El Guapo: Would you say I have a plethora of pinatas?
Jefe: A what?
El Guapo: A *plethora*.
Jefe: Oh yes, you have a plethora.
El Guapo: Jefe, what is a plethora?
Jefe: Why, El Guapo?
El Guapo: Well, you told me I have a plethora. And I just would like to know if you know what a plethora is. I would not like to think that a person would tell someone he has a plethora, and then find out that that person has *no idea* what it means to have a plethora.
Jefe: Forgive me, El Guapo. I know that I, Jefe, do not have your superior intellect and education. But could it be that once again, you are angry at something else, and are looking to take it out on me? – The Three Amigos (1986)
Tensions are rising again today, and the bulls are, for the first time, in a very long time, actually feeling some fear. Let’s run through some recent trades and investments I’ve outlined and make sure we’re all up to date on the latest for each.
The fear from the bulls is reflected in the $VIX, which is a measure of volatility in the market and is often called a “Fear Index”. You’ll recall that I bought VIX calls back when the VIX was flatlining around 12-13 and I’ve mentioned a couple times since then that I’ve taken some small profits along the way as the VIX has spiked on occasion. Well, with the VIX now done gone parabolic and up above 20, I’ve sold the last of my VIX calls for some very nice gains which did their job very well of helping me hedge my gains and net long positioning overall in the portfolio.
Along those same lines of looking to hedge and fade the recent gains in the portfolio, last week I added puts in Priceline, Tesla and Pandora — outlined in an article called “Time to short some highflying bubble stocks“. $PCLN is down $100 in a straight line since then, $TSLA‘s dropped $20, and $P‘s down more than $2-3. In other words, each has dropped more than 10% from their recent own parabolic highs and those puts obviously have been big winners for me in just a few days’ time. So I do what you usually see me do, and I trim some of those puts to lock in those huge short-term and hold some of the puts still to help hedge my portfolio.
I also wrote in a column last week that I was “Sorry, but it’s time to sell some Facebook” in which I explained why I was selling down my long-held Facebook call options that I’d bought when the stock was in the low $20s even as I expect to keep Facebook one of my largest positions for a while still. Facebook’s has also dropped about 10% from its recent highs, but as I outlined in that column about selling some Facebook, I think it could easily pullback another 10-20% in the near-term as the markets work to really scare the bulls for the near-term.
So overall, I remain much more cash heavy than I was a couple months ago. And I’ve not been nearly as wildly bullish or aggressively net long for a while now, like I had been back in 2010 and 2011 and into 2012. I do fully expect that these stock market bubbles are not done inflating and that over the next year the markets will put on some new parabolic moves higher. It could start as soon as the debt negotiations “get resolved”, though I expect that there’s still too many complacent bulls for a parabolic move higher from these levels.
There’s never a reason to rush into any buying or selling and that’s one of the lessons I’m trying to drill home here on TradingWithCody every day. Planning ahead, using a playbook and being flexible in your analysis and portfolio positioning is all key to outperforming and building wealth. So let’s stick with it and don’t ever let panic or fear or greed or euphoria drive your trades.
Three Amigos-What Is A Plethora?