Most Intriguing Investment Idea of the Day Thread

[ChpBstrd]

Interesting find, @Michael in ABQ .
My first thought was why would regulators allow this merger if they wouldn't allow US Steel?

[reeshau]

Interesting find, @Michael in ABQ .
My first thought was why would regulators allow this merger if they wouldn't allow US Steel?

Because it's an EU buyer, and not a Japanese one?

Also, only 678 employees.  Are they unionized?

[ChpBstrd]

Asset: NVDA at-the-money covered call at 142 strike expiring January 17, 2025
Price: $14,200 one hundred shares stock - $1,495 short call at 142 strike = $12,075 $12,705 (correction)
Rationale:
Nvidia is both the poster child for the AI revolution and the whipping boy for the AI bubble. The stock is up 187% year-to-date and has a forward PE of 49. They seem to have locked the AI industry into their standards, have a technological lead, and face merely distant competition from Intel, AMD, or other smaller players.

The extreme volatility of the stock this year and extreme investor greed has created a scenario where an at-the-money call option (142 strike) expiring in three months sells for 10.5% of the stock's price. 10.5% would be your 3-month return if NVDA is either flat or goes up. If NVDA goes down, you would not start losing money until it was down 10.5%.* That's an intriguing bet!

If you sold calls deep in the money, at the 121 strike, you'd make 4.2% (in 3 months) unless NVDA fell below 120.08. You wouldn't start losing money until NVDA fell below $108.45. That would require a -23.5% drop from the current price just to drag the position down to breakeven*. Seems like a very reasonable tradeoff of risk - the downside is owning NVDA at a forward PE of 37.

*If the correction occurred while there was still significant time left on the option, you'd have the opportunity to exit the trade early and the option would still be worth something, reducing your total loss.

[MustacheAndaHalf]

Using $NVDA's pace YTD, if $NVDA keeps the same pace, it would gain +33% before that option expires (*).

In 2020 and 2021, Nvidia's forward P/E ratio was even higher: 46 and 56.  It doubled both years.  The current forward P/E ratio isn't an obstacle to Nvidia's growth, if 2020-2021 is any indication.

(*).
Right now, $NVDA shows as up +194% YTD, which is roughly 11 months. The math I've done suggests NVDA rises 10% per month (compounded).
(1.10)^11 = 2.85 (+185%).
(1.10)^3 = 1.33 (+33%)

[ChpBstrd]

Asset: iBonds
Price: Yield is 4.38% until October 31, 2024. Includes a locked-in 1.3% fixed component, the highest since 2007.
Rationale:
In this post on another thread, I discussed two possible "doom loops" that could lead to higher inflation. Each starts with tariffs, and either an appropriate Fed response triggers money printing to pay interest on an escalating national debt or a politically-influenced Fed refuses to raise rates and loses all credibility, like what happened in Turkyie.

Bond markets are priced for a 5-year inflation breakeven of about 2.3%. The S&P500 is priced at a PE of 29.65 and a CAPE of 37. Imagine if the market's and Fed's assumptions of 2% inflation and a longer-range FFR in the 2.5-3.5% range are violated, with stock and bond valuations where they are.

The rate shock of 2022 might not be an ideal comparison because inflation was already falling fast and everyone felt rate cuts were maybe a year away. How do markets react in a doom loop scenario, where policy makers seem to have little control over the outcomes, or are in fact enacting inflationary policies like tariffs?

Neither stocks nor fixed-income look very good in that light. However, we're in an interesting window of opportunity in which the yield on inflation-hedged bonds like iBonds is roughly equal to what one can earn taking all the inflation risk of a 10-year treasury.

It's a counterintuitive move in these times of massive economic growth, lots of good economic metrics, and a 23% YTD total return on the S&P500 as of late October! The intrigue comes from the possibility that iBonds could be the only asset class to produce positive returns in the doom loop scenarios discussed. Even if the doom loops don't occur, it's not dead money - you're earning what others are earning while taking the risk of treasury bonds. Even in a future world where the Federal Reserve refuses to raise rates in response to inflation, iBonds would still raise their rates along with CPI... not the FFR or SOFR like other variable instruments.

You can only invest $10k per calendar year in iBonds, plus up to $5k in paper iBonds if the money comes from a tax refund. So this is no substitute for an option-hedged stock portfolio. However, given the policy implications of a political sweep with inflationary policy to follow (odds ~25%) these iBonds may be a better place for ten grand than bond funds with more rate vulnerability and no inflation protection, like BND or AGG. As for TIPS, I hope we all learned a valuable lesson about duration in 2022.

[vand]

Asset: USO
Price: $69.53
Rationale:
Should oil be selling for only $67.34/barrel, just prior to what seems likely to become an Israeli air war or ground invasion into Lebanon? Such an event would probably escalate Houthi and Iranian harassment of vessels in the Persian Gulf, Gulf of Oman, Gulf of Aden, and Red Sea, and it might lead to additional attacks on U.S. bases in Iraq, Syria, and Jordan.

