Friday Q&A — September 23, 2022

by | Sep 23, 2022

Happy Friday, Evolvers!

Unsurprisingly, the markets are closing out the week in the red. 

The S&P 500 ETF Trust (NYSEARCA: SPY) is down 2.2% today (and 4.3% for the week).

It seems like the Fed’s 75-basis point interest rate hike isn’t going over so well with traders…

Maybe the rate hike wasn’t completely “priced in” after all?

Regardless, the current price action in the overall markets is playing out exactly as I’ve predicted. 

I think I’ve got a pretty firm grasp on where stocks are headed and my recent Tesla Inc. (NASDAQ: TSLA) trade is evidence of this. 

Now, I’m expecting a market-wide panic flush on Monday morning — one that could send the SPY back towards its June lows and Bitcoin (BTC) back to $15,000.

I re-entered my ProShares Bitcoin Strategy ETF (NASDAQ: BITO) puts play with a price target of $9. (This could be an incredibly juicy trade if I’m right.)

Meanwhile, the United States Oil ETF (NYSEARCA: USO) is dumping hard this morning, so I’m watching the chart for any notable technical indicators. (There’s still a lot of downside left on the USO chart if the selling continues.)

But enough small talk. It’s Friday, so let’s get to our Q&A!

“Can you explain your trade thesis for the BITO puts?”

This one’s pretty simple…

So far this year, whenever the stock market tanks … BTC (and crypto at large) tank even harder. 

BITO — a fund that directly tracks the BTC chart — almost looks like a leveraged Nasdaq ETF throughout 2022. 

I’m betting that if the market drops on Monday, BITO will be down even more than the SPY or QQQ.

Furthermore, I’m expecting a further deterioration of the ‘crypto is an inflation hedge’ argument.

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At this point, I don’t see how anyone can make this bull case for crypto. As inflation has ramped to 40-year highs, BTC has done nothing but crater into oblivion.

In the face of historic rate hikes, I’m predicting a big crypto dump in the immediate future.

My puts play may also get some help from legendary banker Jamie Dimon, who went on record this week saying that BTC is “dangerous” and nothing but a “decentralized Ponzi scheme.”

So, in my view, we’re entering a perfect storm of crypto bearishness and I’m positioning myself accordingly.

I’ll put it bluntly … I’ll be very surprised if BTC doesn’t hit $15,000 next week. Take that for what you will.

“How do you decide whether to book profits quickly or hold your contracts longer? (I’m talking about your recent TSLA trade).”

Holding vs. not holding is one of the most difficult decisions traders have to make. Every great trader has debated this at one point or another. 

If you’re staring at unrealized gains, do you take your win and call it a day? Or hold for a potential grand slam?

It’s a tough call for any trader, but an even tougher one when you have a large % of your small account in short-dated options (like I did yesterday). 

In general, it’s always better to take profits while you still have them. 

Remember: If you’re not careful, unrealized option gains can evaporate in an instant. 

I think we can all agree that a small win is preferable to a brutal loss.

That said, it still stings when you’re forced to watch contracts you just sold shoot into the stratosphere. 

I bought TSLA 9/23/2022 $305 Puts at $3.20 on Wednesday and sold at $6.70 on Thursday for a gain of 109%.

But today, those contracts have traded for as high as $28. Had I held, this play could’ve turned into a nearly 1000% gain. 

Am I beating myself up about it? Of course not.

In hindsight, here’s my advice…

If you’re up on unrealized gains, but have a feeling the stock might continue in the right direction … sell all but a few of your contracts. 

That way, you’ll avoid the pain of missing the follow-through entirely while safely locking up the majority of your hard-earned profits.

Final Thoughts

Have a great weekend, Evolvers!

And allow me to wish a very HAPPY NEW YEAR to all my Jewish students! 

I’ll be off on Monday and Tuesday to observe the Rosh Hashanah holiday with my family, but I’ll be back in your inbox on Wednesday to follow up on the plays I mentioned earlier. 

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