April 28, 2023
Back Pocket Trades
I sometimes write about throwing calls/puts in my “back pocket.” What I mean by this is these are trades that I don’t anticipate that will work this week or month, but instead these are positions that we will check in on after a couple of months. Kind of like a long-term turnaround play.
For example, Snap (SNAP) is the bane of my family’s existence as my teenage kids spend WAY too much time on this social media app, and even last night and this morning there was all types of drama for my teenage daughter based on snaps sent last night. GRRRRR!!!
What makes SNAP the stock so interesting is my kids and all of their friends spend countless hours on the app, yet the stock is a disaster. With the popularity of the app in mind, if I wanted to buy a SNAP option position, and throw it in my back pocket, I might buy calls expiring in 2024/2025 (I am not buying SNAP calls as the company and stock continue to disappoint).
This all brings me to back pocket bearish trades that were made yesterday:
Buyer of 40,000 Energy ETF (XLE) December 74 Puts for $3.78 – Stock at 83.5 (rolled from June puts)
Buyer of 75,000 Emerging Markets ETF (EEM) March 32 Puts for $0.86 – Stock at 39
As you can see, the trader/traders who bought these bearish positions are not targeting a fall for the XLE or EEM in the coming weeks/months, and instead are targeting a much greater fall later this year and next.
And taking that a step further, I’m guessing because he/she bought puts that are further out in time and are so far out of the money, these are hedges against a portfolio of stocks, just in case there is a big market decline … this type of trade is a popular hedging strategy against a black swan event.
April 24, 2023
Weekly Update
The market was super slow yet again last week as the indexes were extremely rangebound. The S&P 500 lost 0.05%, the Dow fell 0.3% and the Nasdaq declined by 0.5%. This week earnings season really gets in gear as 44% of the S&P 500 market cap reports. Moving on …
This week I’m going to mix up the formatting of our Week in Review and combine all of the sections into one. You will see what I mean below …
It’s feeling more and more like the market is in a total toss-up zone. Here are the positives I’m seeing for the bulls, followed later by the bearish worries:
The VIX is at 17, and showing little fear of the downside. In fact, the “fear index” hit a new multi-year low last week. Bullish! (Unless you are a contrarian).
As seen below, sentiment among investors and institutions is overwhelmingly bearish on the market and economy, and if the market can tick higher, traders may be forced to chase stocks higher. Here is the data I was referencing:
According to J.P. Morgan investor surveys, 94% of participants see the S&P 500 lower than current levels at year end (currently trading at 4,133).
According to the J.P. Morgan investor survey, 90% of participants see a recession starting later this year and into the first half of 2024.
Bank of America Global Fund Manager survey net overweight of stocks vs bonds is the lowest since the Great Financial Crisis:
Short S&P 500 futures at highest levels since 2011.
IF, and this is a BIG if, the market starts running, there could be a MONSTER short covering, and under-invested rally.
That being said, just looking at our positions, there has been no progress in many stocks for weeks, and many have been drifting lower. For example …
BABA looks very suspect, and unless it gets back in gear, I might have to take a partial loss soon.
JETS has stopped going down, but doesn’t look great.
CLF and its commodity stock peers lost momentum last week.
DIS is fine, but isn’t going anywhere.
IWM has stopped going down, for now, but much like DIS, isn’t roaring higher either.
BAC has rebounded from the lows, but mostly looks “bleh.”
FTI is mostly chopping around.
Essentially there is very little money being made these days unless you buy a stock at the perfect moment and then sell it perfectly as well.
Also, there continues to be widespread put buying in real estate plays, as well as the financials, as seen below:
Buyer of 10,000 Real Estate ETF (IYR) May 82/79 Bear Put Spread for $0.60 – Stock at 84
Buyer of 1,000 Digital Realty Trust (DLR) June 85 Puts for $2.40 – Stock at 95
Buyer of 3,000 Macerich (MAC) June 10 Puts for $0.80 – Stock at 10
Buyer of 10,000 Ally Financial (ALLY) May 25 Puts for $0.80 – Stock at 26
Buyer of 12,000 U.S. Bancorp (USB) June 30/25 Bear Put Spread for $0.40 – Stock at 34.5
Buyer of 5,000 Bank Ozk (OZK) December 30 Puts for $3.10 – Stock at 37
Buyer of 6,000 U.S. Bancorp (USB) July 30 Puts for $1.45 – Stock at 33
Buyer of 13,000 Regional Bank ETF (KRE) September 41 Puts for $2.66 – Stock at 43
Stepping back, as noted above, we are really in a toss-up market. Though perhaps we will finally bust out of this tight range this week and/or next as earnings season is going to ramp up, as seen below, and the next Federal Reserve meeting in early May potentially could clear up some worries.
Essentially, the set-up for a rally is there as so many investors are underinvested, and it could be explosive, IF, the market finally gets in gear.
