Remember that attraction at the amusement park where you rode the thing round and round backwards and the 17 year old kid running it would yell “do you wanna go faster???” and everyone would scream “yeah!!!!”. The truth is you didn’t have a choice in the matter so you held on for dear life. Well that’s what investing in the Elon/Bitcoin complex has been like. While the VIX may have technically gotten over the election by dropping significantly on Thursday and Friday, Tesla and Bitcoin-related names were not done going up. In fact, they went parabolic. Bitcoin itself kept partying, reaching 90,000 for the first time ever, before pulling back slightly on profit taking. Animal spirits are alive and well.
Magnificent 7 names rallied in fits and starts, while gold pulled back on a surging US dollar index and relative geopolitical calm. The S&P500 closed above 6000 for the first time ever. Stonks are in the driver’s seat, but it really started before Trump. Chairman Powell insists on lowering rates into a surging economy, healthy consumer spending data and…. firming inflation? Yes, it’s happening. And having seen the impact of Trump tariffs on CPI in 2016/2017… well, we could be in for some fireworks.
CPI numbers were in line yesterday but readers don’t be swayed. It’s coming. That CPI report suggested that inflation may be getting stuck north of the Fed's happy place - their 2.0% target. Goods prices are still deflating, but supercore inflation, rent inflation, and wage growth all firmed last month suggesting they are getting sticky at relatively high rates. I think the Fed is easing too much too soon and they’ll realize it soon enough.
What is already realizing that? For color commentary on the matter one needs to look no further than 10-year bond yields, which have surged around 70 basis points since Powell cut by 50. Yes, surged. Bond markets are in firm disagreement with cuts, debt levels, profligate spending habits and the idea of lasting stability. So why do it? A thing called debt service. It’s kind of a big deal.
But for now, since the market is male, it can only focus on one thing at a time. So do we worry in income land? Not until we need to. We respect the spiked punchbowl. In fact, we bet ON the punchbowl, but also prepare for when the party gets a little rowdy.
PPI today and Continuing Claims were nothing jarring today. retail Sales numbers out on Friday. We are data-dependent, but for now the melt-up party remains intact. I think that we more or less straddle the 6000 level in SPX with a lot of false starts and false selloffs as Gamma levels increase. What does that mean? Volatility may drop even more. VIX may be heading for the low 12s by Christmas. Our VIX crush trades have been printing, as have our iron condor Income Grabber trades.
Our closes have continued to be good - it isn’t like taking candy from a baby like it was last week, but we’re still playing the volatility crush. We’re out of our kicker plays in COIN, AMZN and TSLA for very big gains of 44%, 79% and 101%. These were our Turbo Plays, financed by downside cash-secured puts. Sometimes a $5 put sale isn’t enough for me, and I aim for more - it worked out great on these. We are sitting on great gains in our cash-secured META put but I think it has more to go - it keeps failing near that $600 call wall but that’s ok because we want to close and reposition for the next leg up towards $650.
Our covered calls in Palo Alto are being challenged but that’s ok - we’ve been trading it like a Boss and I think it will chill around the $400 level for some nice decay. We’re up big on the position overall - up 24%.
Semiconductors are acting a little meh so I covered MU cash-secured puts to capture 98% of the premium but I took a little loss on AMD - my appetite for that stock is waning and the timing was right as they announced layoffs and it fell through that important $140 level the day after.
Lot’s of great plays are coming to the end of their campaign as it’s November expiry week and I’ll update you on the rest soon. In the meantime, your homework is to keep tuning into these newsletters for more income-related goodness!
Until next time....
Hans
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