Trade Alert (LUNR) + Option Questions, Debt Problems, And Much More
Here’s the transcript from today’s Live Q&A Chat. I’m still looking for some FAQs about how to trade stock options, so if you’ve ever had any questions about stock options but were afraid to ask it or didn’t know who to ask, please shoot us an email to support@tradingwithcody.com and I’ll answer it for you.
Also, I want to let you know that we started buying some Intuitive Machines (LUNR) this week, just getting started on a small position in the space company’s stock. The company has more than $800 million in back log orders, mostly from NASA, and the stock is trading at about a $300 million market cap. They are planning to put a Lander on the moon for NASA in February, launching from a SpaceX rocket.
Q. Are you worried at all with the growing national debt and the cost of servicing that debt? Bill Gross said earlier this week the 10-year treasury is overvalued and I tend to agree. Any concern on how interest rates staying higher for longer could impact our positions/broader economy?
A. Yes, I’m a little bit worried about the endless outrageous spending habits from the Republican-Democrat Regime who have gotten lulled into a sense of complacency with regard to deficits and debt while they got to play with our hard-earned tax dollars with 0% interest rates for decades on end. They have to stop spending trillions more than they bring in every year. The good news is that the US is and always will be the cleanest shirt in the fiat currency/global economy and that will always help bring in capital to our country that can help alleviate the potential horrific economic end games that the Republican-Democrat Regime has always flirted with because of their senseless/greedy/corrupt trillion dollar budgets.
Q. I recently retired at 67 years old and have a lot of cash on the sidelines. Which stock names would you nibble on in the future? I will not need this money for a few years. Thanks for any picks!
A. Start slowly, just nibbling about 10-30% of however much of each stock you are starting to buy. I’ll redo the “Where I’d Buy More Of Each Of Our Stocks” list this week to help give you a guide of which stocks I’d start looking at buying soon and at what levels. Other than that, I’d consider nibbling a little bit of our Forever Positions (see The Latest Positions Write-Ups for that). Congrats on retiring!
Q. Regarding the post on option buying: I know it is not cut and dry and maybe a little nuanced here for an answer, but how do you gauge if the premiums are ‘cheap’ before deciding to buy calls? Thanks!
A. Great question and thank you for asking me an options question. I was hoping for about 10 more options questions today! Anyway, you can use the Black-Scholes model to find what that model thinks should be the fair value for the options you’re buying. That’s good for beginners and even for pros to get a reality check before buying an option. I have been trading options for more than 30 years and typically have a good sense of what I think is too much to pay for an option premium without even checking Black-Scholes most of the time. Link to a Black-Scholes model calculator here.
Q. Regarding option trading: At a time when I am adding to a position, I will sell puts to get in cheaper or pocket the premium. Do you ever sell puts?
A. Another good options question, thank you. I rarely sell puts in the hedge fund, especially when the markets are in free fall and the premiums on put options start to get higher than I think the fair value would be. But you can’t short too many put options or you run the risk of ending up on margin with a lot more long exposure than you can handle. So I do it rarely, but I do do it occasionally.
Q. Regarding option trading: With Pfizer (PFE) trading around $29 currently, do you still consider the September 30 calls for around $2 a good potential play?
A. Buying September $30 call options on PFE for $2 means that the stock has to rally 10% over the next eight months to break even on those call options. I think PFE could run to $40 or $45 by September which means those calls options could be worth $8 to $13 each. But if the stock only rallies 3% or if it falls over the next eight months, those puts would be completely worthless. That’s the risk/reward scenario. I can think of worse ideas but make sure you can handle losing all of the capital you risk on the PFE calls if you do the trade.
Q. How do you feel about Apple (AAPL) at this price?
A. I mean, I liked AAPL better at 20 cents a share (split-adjusted) back in 2003 when it was trading at less than the cash balance it had on its balance sheet. But AAPL is still a great stock even if I think it’s going to be tough for it to rally another 20-30% this year. The Apple ecosystem can’t be caught and will continue to create value for shareholders for decades to come.
Q. With SpaceX’s deployment of direct-to-smartphone satellite services, does this ultimately kill the demand/need of the billions the government is spending and allocating for fiber deployment to rural areas?
A. The direct-to-smartphone satellite service from SpaceX’s Starlink isn’t going to be fast enough broadband to compete against DSL/Cable Modem/5G Wifi for a few years at least. The Starlink Wifi service that we have at my house which uses a small dish-like transceiver to get a strong signal, on the other hand, definitely is fast enough to offset the need to have fiber or any other hardwired internet service at my house. The Republican-Democrat Regime recently started pulling back on some of the awards they gave SpaceX/Starlink to provide broadband Internet service to underserved/rural areas and is going to waste that money giving it to fiber operators who will end up going bankrupt in three to five years because it’s just too expensive to maintain a fiber network without enough households/businesses using it which is what rural fiber networks will always run into. If the government isn’t going to pay Starlink to provide the rural broadband service, they should just return the money to taxpayers.
Q. Who’s trimming NVIDIA (NVDA)?
A. I didn’t touch the NVDA in my personal account which still has a cost basis of $7 per share. I did short a few NVDA out-of-the-money call options dated out to March or May in the hedge fund but just partially.
Q: Thoughts on Taiwan Semiconductor (TSM) after today’s results?
A: TSM actually beat revenue estimates for Q4 ($20bb act. v. $19bb est.) even though December revenue was down 8.4% YoY. I think the market was expecting revenue to be at least flat or growing in December given the strong demand for AI chips. That said, TSM is still in the process of ramping its 3nm process so that probably explains the slump in revenue. I think TSM will see nice growth in 2024.
Q. Where would you rank TSM here after earnings? Would you buy a tranche here if wanted to build up a position?
A. I’d rank TSM at 7/10 here on the Revolution Rating scale. I always suggest starting small when you start to buy any new position. I can think of worse ideas than starting a small position in TSM here.
Q: Are we still holding Maplebear dba Instacart (CART)?
We sold CART a while back. See trade alert here.
Q. Are we sticking with ProShares Bitcoin Strategy ETF (BITO)? Or do you think with the pending SEC approval that there will be a different index/fund that will better than BITO?
A. We’ll see what the SEC approves if/when they finally approve these bitcoin ETFs, but, yes, I do think we’ll probably move on from the BITO which is a bitcoin futures ETF and into an actual bitcoin ETF if/when we have that opportunity.
Q. What is your take on the SEC hack/X Twitter happening yesterday? Do you still view the ETF approval as a potential sell-the-news event?
A. The hacks at the SEC should be embarrassed by the mishap they were a part of yesterday when someone either at the SEC or someone who hacked the SEC’s X account posted that the SEC had approved the bitcoin ETFs. Someone who actually wants to prosecute the thousands of crooks who have swindled people with silly cryptocurrencies without having registered at the SEC should replace Gary Gensler who seems scared of his own shadow. Yes, I think the bitcoin ETF approval could be a sell-the-news event but it could also create some new short-term momentum for bitcoin before the sell-the-news reaction happens. Sometimes when we tease Amaris, it takes her a few seconds to react. That might be a template for how the bitcoin price will move if the SEC approves at bitcoin ETF — maybe it rallies for a day or two 5-15% and then falls back 10-20% a few days later.
I leave you all with a shot of our two dogs, including our new Great Dane/Mutt named Ringo Star. He’s only about 7 months old and already weighs nearly 90 pounds. And he is perhaps the sweetest, gentlest dog I’ve ever seen. Bernice The Great Pyrenees loves him too.