Maybe none of that happens. 2nd quarter US GDP growth still came in at 3% and is forecast to be running at 2.9% at the moment. Rate cuts could incentivize speculation, lower the cost of stockpiling oil, and increase demand. Also, EV sales are fizzling, so a Wall Street narrative could emerge that oil is too cheap.

Maybe none of that matters, and the price of oil continues bouncing around in its post-pandemic range. Oil has exceeded $80 three times in the past 12 months. There's a reasonable chance it could do so again in another few months. On the downside, oil hasn't fallen significantly below today's levels since mid-2021. So just based on the historical probability alone, investors in oil could be set to make 18-20% within the next few months.

Would USO fall in the event of a recession in the US or EU? Probably. But the idea is you'd make a double digit return within the next six months, and a recession is less likely than another upward spike in the same timeframe.

Ignoring USO, I do think oil is getting too cheap to ignore.  Gold/Oil ratio now at 41 - only during the bizarre events of 2020 was it cheaper priced in real money.

https://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart

The world is not using less oil - 2023 was a new record high, and 2024 is well on pace to exceed it.

I'm not entirely sure what the best way to play it is, though - traditional oil stocks don't look that cheap, and nowhere near as attractive as they were in 2020. 

[ChpBstrd]

Asset: USO
Price: $69.53
Rationale:
Should oil be selling for only $67.34/barrel, just prior to what seems likely to become an Israeli air war or ground invasion into Lebanon? Such an event would probably escalate Houthi and Iranian harassment of vessels in the Persian Gulf, Gulf of Oman, Gulf of Aden, and Red Sea, and it might lead to additional attacks on U.S. bases in Iraq, Syria, and Jordan.

Maybe none of that happens. 2nd quarter US GDP growth still came in at 3% and is forecast to be running at 2.9% at the moment. Rate cuts could incentivize speculation, lower the cost of stockpiling oil, and increase demand. Also, EV sales are fizzling, so a Wall Street narrative could emerge that oil is too cheap.

Maybe none of that matters, and the price of oil continues bouncing around in its post-pandemic range. Oil has exceeded $80 three times in the past 12 months. There's a reasonable chance it could do so again in another few months. On the downside, oil hasn't fallen significantly below today's levels since mid-2021. So just based on the historical probability alone, investors in oil could be set to make 18-20% within the next few months.

Would USO fall in the event of a recession in the US or EU? Probably. But the idea is you'd make a double digit return within the next six months, and a recession is less likely than another upward spike in the same timeframe.

Ignoring USO, I do think oil is getting too cheap to ignore.  Gold/Oil ratio now at 41 - only during the bizarre events of 2020 was it cheaper priced in real money.

https://www.macrotrends.net/1380/gold-to-oil-ratio-historical-chart

The world is not using less oil - 2023 was a new record high, and 2024 is well on pace to exceed it.

I'm not entirely sure what the best way to play it is, though - traditional oil stocks don't look that cheap, and nowhere near as attractive as they were in 2020.

I was eventually sold on the idea that options on USO is the best way to play it. If US GDP is really growing at 2.8% as forecast, and China is flooding their market with stimulus, oil demand is going up not down, and everyone has inflation concerns about the policies of either presidential candidate, then, I agree, $68 per barrel might be low.

I don't think oil stocks are particularly expensive, even for an almost no-growth industry. PE ratios are all in the 10-15 range compared to the S&P500 at about 30:

COP: 11.4
XOM: 14
CVX: 14.7
SHEL: 11.6
TTE: 7.25
SU: 9

Crude oil dropped almost 6% earlier this week on suspiciously the same day (10/25) when Tesla announced an earnings, revenue, and margin beat. Despite what you may have heard from social media influencers, Hybrid and EV adoption is exceeding forecasts, especially in China and Europe. In the U.S. the EV/PHEV market share hit 10% in 2023 - and that makes the U.S. a laggard! If Tesla can grow revenues, earnings, and margins after slashing the prices of their products, then perhaps economies of scale will soon tip EVs into a position where they are permanently cheaper to build and to own than fossil burners. It's a classic Innovator's Dilemma disruption scenario coming to fruition, so maybe investors are pricing the overhead-intensive oil industry to shrink in the future. I'm not hearing much excitement about the sector from anybody, and that's odd during what appears to be an economic melt-up.

In the short run, though, "calling the dip" in USO might work if you give yourself enough time to catch the next normal fluctuation.

[ChpBstrd]

Asset: Mexican CETES (treasury notes)
Price: Yields 10.5% for a one-year certificate
Rationale:
CETES are zero-coupon treasury notes issued by the Bank of Mexico and denominated in Mexican pesos. Maturities range between 7 and 728 days. They can be purchased in very small increments directly through a phone app, "cetesdirecto", or cetesdirecto.com. Think of these as Mexico's answer to treasurydirect.gov. These tools also allow users to purchase longer term Mexican government bonds.
 
Proof of legal residency (which can be a temporary resident visa) and a Mexican bank account are eligibility requirements to purchase CETES. More details are described in this blog. Also, deposits are limited to 23k pesos per month (about $1350 USD). So it's not something you could quickly reallocate your portfolio around!

