Here is the transcript to this week’s Live Q&A chat. Join me next Wednesday at 2pm EST at https://tradingwithcody.com/chat or send me an email with your question at support@tradingwithcody.com.
Yo, wattup?
Q. Cody ~ Even with Bitcoin notes, etc. from you, I must admit that I’m in a total fog with that risk. I’m reading up on it as much as I can but it scares me now to even entertain even if I did fully understand this one…I don’t think I’m alone with my confusion as to Bitcoin.
A: I don’t think you should risk any more on Bitcoin than a few basis points of exposure then. I mean, do you really worry that if you were to put 0.2% or 2/10th of 1% of your stock/bond/metals/currency portfolio into BitCoins that there’s anything to worry about? If it goes up 10-fold and/or hits mainstream, you’ll have some nice gains and feel like a genius. If it gets outlawed and goes to $0, well, it was a tiny bet to begin with and I’ve lost more than 0.2% of my portfolio on single trades many, many times and will do so again many, many times.
Q. A tactical question and a process question. I took a beating on some $21 January JNPR calls. Would you recommend riding those out or selling here before Cisco earnings and preserving at least some capital? Speaking of capital, our January GDX calls are down just huge. We’ve only got about 8 weeks left before they go worthless…at what point do you act to preserve some capital? What is your thought process in these instances where odds are we are whipped on a call (anything more than “these are hedges and if we lose them we are winning elsewhere” would be great). Thanks.
A. I have to tell you first that after chatting with you lately on these options topics, I probably would suggest looking at just using common stock instead of options. I almost always have much more common stock in a position than I have options exposure. Because I’ve mainly been using slightly-out-of-the-money and longer-dated options when I’ve been trading, I’m not terribly surprised when those sometimes end up worthless when they expire and that’s built into how much I’m willing to risk on options. I’ve gone back many times, including recently, and have found that my 300-1000% gains in options like we’ve had on $FB and $XONE and $FSLR and $TSLA and others, have more than made up for the times I’ve lost 100% on options like we probably will on the $GDX calls. I think JNPR has good upside in the next couple years, but I don’t know if it’ll get up above your strike price with a profitable margin by the time January’s third Friday rolls around and your options expire. Does all this answer here help?
Q. It does. I guess I am putting too much into options and so the pain of a number of these losing option positions is way more than a little hedge loss. You don’t mind losing them and so don’t send a trade alert recommending getting out with capital to fight another day…kind of a big mismatch and I need to make an adjustment. Thanks.
A. We can make 10x our money over the next couple decades with a disciplined, patient, steady approach to investing and trading. Discipline above all else though.
Q. Hi Cody, how are you? The market seems a bit struggling for direction. Do you see the money managers start chasing performance toward the end of year?
A. With the DJIA about to have its 40th record close for the year, which I’m sure would be a record number of record closes, I think the direction has been still upwardly. I was patiently bullish about the markets’ near-term direction most all of this year, but the last month or so, I’ve been thinking we should have a 5-10% pullback at some point. I feel a bit out of synch right now about calling the near-term market action since the markets have instead been continuing their non-stop climb higher.
Q. Have you seen data or can show us data on US based hedge funds LAGGING the S&P returns year to date? Many are looking for an extended rally as a result of many funds running way behind the averages. Have you heard the same from your friends other?
A. Yeah, the hedge fund “professionals” out there were bearish heading into this year and never got a chance to get long or cover their shorts. Many were short the biggest highflying bubble stocks like $PCLN, $TSLA and $FB and have spent all year trying to keep their investors from pulling their money. I don’t know how I’d game that though, because it’s likely priced in at least somewhat already.
Q. Do you pay any attention to overbought/oversold metrics when deciding entries and exits?
A. Not much, but I am paying more attention to those kind of metrics lately as the machines and high-frequency trading algorithm scams drive the near-term action more and more.
Q. Is the S&P going to 1999 before we get a big pullback Cody?
A. Why 1999 and not 2000? Is it a Prince song?
Q. A friend of mine runs a Hedge Fund that is non-correlated to equities. He’s up 13%, which is quite good for a high Sharpe Ratio. My reason for bringing it up is that he is having one heck of a time adding paying assets to his fund and he is hearing potential clients saying they don’t want to move money from them momentum fund to his because they have losses. If the market has a decent sell-off, he is anticipating an influx of momentum hedge fund investors. Very similar to what you have been saying.
