Recession Prediction, China Pop, And A Few Trade Alerts

First off, wanted to mention that I think Netflix (NFLX) had an amazing quarter and let you know we are holding our position steady. On the other hand, I’m not impressed with Texas Instruments’s (TXN) quarter or guidance and thus we decided to sell it today.

Here is the transcript from this week’s Live Q&A Chat:

Q. Do you see a reversal in oil short term? Thoughts on our so-called soft landing?

A. I don’t have much of an opinion on oil either way right now. I think we have gotten mostly through the process of adjusting to these higher rate levels without a recession. That doesn’t mean a recession doesn’t come in the next year though, whether rates are this high or not.

Q. At what point do you start taking profits on successful options? At 100%? I understand there is perhaps more art than science, but what guidelines for taking profits on successful options moves?

A. Correct that it’s more art than science when it comes to trading options. I usually do tranches in both buying and selling options to try to maximize the risk/reward dynamics. I sometimes buy a put option on a stock and then it drops like 5% or 10% intraday and then I’d probably sell at least a third of those options. Other times, I might leave them if I think the stock is a zero eventually. But even stocks that go to zero usually will have some big counter-trend rallies along the way. Same with stocks that go up 10- or 50-fold. Sometimes they will have a 30% or a 50% decline along the way. On the other hand, when I bought those Intel (INTC) long-dated call options last year when the stock was at $27 or so, those ended up being 10-baggers before I sold most of them (in fact, I’m still holding some the 2025 $35 call options). As I wrote at the time “I did do some call buying in these things this week (all in the hedge fund, none in the personal account): INTC long dated calls, with strikes from $30 to $35 dated out to 2024 and/or 2025.” Just ebb and flow with the options trading. Most people at home should not be trading options very often at all in their personal accounts. I hardly ever trade options in my PA.

Q. And the counterpoint question is, at what point do you cut bait or roll out options that aren’t performing? How do you know when to give it up?

A. I have to say that I’m not terribly good at selling my options when they don’t work out. I typically ride them to zero, probably more often than I should. I do roll options out occasionally, but that’s also hard to do as you can lose a lot of money on slippage and spreads as you try to roll them out to longer dates. According to Investopedia, slippage “refers to the difference between the expected price of a trade and the price at which the trade is executed.” Investopedia defines the bid-ask spread as “the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. The spread is the transaction cost. Price takers buy at the ask price and sell at the bid price.”

Q. Could recommend three or four technology exchange traded funds (ETFs) for next 5 or so years sir?

A. SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust Series 1 (QQQ), and iShares Bitcoin Trust | (IBIT). IBIT would probably top the list of ETFs I’d consider.

Q. Are you hedging your Tesla (TSLA) position?

A. In the hedge fund, we’ve bought a small amount AXS TSLA Bear Daily ETF (TSLQ) call options as a hedge but I’ve actually unwound some of my TSLA hedges as the stock has gotten near $200 here.

Q. Meta (META) has had an incredible run over the last 12 months or so. Would you be supportive of trimming it here?

A. Maybe trim a little bit as the position size can get unwieldy as the stock has gone up so much. It’s usually good to trim a little bit if you’re thinking about doing so, just out of discipline.

Q. I’m looking to add a little Uber (UBER) and also I have been watching Carvana (CVNA) as a short. Your thoughts?

A. UBER’s had a helluva run but we still own it as a Top 5 largest position. We did trim some here above $60 though. I don’t have any CVNA puts on right now but I do think CVNA will be at zero at some point in the next five years.

Q. Current thoughts on Robinhood Markets (HOOD)? Seems like their IRA rollover promos where they match a certain 1-3% are getting great response.

A. We have built HOOD into a medium-sized position and actually nibbled a tiny bit more in the stock today.

Q. We have not heard your thoughts on Robinhood Markets (HOOD) of late? Do you think stock is tied to the move of Bitcoin?

A. Certainly the recent decline in HOOD has coincided/correlated with the decline in bitcoin this year but I think that’s how it should trade. HOOD’s got a lot of other great businesses that matter a lot more than their bitcoin/crypto revenues.

Q. Any thought on STMicroelectronics (STM) here kinda right in the middle of the 52 week low and high?

A. STM is cheap here, its largest customer is Apple though and Apple’s unit sales might not be as strong as hoped for over the last few months. That said, we have a pretty good-sized position in STM and would buy more near $40/share.

Q. China stocks popped. Do any trimming on those options?

A. Yes, we’ve trimmed about 10% of our iShares China Large-Cap ETF (FXI) and about 25% of our Alibaba (BABA) call options after the pop here.

Q. What’s the target for Intuitive Machines (LUNR)?

A. I don’t have price targets per se, but I think Lunar could double this year or next year if the lunar landing they are scheduled to do in February works out and the company delivers on its NASA contracts throughout the next 12-24 months.

Q. Lot of movement in Intuitive Machines (LUNR) over the last few weeks. Any specific driver there?

A. It’s biggest driver lately has simply been small-cap volatility. But over the next month, the biggest driver will be whether or not their lunar mission for NASA is successful.

Q. Do you own Disney (DIS) calls?

A. At this moment, we only own some DIS common.

Q. How would you trade options in DIS?

A. I don’t have any DIS options right now but if the stock gets hit 5% or 10% in a short period of time, I’d probably nibble a few slight out-of-the-money call options dated out a month or two.

Q. How big of a position do you intend to make Unity Software (U)?

A. Not big. We are mostly just long some U calls right now and a tiny U common stock position.

Q. Is it time to revisit Blacksky Technology Inc (BKSY)? Management claims the company will be profitable this year. Thoughts?

A. We are always watching BKSY but we don’t own any right now. I’d like to see them deliver another good quarter and then maybe I’d consider putting it back on the sheets.

Q. As you predicted, Bitcoin has been hit since the beginning of the year. Thoughts on nibbling some iShares Bitcoin Trust (IBIT) here?

A. We sold all of our ProShares Bitcoin Strategy ETF (BITO) in the first couple days after the bitcoin ETFs got approved, as noted at the time. And we’ve been slowly buying some IBIT since then to build it up but it’s still not as big of a position as the BITO was. We bought some more IBIT yesterday but haven’t bought any today.

Q. I find the “prices to add” to a position helpful, any chance of getting those for current positions?

A. Ah, yes the ol’ “Where I’d buy more of each of our positions” list. I’ll crank that out this weekend for publication next week.

I leave you all with a picture of my daughter, Lyncoln, and her two friends outside of The Great Wolf Lodge in Colorado Springs last week when we snuck up there for her 10th birthday. Look at those icicles!