The Prospect Of Higher Rates Boost Big Banks

The prospect of rising interest rates has propelled bank stocks to all-high highs. Citigroup (C), JPMorgan (JPM), Bank of America (BAC), and Goldman Sachs (GS) have appreciated double digits over the past three months, breaking out to all-time highs. Rising interest rates combined with the highly disruptive COVID-19 backdrop abating has served as the foundation for this move higher. The big banks responded and evolved in the face of COVID-19 to the real possibility of widespread loan defaults, liquidity issues, ballooning credit card debt, and stressed mortgages. To exacerbate these COVID-19 impacts, interest rates, Federal Reserve actions, yield curve inversion, and liquidity heavily weighed on the sector.

Along with this turn higher, balance sheets have become even stronger now that share buybacks have been halted and dividend payouts were arrested. Large capital reserves have already been put aside for anticipated financial challenges. The big banks have demonstrated their ability to evolve in the face of COVID-19 and present compelling value. Now with the prospect of rising rates, this may serve as a long-term tailwind for banks to appreciate higher.

Bank

COVID-19 and Financial Crisis – Lessons Learned

The big banks are far stronger and more prepared than they were during the 2008 Financial Crisis. Lessons learned from the Financial Crisis yielded rigorous annual stress tests that forced banks to maintain a slew of fiscal discipline measures. With the Federal Reserve working in-hand with the banks, a financial bridge to those businesses and consumers negatively impacted by COVID-19 as a stop-gap measure has been afforded. As this pandemic subsides and economic activity rebounds the banks' present value. Add in the prospect of higher rates, and the banks are set-up for long-term appreciation. Their strong cash positions and healthy balance sheets are allowing dividends to continue as the economy transitions through the damage of the pandemic. Continue reading "The Prospect Of Higher Rates Boost Big Banks"

Disney - 146 Million Streaming Juggernaut

The Walt Disney Company (DIS) expects its Disney+ streaming platform will have up to 260 million subscribers by 2040. The company continues to exceed all expectations in the streaming space accelerated by the stay-at-home COVID-19 environment. The company has been posting phenomenal streaming numbers that have thus far negated the COVID-19 impact on its other business segments, specifically its theme parks. Disney has had to shutter all its worldwide Parks and Resorts, and ESPN has been hit with the cancellation of virtually all sports worldwide. There have been ebbs and flows with reopening efforts across the globe with mixed results followed by rolling lockdown measures. Despite the COVID-19 headwinds, Disney’s streaming initiatives have been major growth catalysts for the company. Disney+’ growth in its subscriber base has shifted the conversation from COVID-19 impact on its theme parks to a durable and sustainable recurring revenue model. This streaming bright spot, in conjunction with the optimism of its Park and Resorts coming back online, has been a perfect combination as of late, especially with the vaccine rollout picking up steam.

Disney+ has racked up 94.9 million paid subscribers, Hulu has 39.4 million paid subscribers, and ESPN+ has 12.1 million paid subscribers. Collectively, Disney now has over 146 million paid streaming subscribers across its platforms (Figure 1). Disney+ has been wildly successful via unleashing all of its Marvel, Star Wars, Disney, and Pixar libraries in what has become a formidable competitor in the ever-expanding streaming wars domestically and internationally. Hence the tug-of-war on Wall Street between COVID-19 impacts versus the success of its streaming initiatives, with the latter winning out. Thus far, its streaming success has changed the narrative as its stock has broken through all-time highs and nearly breaking through $200 per share. Disney is a compelling buy for long-term investors as its legacy business segments get back on track in the latter part of 2021 in conjunction with these successful streaming initiatives.