A. Good info, thanks.
Q. Pandora is of course wreaking havoc on our put hedges as we have a full spread of these on the books…what do you make of this and are you going to either add to the January puts or grab some further out? All these momos are so exasperating and no end in site. Richard Gobel saying that huge week of new equity inflows as if it was January…Very uncomfortable with the short positions based on a growing number of data points and a lot of our puts are January…right around the corner. You?
A. I’m much more comfortable having some $P and other puts to help hedge our portfolios in case the markets crash and our own many highflying winners get hit than if I were still as aggressively net long as I’d been back in 2010 or 2011 or 2012. Do I think these $P puts will help my overall performance by the end of the third week of trading of the month after next? Probably not, as the stock has rallied up like this of late.
Q. Good afternoon, Cody; just jumped into the chat and have caught up on your discussions with Jahmon on some of the recent “put pain” we’re feeling. Just to clarify (and maybe YOU could clarify in future trade alerts) — when you say you’re buying puts in a stock as a hedge on other stuff in your (but not necessarily others’) portfolio, does that NOT mean you are recommending buying those puts (or shorts) in and of themselves? You often — and rightly — say you don’t know enough about our individual objectives and portfolios to answer a specific question — but the one I’ve just asked is, I think, universal. If we’re not holding a lot of “high-flyers’ from past investments as you are, how do we interpret a trade alert that recommends a put as a hedge to high-flyers? Can you delineate if yours is a “buy” for those of us as well? Thanks.
A. Yes, I think that both subscribers and myself have learned a lot about communicating the trading reasonings better. I will do better.
Thanks!
Q. Why didn’t you sell PCLN puts on that huge run up prior to earnings?
A. We sold some $PCLN puts right after we bought them the first time for big gains, but I wanted to have some short exposure to some bubbled stocks and not just all long exposure to bubbled stocks as we headed into earnings season. Mea culpa, now in 20/20 hindsight!
Q. And can you send out an earnings report alert for each holding (and at least the options holdings with guidance on how to approach the ER)?
A. Good idea, I’ve been thinking about doing that, but I am worried that it’d cause people to focus too much on the short-term and lose focus on what we’re truly trying to accomplish here at TWC. 🙂
You could always include that warning in the alert.
Good point, but I also repeatedly told people that the $P and $PCLN were hedges and I think some people just read the trade idea and acted. And rather than helping them, the posts might have hurt them. All I can do is my best analysis and my best to communicate my ideas and actions as best as I can and hope everybody learns from them and we all succeed together.
Q. Your take on apple supplier GTAT at this time. And the OLED display technologies coming to our screens and who would be a good investment in this arena? Years and Years ago I invested in Universal Display ….thanks.
A. $GTAT seems more hype and momentum-driven than fundamentally-driven on this spike. It might very well turn out to be a great investment for the long run if they truly end up being the dominant supplier of sapphire glass and if sapphire glass ends up being a dominant technology. My gut tells me that this is more like when I was on Kudlow & Company on CNBC and we were talking to the CEO of a titanium company whose stock was up 50% that day after already being up 500% in a straight line because they’d signed a 10-year multibillion dollar supply deal for Boeing planes. I literally told Larry on air right there that I was going to sell everything in my hedge fund and get into the TV business because we had to be near a top in a bubble that was about to crash. That was early 2007. Market crashed in 2008. I don’t think the markets are topped out here yet, but I don’t like the long-term prospects for GTAT at this time. Besides, their stock symbol sounds like something from a bad gangster movie, “Yo, man, where’d you get that sweet-looking G-tat on your forearm there?” Hoohah.
Q. What is your take on Apple? Seems like it will never go up, no matter what it does. Where do you see it mid-Jan before earnings?