The intrigue is that they are currently yielding 10.5%. Mexican core inflation was most recently reported at +3.8%, so some quick mental math reveals a very attractive +6.7% real rate. Rate cuts are on the way, but for now eligible investors can lock in very attractive real yields. A tax rate of about 1% on the interest is automatically withheld, but is refunded if the rate of inflation exceeds the interest rate.

The other intriguing thing is how someone with anxieties about the quality of US governance or the US dollar could put together a 4-year "bug out plan" with a Mexican temporary resident visa plus a maxed out account at cetesdirecto.com. The temporary resident visa can be obtained under the "economic solvency" pathway if you can show you're worth $62k USD. The fees add up to a little over $300 for one year, up to about $560 for four years. These costs would eat much of your interest gains, but it's cheaper than watching canned goods and ammo reach their expiration dates, lol.

If Mexican rates fall, as they are expected to do, you might not earn much on the net from your $1350 USD per month investment into CETES. So the main value of this strategy would be for (a) someone wanting a "bug out plan" with a combined currency hedge and physical escape method, or (b) someone interested in medical tourism. 

[ChpBstrd]

Asset: GLD bear put spread at 231/233 expiring February 21
Price: $0.60 per share (order not yet filled, mid is $0.63)
Rationale:
I've never met a liberal who owned gold. It's only conservatives and libertarian types. The latter individuals just experienced a massive reduction in anxiety, and so my hypothesis is that they'll pivot from buying gold to buying stocks.

Will liberals take their place in the anxiety trade? No, they don't do that kind of stuff. So gold will fall - at least a little bit - between now and inauguration.

It doesn't hurt that CPI just came in at expectations, further reducing anxiety and making it harder to justify gold after its recent, massive run-up (GLD is up 25% YTD!).

I also think longer-term yields in the bond market could keep rising - by a little bit - as the new government's policy plans come into focus. Low inflation plus high real yields are negatives for gold. GLD is already down 7% since October 30, and I think the same catalysts have farther to run over the next 3 months.

This spread doesn't need a massive move to deliver a large return. Assuming I am executed at 60 cents, the upside is another $1.40, or 233%, if GLD falls to 231. 231 is less than 3% lower than the current price. If you wanted immediate execution and bid, say, 65 cents, the upside would be only 208%. The downside, as always with spreads, is -100%.

I've always thought gold ETF options seemed unusually cheap for the volatility. I guess people try to scalp call premiums to earn at least some yield while they wait. And there are no earnings surprises to deal with!

[Financial.Velociraptor]

Asset: GLD bear put spread at 231/233 expiring February 21
Price: $0.60 per share (order not yet filled, mid is $0.63)
Rationale:
I've never met a liberal who owned gold. It's only conservatives and libertarian types. The latter individuals just experienced a massive reduction in anxiety, and so my hypothesis is that they'll pivot from buying gold to buying stocks.

Will liberals take their place in the anxiety trade? No, they don't do that kind of stuff. So gold will fall - at least a little bit - between now and inauguration.

It doesn't hurt that CPI just came in at expectations, further reducing anxiety and making it harder to justify gold after its recent, massive run-up (GLD is up 25% YTD!).

I also think longer-term yields in the bond market could keep rising - by a little bit - as the new government's policy plans come into focus. Low inflation plus high real yields are negatives for gold. GLD is already down 7% since October 30, and I think the same catalysts have farther to run over the next 3 months.

This spread doesn't need a massive move to deliver a large return. Assuming I am executed at 60 cents, the upside is another $1.40, or 233%, if GLD falls to 231. 231 is less than 3% lower than the current price. If you wanted immediate execution and bid, say, 65 cents, the upside would be only 208%. The downside, as always with spreads, is -100%.

I've always thought gold ETF options seemed unusually cheap for the volatility. I guess people try to scalp call premiums to earn at least some yield while they wait. And there are no earnings surprises to deal with!

Interesting take.  They told us in Grad School (MBA) that the long term Beta of Gold is literally zero.   No economist or statistician can find something it reliably tracks.  I'm a liberal and I used to own a little gold and little more than that of silver.  Not because I believed in zombie apocalypse 'money' but because I considered it prudent diversification and inflation hedge.  Around 2015, I converted it to 60% bitcoin and 40% ethereum (held for the same reasons plus some others.)  Now that Ethereum has yield, I think precious metals are sort of a stupid inflation hedge. 

So, I can see you maybe having the true Conservatives right here.  In addition to bearish bets on GLD, you might look into short gun and ammunition manufacturers as they tanked last time Trump won and the "Hilly is gonna take our guns and put us in camps" crowd stopped stockpiling. 

The true libertarians hate fiat money and the Fed.  But they at least recognize that if you take away their (fed) independence and put the money supply and interest rates in the hands of a protectionist, inflation is going to soar.  True libertarians also recognize that tariffs are inflationary and just sort of plain stupid.   Take the alarmist marketing coming out of Stansberry Research the last 6 months.  They have been pounding the drum that whoever won, inflation was the dead certain result (and you need to pay us 5000/yr to pick stocks that can defend against that like only we can...)

