buy TLT at $84. This means our break-even point is actually $83, which is precisely where Stephen wants to buy it based on his interest rate predictions.
Right now, we're profiting because TLT has gone up. However, Stephen would prefer it to drop below $84, forcing us to buy it (this is called "assignment"). Why? Because he sees more potential for profit by owning TLT at that lower price.
Even in the worst-case scenario, Stephen believes we'll still make $100 profit per contract.
Euro Dollar Trade: Stephen Cox noted the Euro dollar trade being another big winner:
Current Status: The EUR/USD is currently trading at 1.0503. We sold a put option on the March futures contract with a strike price of parity (1.0000) and received a premium of $488. We are now in substantial profit on this trade. This has been an excellent trade!
Profit Scenario: If the EUR/USD remains above parity (1.0000) through expiration on March 7th, the option will expire worthless and we keep the $488 premium as profit. This scenario favors continued USD strength.
Assignment Scenario: If the EUR/USD falls below parity, the option may be assigned. This means we would be obligated to buy EUR/USD at 1.0000. Note: that this is cash settled.
Current Outlook: No action is needed on this trade for now. We will continue to monitor the EUR/USD and assess the situation as we approach the expiration date. We will let Theta work for us.
Member Questions and Responses: Richard was curious about short-term Apple trades, but Stephen advised against it. Since Apple's earnings are coming up on January 30th, it's too risky to jump in right now. He prefers to avoid trades this close to earnings announcements - RLI yesterday dropped 8% after earnings. However, he'll keep an eye on Apple for future short-term opportunities.
Invest with confidence!