We wrapped up the week at another all time high close on the SPY. This has been a textbook move higher after the breakout 5 weeks ago. Are we a bit extended? Sure, can it extend more? Absolutely. It really all comes down to what sort of guidance we get over the next 2 weeks from all the megacaps. So far we’ve gotten great reports from the banks and Netflix. Nobody has issued any sort of caution to worry about. We also have the election in 2.5 weeks. We’ve been green 10 of the last 11 weeks the best streak we’ve seen since markets were green 14 of 15 weeks in late 2023.
I’ve had some of you ask me, so here is some data on these weekend best ideas from the last year. The date of the post is on the left and the total return since is on the right from a spreadsheet I track these on.
These weekend best ideas have gone fairly well, I’ve written up 44 of them from last October and 35 of the 44 are green from the time I wrote them up or 79.5%. Some of the losers were actually winners technically because Tesla was a 2 week trade expiring before the event, but in general, I try to write these up as longer term holds for your book. 15 of these went for gains over 25% on common. The bottom line is think about these weekend best ideas as longer term positions, sell puts to enter before you buy common, take shares, sell covered calls and keep your stop losses in place. I’m not always going to be right but thankfully I’m right alot more than I’m wrong and only 3 went really wrong to the tune of 10%+ loss and anytime you’re long common a stop loss should be in place to stop your losses at 10-15% max, whatever number you choose.
This week’s best idea has seen some 75% OTM call buying looking for a big move up over the next 12 months and is trading well below the average analyst target. So let’s take a look at it and discuss a great risk reversal I drew up for a credit where you get 2x the calls. I will say this trade reminds me alot of the NEM trade I wrote up back in March here where you saw far OTM call buying long before a big move up. We’ve also seen that in APO, AXP,KR in the last 12 months, those OTM leaps are rare trades but tend to work. That NEM trade below was a risk reversal when the name was 33.88 and 7 months later it sits at $57.62 and those calls below went from $1 to $8.90.
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