[MustacheAndaHalf]

Shorting MicroStrategy froth.

At the end of 2023, MicroStrategy held $8.4 billion in Bitcoin, and had a market cap of $12 billion.  They had 0.66 exposure to Bitcoin, far below the CEO's goal of 1.5x Bitcoin exposure.  Since then, it's Bitcoin holdings have increased 3x to 4x, but its market valuation has increased 8x.  It now has closer to 0.3x Bitcoin exposure.  YTD, Bitcoin doubled while MicroStrategy stock went almost 6x.  The company's goal, and its holdings, trail far behind its performance.  Eventually that will collapse.

I'm using ETF $BITU to gain 2x Bitcoin exposure, to cancel out the exposure of my other holding.
I'm holding $MSTZ to have -2x MicroStrategy exposure, which in theory should mean -3x Bitcoin exposure.

BITU: $53.75/share (1 share gives $107.50 Bitcoin exposure), $53.75 invested
MSTZ: $0.72/share (50 shares gives $-108 Bitcoin exposure), $36 invested

Two flaws in this thesis:
(1) MicroStrategy is acting like a meme stock.  Buyers treat it like it has 3x exposure, the CEO's goal is 1.5x exposure, and the company's assets are closer to 0.3x exposure.  As long as buyers are in control, my arbitrage isn't enough.
(2) Leveraged ETFs suffer volatility losses.  Even though I have opposite ETFs, I could lose additional money from volatility.

[ChpBstrd]

@MustacheAndaHalf very intriguing play on the pets.com of the 20's!

Do you have a holding period in mind or a target/loss limit?

[MustacheAndaHalf]

@MustacheAndaHalf very intriguing play on the pets.com of the 20's!

Do you have a holding period in mind or a target/loss limit?

Probably a matter of weeks, since the ETFs I bought are so flawed.  Over the weekend of Oct 11 to Oct 14, MicroStrategy stock gained +19%, and the -2x ETF fell -35%.  After big moves like that, the arbitrage is lost - they no longer cancel each other out.  I really wish I could use call and put options, which don't suffer from daily repricing and volatility decay.  But put options on MicroStrategy contain a 40% time premium, and if that collapses, the first 40% of the drop earns nothing.

My guess is that I sell in Dec 2025 at a loss.  The worst case is a steep rise in MicroStrategy stock, destroying my -2x MicroStrategy ETF, followed by a sharp drop in Bitcoin, destroying my now larger 2x Bitcoin ETF.  It reminds me of March 2020, when I sold part of my portfolio to prepare for the crash - and bought things almost as bad.

[MustacheAndaHalf]

Better change that holding period from "weeks" to "hours", as I sold about a day after I bought.

I thought BITU would hedge Bitcoin gains while I waited for MicroStrategy to fall, using a -2x ETF $MSTZ.  Hours after I bought, Citron Research announced a short position on MicroStrategy while also saying they were long on crypto.  The meme buyers tried to fight it, but MicroStrategy stock sunk rapidly today.

My one day return was +7.5% for BITU and +41.8% for MSTZ, according to trades in my brokerage account.  I guess in this case, I acted on information available to others, but got there fast enough that short sellers hadn't announced yet.  Luck made a nice contribution here, but I'm still keeping the profits.

There may still be room for MicroStrategy to fall further.  It has a total of about $33 billion worth of Bitcoin, which is $117 billion short of what it needs for 1.5x leverage.  But it has been volatile enough today that I'd rather not press my luck.

[BicycleB]

Better change that holding period from "weeks" to "hours", as I sold about a day after I bought.

I thought BITU would hedge Bitcoin gains while I waited for MicroStrategy to fall, using a -2x ETF $MSTZ.  Hours after I bought, Citron Research announced a short position on MicroStrategy while also saying they were long on crypto.  The meme buyers tried to fight it, but MicroStrategy stock sunk rapidly today.

My one day return was +7.5% for BITU and +41.8% for MSTZ, according to trades in my brokerage account.  I guess in this case, I acted on information available to others, but got there fast enough that short sellers hadn't announced yet.  Luck made a nice contribution here, but I'm still keeping the profits.

There may still be room for MicroStrategy to fall further.  It has a total of about $33 billion worth of Bitcoin, which is $117 billion short of what it needs for 1.5x leverage.  But it has been volatile enough today that I'd rather not press my luck.

Well played, @MustacheAndaHalf!

[vand]

Asset: GLD bear put spread at 231/233 expiring February 21
Price: $0.60 per share (order not yet filled, mid is $0.63)
Rationale:
I've never met a liberal who owned gold. It's only conservatives and libertarian types. The latter individuals just experienced a massive reduction in anxiety, and so my hypothesis is that they'll pivot from buying gold to buying stocks.

Will liberals take their place in the anxiety trade? No, they don't do that kind of stuff. So gold will fall - at least a little bit - between now and inauguration.

It doesn't hurt that CPI just came in at expectations, further reducing anxiety and making it harder to justify gold after its recent, massive run-up (GLD is up 25% YTD!).

