At the time of writing this email early Monday morning, the market seems to have bounced very nicely and is slowly climbing back up all the ground it lost in January. The question now is whether or not we will see a continuation of this heading into next week, or is this but a temporary situation. Another question on the minds of at least some is whether we have priced in the pending rate hikes completely or if is there more room for bad news with the yield curve going flat.
The Big Picture
As you know, I rely on sentiment heavily when deciding how to set my strategies up. There is still more headwind than tailwind for small caps and the economy, but there appears to be some relief rally based on the indicators I look at in the QQQs and SPY. The risk signals I focus on are sending mixed signals and thus I am going to be cautious on utilizing extremely bullish strategies. All eyes remain on the big tech earnings to set the tone for QQQs.
Option Trades for the Week
It seems that many of my trades this week will be based on a lot of bottoming action. My best trade so far has been the NFLX leaps which I am planning to sell at the time of gap fill. I am also selling a diagonal spread against this position. I believe there are many solid opportunities forming for longer-term plays in this market. You should be looking for cheap companies with high growth that could be acquired by forming a position in them via LEAPS. This is also a well-known strategy for many hedge funds called “merger arbitrage”
You will find below for your reference a listing of all of my trades.
Tweet of the Week
As you are no doubt aware, my background is in finance. As part of my previous job, I was constantly developing financial models. The most important thing in models is assumptions. If your assumptions are not correct, your model will not be worth anything.
Below is a tweet from the President of El Salvador, Nayib Bukele, making a very bad assumption for his Bitcoin pricing model. He is assuming every millionaire will want to own one Bitcoin and therefore the price of Bitcoin should go up astronomically. My position on Bitcoin is unbiased as I am not long nor short, but when it comes to this asset class, let me tell you, a simple analysis like this one bothers me to no end.
One Last Thing: I am Now on Twitter!
I have decided to take Twitter more seriously! I have opened an account that I will be sharing cool macro and trade ideas on as they pop up. If that seems an area of interest for you, please give me a follow here!
To your success,