A. $AAPL will likely go up if iPad and iPhone xmas season sales are big. It’ll fade if they’re so-so.
Q. Cody, New rumors are that Apple will offer just the IWatch in 2014 and delay an iTV until 2015. If true is it time to let go of Apple? Timid Tim seems to drag things out. Jeff
A. Depends on your goals and time frame on this $AAPL. I’ve owned it since $7 and am not going to dump it over timing of iWatch and iTV.
Q. What’s your take on LNKD and MU?
A. I like LNKD here as part of our social basket (with ZNGA and a much larger position in FB than both combined). I think MU is looking toppy and think it could finish this latest cycle soon as capacity for DRAM comes online. 3-D and higher bit mobile chips will offset some of that cyclicality tho. No position in MU for me.
Q. Take a look at this article Is There Another Double in Micron? He seems to be saying that the price increase has not yet made its way into MU’s bottom line. Any comment?
A. I think that is probably already priced in to the stock rally and valuation here for MU.
OK, that seems like a good point. I will dump my MU.
I’m not trying to tell you to dump it. I’m just giving you my take and analysis on it. Here’s some more info on MU for ya, a very interesting article with implications for $INTC, $AAPL and $MU #Apple Charge to 64-Bit is a Positive for $FORM: Apple Charge to 64-Bit is a Positive.
What you said made sense and I just dumped it for a nice profit. When you have a profit, take it, is my approach to the market. The stock will be there later if you want to buy it.
Q. What are your thoughts on $VJET’s additive manufacturing equipment and sales growth.
A. Still trying to get comfortable with the $VJET and want to talk to their management and do some more homework before committing to yet another 3-D printing stock.
Q. $VJET: I understand it is in a hot sector and overvalued. I was just curious if you had any insight yet on their product line and how it fits into the whole 3D printing/additive mfg disruption. Long $VJET disclosure: I made a few purchases of $VJET as an initial position as it sold off after its secondary. I was hoping it would touch the mid $20’s but I used what I’ve learned from TWC to set up some Tranche buys and enter the position slowly. I like that $VJET is in the large and expensive printers that become part of the manufacturing process sector in Europe.
A. That you have successfully used our TWC tranche buying and other lessons means we have been doing a good job! Success in trading and investing is VERY HARD to do and I am proud that we are helping you guys attain some success!
Thank you, Cody!
Q. Cody ~ Even with Bitcoin notes, etc. from you, I must admit that I’m in a total fog with that risk. I’m reading up on it as much as I can but it scares me now to even entertain even if I did fully understand this one…I don’t think I’m alone with my confusion as to Bitcoin.
A: I don’t think you should risk any more on Bitcoin than a few basis points of exposure then. I mean, do you really worry that if you were to put 0.2% or 2/10th of 1% of your stock/bond/metals/currency portfolio into BitCoins that there’s anything to worry about? If it goes up 10-fold and/or hits mainstream, you’ll have some nice gains and feel like a genius. If it gets outlawed and goes to $0, well, it was a tiny bet to begin with and I’ve lost more than 0.2% of my portfolio on single trades many, many times and will do so again many, many times.
Q. On a different note, solar has been hot most of this year. Do you see this continuing next year and onward? If so, any other plays besides FSLR? Do you see FSLR ever turning back?
A. I’m sure FSLR will have some pullback at some point over time. If they can keep executing they can earn $10 in five years and that stock would be a triple digit for us.
Q. Hi Cody, your plan to buy XONE calls before earnings – is that short term or long term? what expiration are you looking at? Also, what’s your take on PCLN – I do feel that the stock might correct in the near term since it has ran up so much (40% in 3 months and 60% in 6 months).
A. I am SELLING the $XONE call options, not buying them. I’d bought the $XONE call options back a month ago when the stock was near $40 a share. I am holding my XONE common stock steady. To repeat, I have NO XONE CALL OPTIONS AT ALL ANYMORE, only common stock in XONE now.
I’m long $PCLN puts and am losing money on them. I thought the stock would putter out and that the puts would be a good hedge in case the markets topped and fell. Didn’t happen yet though.
Thanks Cody!
Okay folks, thank you for everything and for the good stuff today in chat. Please help us keep growing TWC by spreading the word to your friends and family and anybody else you think we can help. Rock on.