I also think longer-term yields in the bond market could keep rising - by a little bit - as the new government's policy plans come into focus. Low inflation plus high real yields are negatives for gold. GLD is already down 7% since October 30, and I think the same catalysts have farther to run over the next 3 months.

This spread doesn't need a massive move to deliver a large return. Assuming I am executed at 60 cents, the upside is another $1.40, or 233%, if GLD falls to 231. 231 is less than 3% lower than the current price. If you wanted immediate execution and bid, say, 65 cents, the upside would be only 208%. The downside, as always with spreads, is -100%.

I've always thought gold ETF options seemed unusually cheap for the volatility. I guess people try to scalp call premiums to earn at least some yield while they wait. And there are no earnings surprises to deal with!

Trying to sell short a market that is at all time highs during a secular bull market sounds might well be the worst idea you've ever put forward... not sure if that makes it intriguing, though.

Like they say, there are bold traders and there are old traders, but there are no old and bold traders.

[BicycleB]

Asset: GLD bear put spread at 231/233 expiring February 21
Price: $0.60 per share (order not yet filled, mid is $0.63)
Rationale:
I've never met a liberal who owned gold. It's only conservatives and libertarian types. The latter individuals just experienced a massive reduction in anxiety, and so my hypothesis is that they'll pivot from buying gold to buying stocks.

Will liberals take their place in the anxiety trade? No, they don't do that kind of stuff. So gold will fall - at least a little bit - between now and inauguration.

It doesn't hurt that CPI just came in at expectations, further reducing anxiety and making it harder to justify gold after its recent, massive run-up (GLD is up 25% YTD!).

I also think longer-term yields in the bond market could keep rising - by a little bit - as the new government's policy plans come into focus. Low inflation plus high real yields are negatives for gold. GLD is already down 7% since October 30, and I think the same catalysts have farther to run over the next 3 months.

This spread doesn't need a massive move to deliver a large return. Assuming I am executed at 60 cents, the upside is another $1.40, or 233%, if GLD falls to 231. 231 is less than 3% lower than the current price. If you wanted immediate execution and bid, say, 65 cents, the upside would be only 208%. The downside, as always with spreads, is -100%.

I've always thought gold ETF options seemed unusually cheap for the volatility. I guess people try to scalp call premiums to earn at least some yield while they wait. And there are no earnings surprises to deal with!

Trying to sell short a market that is at all time highs during a secular bull market sounds might well be the worst idea you've ever put forward... not sure if that makes it intriguing, though.

Like they say, there are bold traders and there are old traders, but there are no old and bold traders.

Have been following this for education. With GLD at 250 (249.84 at close today) it's not off to a good start, but the majority of the period is in future, so maybe it could turn around.

Its original logic seemed US-based, though, while gold is an international market. Maybe other factors predominate, not US CPI?

PS. ChpBstrd's ideas are usually pretty good, and always informative. One of my favorite posters - I highly value his contributions to these discussions.

[ChpBstrd]

Asset: GLD bear put spread at 231/233 expiring February 21
Price: $0.60 per share (order not yet filled, mid is $0.63)
Rationale:
I've never met a liberal who owned gold. It's only conservatives and libertarian types. The latter individuals just experienced a massive reduction in anxiety, and so my hypothesis is that they'll pivot from buying gold to buying stocks.

Will liberals take their place in the anxiety trade? No, they don't do that kind of stuff. So gold will fall - at least a little bit - between now and inauguration.

It doesn't hurt that CPI just came in at expectations, further reducing anxiety and making it harder to justify gold after its recent, massive run-up (GLD is up 25% YTD!).

I also think longer-term yields in the bond market could keep rising - by a little bit - as the new government's policy plans come into focus. Low inflation plus high real yields are negatives for gold. GLD is already down 7% since October 30, and I think the same catalysts have farther to run over the next 3 months.

This spread doesn't need a massive move to deliver a large return. Assuming I am executed at 60 cents, the upside is another $1.40, or 233%, if GLD falls to 231. 231 is less than 3% lower than the current price. If you wanted immediate execution and bid, say, 65 cents, the upside would be only 208%. The downside, as always with spreads, is -100%.

I've always thought gold ETF options seemed unusually cheap for the volatility. I guess people try to scalp call premiums to earn at least some yield while they wait. And there are no earnings surprises to deal with!

Trying to sell short a market that is at all time highs during a secular bull market sounds might well be the worst idea you've ever put forward... not sure if that makes it intriguing, though.

Like they say, there are bold traders and there are old traders, but there are no old and bold traders.

Have been following this for education. With GLD at 250 (249.84 at close today) it's not off to a good start, but the majority of the period is in future, so maybe it could turn around.

Its original logic seemed US-based, though, while gold is an international market. Maybe other factors predominate, not US CPI?

PS. ChpBstrd's ideas are usually pretty good, and always informative. One of my favorite posters - I highly value his contributions to these discussions.

It's definitely not going well here in week 1.5 of 14.5!

Perhaps the error was that US-centric rationale.
Ex-US investors may start buying with both fists if they expect trade wars will increase inflation or default risks in their countries. And there may be more such investors than there are Republicans in the U.S. selling GLD and IAU.