Disney
Figure 1 – Streaming initiatives across its platforms with over 146 million paid subscribers in total

Post Pandemic

Disney’s business segments will inevitably recover as the pandemic Continue reading "Disney - 146 Million Streaming Juggernaut"

10 Essential Options Trading Rules

Generating consistent monthly income while defining risk, leveraging a minimal amount of capital, and maximizing return on capital is the core of options trading. Options enable smooth and consistent portfolio appreciation and consistent monthly income without guessing which way the market will move. Over the past 9-plus months (May 2020 – February 2021), 203 trades were placed and closed. A win rate of 98% was achieved with an average ROI per winning trade of 7.8% and an overall option premium capture of 83% while outperforming the S&P 500. The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with 50% of the portfolio held in cash, thus substantially less risk. The options-based approach circumvented the September, October, and January sell-offs while outperforming the S&P 500, posting returns of 47.6% and 43.7%, respectively (Figures 2-6). Following a well-defined set of options rules are essential for long-term successful options trading. Continuously reflecting and refining these rules is also essential to ensure continuous improvement via lessons learned with supplemental rules (Figure 1).

Options Trading Framework - 10 Essential Rules

A set of trading fundamentals must be followed to run an options-based portfolio successfully. Specifically, position-sizing, sector diversity, maximizing the number of trade occurrences, and risk-defined strategies are some notable areas that traders need to heed for long-term successful trading.

To run an options-based portfolio effectively and successfully over the long-term, the following option trading fundamentals must be exercised in every trade. Violating any of these fundamental rules will jeopardize this strategy and possibly negate the effectiveness of this approach on the whole. Below are 10 option trading rules that provide a basic framework of options trading to maintain discipline and systematic trading mechanics.

10 Rules For Options Trading
Figure 1 – 10 rules for long-term successful options trading as demonstrated throughout these performance metrics - Trade Notification Service
Continue reading "10 Essential Options Trading Rules"

Options: Positive Returns Despite Negative Market Returns

Another positive month for the options-based portfolio despite another negative month for the markets. A positive $3,372 in income was generated for January 2021. Generating consistent monthly income while defining risk, leveraging a minimal amount of capital, and maximizing return on capital is the core of options trading. Options enable smooth and consistent portfolio appreciation without guessing which way the market will move and allow one to generate consistent monthly income in a high probability manner in both bear and bull market scenarios. Over the past 9-plus months (May 2020 – January 2021), 203 trades were placed and closed. A win rate of 98% was achieved with an average ROI per winning trade of 7.8% and an overall option premium capture of 83% while outperforming the S&P 500. The performance of an options-based portfolio demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk. The options-based approach circumvented the September, October, and January sell-offs while outperforming the S&P 500, posting returns of 47.6% and 43.7%, respectively (Figures 1, 2, and 3).

Options
Figure 1 – Overall options-based performance compared to the S&P 500 from May 2020 – January 31st, 2021 available via a Trade notification service - Trade Notification Service
Continue reading "Options: Positive Returns Despite Negative Market Returns"

Post Inauguration And Extended Markets

Best Post Election and Inauguration Lift

The drumbeat of markets becoming more and more over-extended is becoming louder and louder. From the election to the inauguration, the S&P 500 is up 13%, which is the best for any president since 1952. Post-inauguration, all major indices as measured via the Russell 2000 (IWM), Dow Jones (DIA), S&P 500 (SPY), and the Nasdaq (QQQ) hit all-time highs. The broader markets have been propelled higher in an already frothy market as 2021 unfolds. All major markets have been in a raging, nearly uninterrupted bull market with the Nasdaq and S&P 500 up 100% and 75%, respectively, since the pandemic low.

These moves are a function of the vaccine rollout, continued stimulus coming out of Washington, massive fiscal and monetary accommodation from the Federal Reserve, the election cycle being capped off with the presidential inauguration, and new policies aimed at spurring economic growth. Despite these tailwinds, the markets are looking overextended, as assessed by a broad range of historical benchmarks and current indicators investors should heed in the near term.

Historical Measures and Current Indicators

A recent E-Trade survey showed that the majority of investors (91%) with $1 million or more in a brokerage account believe the stock market is in a bubble or close to being in one. From a historical standpoint, markets have exceeded levels reminiscent of the Roaring Twenties and are now approaching the dot-com bubble territory. These historical comparators of options put/call ratios, the broad participation of stocks exceeding their 200-day moving average, and P/E ratios may be potential warning signs of near-term pressures. Current indicators are also suggestive of frothy markets as measured by Bollinger bands and the Relative Strength Index (RSI). Continue reading "Post Inauguration And Extended Markets"