Is The V-Shaped Recovery Back On?

Several months, or was it years ago; when the coronavirus began its spread across the U.S., several bullish economists were predicting a “V-shaped” recovery, meaning the expected economic recession would be deep but short-lived. The subsequent bounce-back would be extremely strong so that the 2020 recession would be a mere blip on the chart. That consensus opinion was quickly replaced by talk of a “U-shaped” or even an “L-shaped” recovery, with the economy reeling for months if not years, as the number of deaths escalated along with the unemployment filings as the U.S. economy remained shut down.

Now it’s starting to appear that maybe the doomsayers were a bit too hasty in their gloomy prognostications. While it’s far too early to predict how things will eventually play out, the V-shaped recovery may actually be a more likely outcome than the more pessimistic scenarios. Certainly, the most recent economic reports, from both the government and the private sector, are already showing a nascent rebound even as many key states – like New York, California, and Illinois – remain largely in lockdown mode and only recently started to open up. At the same time, some previous forecasts are being shown to have been overly bearish.

Probably the biggest surprise to the upside was last Friday’s May employment report, which showed the economy adding 2.5 million jobs, a far cry from the consensus forecast of a loss of 7.7 million, and April’s loss of nearly 21 million jobs. “These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it,” the Labor Department said. Continue reading "Is The V-Shaped Recovery Back On?"

COVID-19 - An Agile Options Strategy - Part 2

COVID-19 was the black swan event that culminated in bringing the worldwide economy to its knees. The spread of the virus globally, along with intermittent spikes, has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail while others are battling to remain in business. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been seen since the Financial Crisis.

Although options trading provides a margin of downside protection and a statistical edge, when hit with a black swan event, no portfolio is immune from the wreckage. Thus, proper portfolio construction and optimal risk management are essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. An agile options based portfolio is essential, and the COVID-19 pandemic is a prime example of why maintaining liquidity, risk-defining trades, staggering options expiration dates, trading across a wide array of uncorrelated tickers, maximizing the number of trades and selling options to collect premium income are keys to an effective long-term options strategy.

Maximizing Return on Capital

Options can be sold with defined risk while leveraging a minimal amount of capital to maximize return on investment. Whether you have a small account or a Continue reading "COVID-19 - An Agile Options Strategy - Part 2"

COVID-19: Speculative Positions Update

In March, I published a piece on taking speculative positions given the complete market meltdown. It was as good a time as any to put on some speculation plays because this COVID-19 black swan event presented a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs. Now many positions have been sold at realized profits between 20%-100% gains as the market bounced back from its lows in late March.

The broader indices have shed approximately a third of their market capitalization into April. Some individual stocks directly related to the COVID-19 pandemic have lost 50%, 60%, 70% and even 80% of their market capitalization. Investors had been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Throughout the market sell-off, I began to speculate on a variety of names with small amounts of capital. Let's not confuse speculation for investment; thus, these trades were purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), Yelp (YELP), Yum Brands (YUM), Chipotle (CMG), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA) and Twitter (TWTR) are some speculative names that have sold off ~40%-85%.

Evaporated Market Capitalization

The COVID-19 pandemic has destroyed entire industries and many individual stocks. Anything related to travel, leisure, retail, industrials, and Continue reading "COVID-19: Speculative Positions Update"

COVID-19 - An Agile Options Strategy

COVID-19 has become the black swan event that has materialized into a worldwide economic halt. The spread of the virus globally has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been since the Financial Crisis.

Although options trading provides a margin of downside protection and a statistical edge, when hit with a black swan event, no portfolio is immune from the wreckage. Thus, proper portfolio construction is essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. An agile options based portfolio is essential, and the COVID-19 pandemic is a prime example of why maintaining liquidity is one of the many keys to an effective long term options strategy.

An Agile Options Strategy

Risk management is paramount when engaging in options trading. A slew of protective measures should be deployed if options are used as a means to drive portfolio results. When selling options and running an options-based portfolio, the following guidelines are essential: Continue reading "COVID-19 - An Agile Options Strategy"

COVID-19 - Adding Speculative Positions

Now is as good time as any to put on some speculation plays because this COVID-19 black swan event may be a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs.

The broader indices have shed approximately a third of their market capitalization into April. Some individual stocks directly related to the COVID-19 pandemic have lost ~50% to well over 80% of their market capitalization. Investors have been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Throughout this market sell-off, I have begun to speculate on a variety of names with small amounts of capital. Let's not confuse speculation for investment; thus, these trades are purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%.

Evaporated Market Capitalization

The COVID-19 pandemic has destroyed entire industries and many individual stocks. Anything related to travel, leisure, retail, industrials, and discretionary spending has been cut by 50% or more. Companies are being tested like no other time in history where the entire economy is at a standstill under the COVID-19 coast is clear. Amid this economic wreckage, speculation can potentially Continue reading "COVID-19 - Adding Speculative Positions"