Alternately, it could just be the bull market in all risk assets, as alluded to above. Financial conditions are loose and getting looser, enabling trades that would not be available in tighter times.

[ChpBstrd]

Asset: UMAC Unusual Machines Inc.
Price: $18.73
Rationale:
The U.S. military and other militaries are ready to start applying the lessons learned in Ukraine, and that means establishing a domestic base for drone manufacturing. And no, the Trump administration will not be importing from Ukraine. While big defense contractors like LMT, BA, and GD focus on the big drones, it remains to be seen who will produce the little FPV drones that have been so effective in Ukraine. An obscure outfit called RedCat (RCAT) was recently awarded several million in contracts for various drones, sending their penny stock up over 1,200% YTD. They are now worth $888M, with only $18.8M in ttm revenue.

However, UMAC is the more appealing drone microcap speculation because:

• UMAC only has a market cap of $155M (as of Friday) versus $3.56M in revenue. Thus its price/revenue ratio is slightly lower (43.5x) than RCAT's (47.23) although these could change on a dime.
• UMAC's stock is "only" up 368% since going public in February versus RCAT's 1,237% increase in 2024.
• Donald Trump Jr. was recently appointed to UMAC's advisory board.

The signal that sent UMAC up almost 400% in the past few days was the news that Trump Jr. was investing in and joining the company. Obviously, this is all about corrupt politics. Don Jr. will steer government contracts toward UMAC in the one-party environment of the next few years, in exchange for equity appreciation and a symbolic salary. This is actually a bigger win than RCAT's recent contracts. They literally have a lobbyist onboard who is a crony and nepo-baby within the Trump administration, in a governance environment unencumbered by corruption investigations, trials, impeachment risks, or even much residual media to investigate what's going on. And Don Jr. might even be the 2028 nominee for president. All the incentives are aligned for UMAC to start getting massive contracts steered to them, starting in 2025.

UMAC is less than one fifth of RCAT's current market cap, but I think they've worked the political connections to eventually outflank their competitor in a near future with more cronyism and corruption than we're used to in the United States.

[chasesfish]

Well, this $UMAC has been a volatile stock.   Interesting to take a flyer on.

[chasesfish]

My latest idea / bet is a quasi banking play:  Rocket Mortgage - $RKT

I think long term rates are going lower, at least in the short term.  I think we're going to see a few year window where inflation slows to deflates, primarily driven by lower GDP due to tarriffs.   Taxing the masses is a straightforward solution to inflation.   They are also the economic equivalent of gouging one of your own eyes out as long as you can take two from your enemy.

Americans also consistently spend above their means and need to tap their homes as piggybanks.   This is the player that wins on a refinance.   The stock chart also moves like a juiced up version of a long term bond fund.   

Buy in the $14s, sell in the low $20s and move on.

[reeshau]

My latest idea / bet is a quasi banking play:  Rocket Mortgage - $RKT

I think long term rates are going lower, at least in the short term.  I think we're going to see a few year window where inflation slows to deflates, primarily driven by lower GDP due to tarriffs.   Taxing the masses is a straightforward solution to inflation.   They are also the economic equivalent of gouging one of your own eyes out as long as you can take two from your enemy.

Americans also consistently spend above their means and need to tap their homes as piggybanks.   This is the player that wins on a refinance.   The stock chart also moves like a juiced up version of a long term bond fund.   

Buy in the $14s, sell in the low $20s and move on.

If the trade war is strong enough to cause a recession, anything real estate is going to get ugly.  And those who have levered into a mortgage recovery might not survive.  UWMC is weaker, and these businesses are the kind where you only have to be faster than the other guy, not the bear.  (Ironically, both are headquartered in the Detroit area, not far from each other)

If they survive, though, they should turn out well.

[chasesfish]

@reeshau I could very well be wrong about this one, but I think there's a good number of mortgages that'll be refinanced if we see 5s on the 30yr mortgage rate.

As for real estate transactions?  Who knows.  Incomes need to keep coming up while housing prices stay flat to decline.

[MustacheAndaHalf]

I think long term rates are going lower, at least in the short term.  I think we're going to see a few year window where inflation slows to deflates, primarily driven by lower GDP due to tarriffs.

Couple data points related to this.  The FOMC cut rates by 0.50% on Sept 18 and again on Nov 7.

On Sept 18th, 10y and 30y treasury yields both went up - not down.  The 10 year yield was 3.65% before the Fed rate cut, and has climbed since then to its current yield of 4.23%.  The 30y climbed from 3.96% to 4.40% now.  Long term rates have moved in the opposite direction to Fed rate cuts.
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024

When you say "tariffs", do you mean import tariffs?  If Americans pay more for imported goods, and have less money to spend on goods made in the U.S., that could indirectly hurt GDP.  But if American companies respond to import tariffs by making more goods in the U.S., that could increase GDP.  I think there's some forces moving in both directions, here.

