No trades this week.
music selection: “Quest For The Eternal Fame” — Dark Moor
weigh-in: 207.6 (1.2)
The markets are still too hot to trade in my opinion. I’m considering waiting until my NLY puts expire and buying some strong names and writing in the money covered calls. Good returns are available at strikes well away from the money and this approach would magnify my downside protection. Repeating the trades would be problematic due to wash sale rule however.
We have had a nice rally over the last week or so. This could be a trap. It is normal to see rapid rises during bear markets (bear market rallies). They often reverse with the same vigor. I still have some hedges although they have lost some value.
When will the carnage end? When the news on COVID-19 starts to get “less bad”. I’m monitoring the official data from the CDC. One chart in particular I check everyday shows the new case rate by day. We should see a normal distribution develop once the curve starts to flatten. The below chart will update today around mid day.
I am keen to get back into the contango trade. With SPY still well below its 200 day moving average, I feel that now is not yet the time to get back in. I’ll look for price confirmation AND better news from the CDC before taking that risk.
Finally, there are some really great companies trading at attractive prices right now: MO, V, AXP, DIS, HSY, KO, and MCD. I consider them all good put writing candidates. Worst case scenario is you end up owning great businesses at attractive valuations with the opportunity to write covered calls for income while you wait for price appreciation.
Devour your prey raptors!