Washington Redeemed! (AAPL,EWP,CBOE,FB)
Never were fans of big government here at Normandy. Don’t think it’s good for the overall health of the nation, nor for its better management or even for its longevity.
Never trusted it. Always figured the goal was to put everyone on the payroll and then force feed them worthless currency. Where else are the buzzturds gonna turn for a buck?!
Nope, always preferred the local brand of self-governance – really local!
So the thought of someone – an outsider – coming to the big house ready to do battle with the forces-that-be was intriguing. But whether Senor Trump actually fits that bill remains an open question.
We’ve heard about ‘draining the swamp’ and we see a contentiousness between the White House and the establishment leadership that has certainly never existed to this degree. But whether this actually leads to the change that so many desire – a restrained government reach, and more power to local authorities – is too early to tell.
It would be nice if the extraordinary waste of our tax dollars were actually curtailed. No more federal research money spent on “incontinence cups” and ‘flatulence valves” (no joke!), no more grants to companies with losing ideas, firms with names like Menstru-Funnel and Jack-U-Kleen.
There are far too many examples of the waste that Washington streams toward its cronies and others in an effort to buy votes.
But Maybe That’s All Gonna Change …
We’ve got four trades to report on before we return to this week’s story, and we start with our March 7th AAPL initiative.
The letter was called Finally! A Financial Ever-Gasm!, and in it we recommended (among other things) a short AAPL 134 CALL that stuck us with a lot of Apple shares at that price. The trade didn’t fare well, so on September 19th we penned another letter called The Snowball Manifesto that described our conundrum and offered the following evasive action.
We’re selling the January 17th (2020) 155 PUT for $20.55… That closes the trade if AAPL drops below 155 by expiry… But should AAPL shares continue to rise, we’ll stem our losses by closing out the trade via the acquisition of a long CALL. We’re therefore buying the AAPL January 19th (2018) 165 CALL for $6.30. If, after rising above that level by this January’s expiry, our position is closed out, we would still have to buy back our short 155 PUTs, and would make a final P&L tally on the trade at that time.
Well, the numbers go like this – first, the 165 CALL was triggered last Friday, closing out the short. The short 155 PUTs are still open and worth just $12.30. We believe it’s still too early to close the 155s as the bull market is still in force and Apple remains a market sweetheart.
In short, the final P&L on the AAPL saga will have to wait…
Our June 6th effort from a letter called Buy Everything Now! urged you to buy the EWP July 21st 33 PUT for $0.85 and sell two (2) EWP January 19th 27 PUTs for $0.45 each, for a total credit of $0.05.
And as it turned out, they all expired worthless. We’re left with our initial nickel.
Third on the docket was a trade issued back on July 25th in a missive entitled Sell the Market. The trade asked you to sell the CBOE January 19th 95 CALL for $3.60 and buy the CBOE January 19th 100 CALL for $2.05, then use the proceeds to purchase the CBOE December 15th 85 PUT for $$1.35. Total credit on the trade was $0.20.
As it turns out, CBOE didn’t stop climbing. As of last Friday, both CALLs ended in-the-money and we’re out exactly $4.80.
Finally, we saw our December 5th trade from All Hail the Dipstick Trade expire worthless last Friday. The trade recommended you buy the FB January 19th 160 PUT for $1.72 and sell the FB January 19th 185 CALL for $1.85. Total credit on the trade was $0.13.
And that’s the whole story. Both options bit the dust, and we pocketed our original $0.13.
This Week’s Action
The big news this week comes not from Wall Street but from Main Street, where the average investor, represented by the American Association of Individual Investors (AAII), has decided that he finally likes the equity market!
That’s right. It’s been a full three years since better than half the ham and egger crowd has been bullish. Take a look –
Only back in 2011 did bullish sentiment register any higher.
This is a truly meaningful development. The S&P 500 has soared 50% higher in the last two years, and only now do we get a cheer?!
In our view, this is a contrarian signal in the making. It may not be here today, but it’s durn close; there’s a turn in the works.
Look now at the bearish sentiment numbers –
Here, too, we have a situation that’s extreme in the extreme. Barely 20% of Main Street is pessimistic. And at New Year’s we matched the lowest number of bears on record since the bull market began!
Call us bloodthirsty, but we see a great opportunity here. PRECISELY BECAUSE NOBODY IS SCARED!
In addition, take a look at the Investors Intelligence numbers since New Year’s (below). For those unacquainted, Investors Intelligence is a survey of stock advisory letters like ours, and offers a contrarian take on market direction at the extremes.
And that’s where we are now –
As you can see, we haven’t had such an outsized Bull/Bear ratio since 1987, when the market crashed 22.6% in a single day and a full 34% in under two weeks.
So could it happen again?
But will it?
That’s what we’re betting on.
The S&P 500 is overbought on a daily, weekly and monthly basis.
It can’t go on forever, gang.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
Wall Street Elite recommends you consider buying the SPY July 20th 250 PUT for $2.91 and selling the SPY July 20th 240 PUT for $2.03. Total debit on the trade is $0.88.- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
Because when the storm breaks in Washington, look for the same on the NYSE.
With kind regards,
Hugh L. O’Haynew