But if you mean a trade war, where other countries impose tariffs on U.S. exports, I agree that hits GDP.  Other countries will buy less of U.S. goods when they become more expensive, which will lower demand, and lower U.S. GDP.

[chasesfish]

I'm aware of the difference between short and long term rates.  Yes, I think long term rates break through their September lows again.  The 5yr/10yr treasury are most closely tied to mortgage rates.

I expect a trade war, it will be an eye gouging contest for a while.

[ChpBstrd]

I kinda like the idea from a different angle - pent up demand. Existing home transactions are occurring at levels we last saw in 1992. There were a half-million more sales per month in late 2008, amid the bank failures, layoffs, and financial panic of the GFC! The housing market is frozen, but will have to unfreeze eventually.

Even if the worries about falling house prices and recession come true, there are millions of people waiting in the wings who would pounce on a combination of lower prices and lower rates, to move, to upgrade, or to buy their first home. A rising unemployment rate could force more units onto the market, benefiting RKT. It could play out like the 2001 recession, after which we reached the peak homeownership rates of the mid 2000's.

Tariffs will create deadweight losses that reduce demand for imported stuff, like cars or manufactured objects from WalMart and Amazon. Consumers will be forced to buy fewer things or less-nice things with their money. In response, we could see consumers diverting more of their money into housing, the way they did in 2020 and 2021 when scarcity issues prevented them from spending on stuff and the pandemic reduced spending on experiences like vacations and restaurants.

Consumers loaded up on stuff between 2021 and 2024 after the shortages were resolved, and consumption remains well above pre-pandemic trends. So maybe a sudden hike in the price of "stuff" makes housing seem more attractive as an alternative? Maybe a sudden hike in the price of stuff breaks some homeowners at the margin and forces them to sell? Maybe increased layoffs lead to relocations? Remember, RKT profits from transactions, not necessarily people or markets doing well.

Lots of macro-pessimistic reasons to think RKT might do very well as tariffs, recession, and falling house prices hit. I think it's a 2-year play one could enter by selling a January 3 put at the 14 strike for about $0.92 today. If executed, that would bring your cost down to 13.08 (a 4.25% discount in less than a month vs. current price of 13.66). If not, you just earned 7% in 30 days.

[MustacheAndaHalf]

I'm aware of the difference between short and long term rates.  Yes, I think long term rates break through their September lows again.  The 5yr/10yr treasury are most closely tied to mortgage rates.

Follow-up that favors your view: Morningstar's research agrees with your prediction.

"In the longer end of the curve, interest rates have bounced higher since the Fed began to ease monetary policy. Yet, our economics group expects this bounce will be short-lived and projects the yield on the US Treasury 10 year will fall back to 3.60% next year."
https://www.morningstar.com/markets/us-stock-market-outlook-tariffs-are-2025s-wildcard

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65
Rationale:
If you wish you'd bought Facebook a decade ago, then you should invest in Reddit today. At a $30.7B market cap RDDT is 1/52nd the value of Meta, and yet has a faster growing user base. In addition, RDDT has a vast text-based data history of humans helping humans solve problems that has yet to be fully monetized for ad tracking or AI training.

As Facebook becomes a wall of ads populated only by the elderly, as the daytime television show on your phone TikTok faces the risk of being banned from the U.S, and as Xitter becomes the personal propaganda mouthpiece for the Elon Musk Cult, users are flocking toward the cleaner and user-moderated chat rooms of Reddit. Of course, we know how this ends. Reddit will eventually be covered with targeted ads and rented to train AI bots. They will grab market share with a user-friendly product and then grab profits and massive share appreciation by extracting cash just like FB did. It's an established pathway to tech wealth called enshittification, and RDDT is in the earliest stages.

I remember the dot-com bubble, so I am cautious. Yet I'd like to own RDDT long-term, and I think this bull market is likely to run until Trump does something to end it post-inauguration. Like tariffs!

However, RDDT has had a massive run lately. It's up 161% in the past six months. Not bad for a money-losing company. That massive runup has caused the implied volatility of options to spike higher. This means for the 170 strike put options expiring January 17, 2025, I can earn (14.65/170=) 8.62%. Not a bad return for 35 days.

And if the bull run ends and I'm assigned RDDT, I'll either wheel it (sell a call), or hold it long term through its foreseeable enshittification business cycle.

I sold one put today, tying up just under $17k that was previously in QQQ unhedged.

[BicycleB]

My latest idea / bet is a quasi banking play:  Rocket Mortgage - $RKT

I think long term rates are going lower, at least in the short term.  I think we're going to see a few year window where inflation slows to deflates, primarily driven by lower GDP due to tarriffs.   Taxing the masses is a straightforward solution to inflation.   They are also the economic equivalent of gouging one of your own eyes out as long as you can take two from your enemy.

Americans also consistently spend above their means and need to tap their homes as piggybanks.   This is the player that wins on a refinance.   The stock chart also moves like a juiced up version of a long term bond fund.   

Buy in the $14s, sell in the low $20s and move on.

The stock market seems to have absorbed the news that the Fed plans fewer rate cuts in 2025 than it once did. However RKT is now selling for $11.35.  Does that mean it's a better deal than before?

