Trade Alert: Covering Some Shorts In The Reflecting Softbank Sun Light

You ever have a big blister that hurts but keeps getting bigger until finally it pops and though it really hurts at that moment, it actually makes you feel a bit better because now you know things can get back to normal? Is that a bad analogy for the 10-30% pullback in many of the highest flying momentum names?

At any rate, many people almost feel a sense of relief at the markets finally giving the world a pullback. Feelings are always the enemy of a successful investor. And if I try to analyze why we’re feeling any particular emotion about the markets and our money, we can often find some insights into what others are doing. The fact that I have a sense of relief at seeing this pullback is probably not a bullish indicator. Here’s what I’m doing today as the panicky action accelerates some selling — I’m not doing much buying at all, but I am covering some more short hedges. Because we have puts that were out-of-the-money and are now increasingly in-the-money as the markets fall below our strike prices, we actually end up getting even more short exposure as markets fall. So I cover a bit of our outright shorts but am leaving most of the puts in place.

If the biggest momentum tech stocks went up extra in the last month because Softbank was buying billions of dollars of call options forcing the counterparties to buy common stock to help hedge themselves on the other side of Softbank’s trades, then it would seem to follow that the same stocks could get sold off extra in a market pullback as the call options that Softbank bought are probably now down in value making Softbank’s counterparties get ever longer those stocks are prices fall.

Did the markets spill something gold and shiny and valuable on the floor or is that just a reflection of the Softbank’s sun light shining on my daughter’s mermaid tail?

I’m rushing through this analysis so I apologize if this part is confusing to you all today. Given the markets all tanking so hard this afternoon, I wanted to get this post out to Trading With Cody subscribers asap.

Meanwhile, if you don’t own any TSLA or for the last month you’ve been wishing you owned more, today’s not a bad day to start nibbling. Don’t be greedy though, start small. I’m not averse to the idea of nibbling a little bit in many of our long positions but as I said last week, ” It’s been a helluva year of returns for us thus far, we’ve got a crazy amount of gains off off the lows in March and we don’t have a single name that’s down since we bought it. I’m okay with letting things settle down for a bit and letting valuations get more compelling before looking to get to active in buying more of our names for now.”

Easy does it. Be cool.