Yesterday morning I filmed my weekly In The Money segment with Fidelity Investments (click below to watch).
I offered my quick take on the macro environment and my belief that the recent stock market gains from the March lows do not adequately reflect the substantial risks to the ongoing health crisis, especially before we have had mass testing, and specifically as it relates to the recession that has been induced through mitigation efforts.
Macro: Mega cap tech is leading the way higher… MSFT is up 10% on the year, AMZN is up 23% on the year, AAPL is barely down, and GOOGL down just 5%. The Nasdaq Composite is down only 5% on the year… vs the S&P 500 down 12%, but the small-cap Russell 2000 massively underperforms… down 26% on the year…Small-cap stocks might be a bit more indicative about what is going on in the U.S. economy as opposed to large-cap tech with great balance sheets and large moats to their businesses. Small caps are generally highly levered, and lots of energy and banks… particularly hard hit during this crisis.
Trade Idea: IWM etf that tracks Russell 2000. Get short near technical resistance near 125 and play for a move back towards $95 in the coming months.
FROM WEDNESDAY MORNING*: Bearish Trade Idea: IWM ($117.50) Buy June 115 – 95 put spread for $5
-Buy to open 1 June 115 put for $8
-Sell to open 1 June 95 put at $3
Break-even on June expiration:
Profits of up to 15 between 110 and 95 with max gain of 15 below 95
Losses of up to 5 between 115 and 110 with max loss of 5 above 115
Rationale: this trade idea risks $5, or 4% of the etf price. to possibly make 8% if the etf is down 22% in 2 months, above its previous lows from March.
*The IWM has since declined $2 from the taping of this segment and I would look to adjust strikes lower if looking to execute a trade based off of this thesis, which hasn’t changed, just the price.
We also looked back at a couple of trade ideas:
TRADE IDEA: GLD ($140) BUY JUNE 145 – 170 CALL SPREAD FOR $5-Buy to open 1 June 145 call for $8-Sell to open 1 June 170 call at $3Break-even on June expiration:Profits of up to 20 between 150 and 170 with max gain of 20 above 170Losses of up to 5 between 145 and 150 with max loss of 5 below 145
WITH GLD $162.69 the June 145 – 170 call spread is worth $15 or a triple, with two months to expiration and the spread only able to be worth 25 or a 20 profit, it makes sense to take the profit AND LOOK FOR A REENTRY.
Trade Idea: XLE ($33) Buy June 33 call for $3.50
Break-even on June expiration:
Profits of above 36.50
THE XLE started the week up, and the trade was a winner, but oil, and related stocks acted very badly, as I said in the video, i think it makes sense to cut losses here.. the price action confirming the sentiment.