Wheeeee, what a ride!
We expected to flatline this week with my Monday outlook for our Members being: "Very tight ranges – possibly setting up to flatline into month's end. Which will make for a boring few days ahead." Amazingly, even a nasty headline number on the GDP yesterday couldn't take us down (and the numbers were actually fine – see yesterday's post for commentary as well as Dave Fry's telling copper chart) nor could the Fed following it up by sitting on their hands do any real damage.
We did get a dip in the Russell below 900 and that did trigger the TZA hedges we discussed last Friday but they are backed with the so far, so great DBA longs and we'll be happy to take a quick loss if the RUT recovers – but not until after the weekend. In Friday's post, the trade idea was to sell the DBA Jan 2014 $26 puts for $1 (now .75) and buy the TZA March $10 calls for $1.40 (now $1.50) so that net .40 trade can already be cashed for net .75, which is a nice 87.5% gain on a 1% drop in the Russell and that's how our option hedges are supposed to work – you can commit a very small amount of capital to hedge protection and get a huge payback to mitigate your losses when and if the market turns.
Even better, we only need these hedges to cover our assets while we dump our positions and scramble back to cash IF our levels break down. As I mentioned at the top of last Tuesday's post, these are silly gains for a month and, when you make 1/2 of your investing gains in the first month of the year – it's more than prudent to get back to cash – because, statistically, it is far more likely that the next 6 months will disappoint you.
Fortunately, we only set stops and our stops have not been breached but we're also raising those stops and adding some hedges – happy to give up a little of the additional, future, POTENTIAL gains in exchange for locking in what we already have. We're also getting an opportunity to pick up some new entries in stocks that are taking a dip. Even in "the stock we no longer talk…
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