[chasesfish]

My latest idea / bet is a quasi banking play:  Rocket Mortgage - $RKT

I think long term rates are going lower, at least in the short term.  I think we're going to see a few year window where inflation slows to deflates, primarily driven by lower GDP due to tarriffs.   Taxing the masses is a straightforward solution to inflation.   They are also the economic equivalent of gouging one of your own eyes out as long as you can take two from your enemy.

Americans also consistently spend above their means and need to tap their homes as piggybanks.   This is the player that wins on a refinance.   The stock chart also moves like a juiced up version of a long term bond fund.   

Buy in the $14s, sell in the low $20s and move on.

The stock market seems to have absorbed the news that the Fed plans fewer rate cuts in 2025 than it once did. However RKT is now selling for $11.35.  Does that mean it's a better deal than before?

I'm taking it on the chin on this one, rates continue to go up.   Haven't thrown more money at it yet.

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen. 

[BicycleB]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen.

Sounds like an excellent start!

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen.

Sounds like an excellent start!

RDDT has fallen about six bucks per share since I sold my puts. I'm in-the-money now, and could be assigned if I hold. However, I'm still UP about $2.14 per share because the put has lost so much value. The put is now $12.50. This is a great illustration of how time decay can overwhelm being wrong about the price direction.

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen.

Sounds like an excellent start!

RDDT has fallen about six bucks per share since I sold my puts. I'm in-the-money now, and could be assigned if I hold. However, I'm still UP about $2.14 per share because the put has lost so much value. The put is now $12.50. This is a great illustration of how time decay can overwhelm being wrong about the price direction.

It's 3 days before expiration and RDDT is down to $165.88. The value of the put is down to $6.77. I'm up $759, which is 4.46% of the $17k allocated to this investment. Obviously this speculation is performing a lot better than the indices across the last few weeks of down markets.

RDDT has bounced around in the past month and a half, and is now down about 4.2% since 12/13 when I hatched this idea. Not sure if I'll accept assignment or roll for another month. Depends on how much IV they offer. Right now, I could roll to a 1/24/2025 expiration for another $240. Another 1.4% return in a week on $17k at risk is attractive.

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen.

Sounds like an excellent start!

RDDT has fallen about six bucks per share since I sold my puts. I'm in-the-money now, and could be assigned if I hold. However, I'm still UP about $2.14 per share because the put has lost so much value. The put is now $12.50. This is a great illustration of how time decay can overwhelm being wrong about the price direction.

It's 3 days before expiration and RDDT is down to $165.88. The value of the put is down to $6.77. I'm up $759, which is 4.46% of the $17k allocated to this investment. Obviously this speculation is performing a lot better than the indices across the last few weeks of down markets.

RDDT has bounced around in the past month and a half, and is now down about 4.2% since 12/13 when I hatched this idea. Not sure if I'll accept assignment or roll for another month. Depends on how much IV they offer. Right now, I could roll to a 1/24/2025 expiration for another $240. Another 1.4% return in a week on $17k at risk is attractive.

I exited this position on 1/14 at $7.50 for a $713 profit in a non-taxable account. RDDT had already fallen to $165-166 at the time, and I didn't want the high-delta risk exposure during the release of the CPI report. So I figured why not take the win?

Had I held, the short put would have expired out of the money today, and I'd have made an extra $750 over 3 days. 'Tis the price of cowardice. In hindsight I should have rolled forward to greedily collect more premium, mitigating gamma squeeze while holding my position. Not that I'm complaining about making $713 by clicking a mouse! This is definitely a first-world millionaire-level problem.

I just sold another RDDT 170 put expiring Jan 31 for $625. That will be a 3.68% ROI in 2 weeks against $17k cash set aside to buy the shares if assigned. The math for doing this 26x per year would be quite a favorable return. Plus, a TikTok ban is looking more likely, consolidating the social media industry into something like the trusts of the gilded age. This remains my "most intriguing investment idea of the day."

[ChpBstrd]

ChpBstrd's Intriguing Year In Review:

See snip below for performance (as of today if there was no expiration date)...

Conclusions:
Most of my "intriguing" picks underperformed the markets in a banner year 2024. Overall, my picks gravitated toward dividend payers (HR, FLG-PA, EDV, MPW, PLDGP), options plays (VIX, QQQ collar, DJT, TLT, GLD) and the occasional tech stock (INFA, NVDA covered call).

Obviously, the indices are what you primarily invest in, and "intriguing" ideas are speculations/gambles with play money. So the things I jot down as "intriguing" are generally different than index funds. They are alternatives to or hedges to index funds.

So my picks occurred in the context of a commitment I kept to stay invested in index funds this year, and to use a collar strategy to hedge. Overall, I'm doing well with the majority of assets in QQQ and IWM collars that have several percent left to run up before they hit the strike prices of my short calls. I have 5-11 months of forward protection, during which my short calls will bleed theta at a faster pace. This thread is a reminder to stay this course.

When my intriguing ideas go bad, I like to look at the rationale to learn more about what NOT to do and how NOT to think.

My main stock duds like INFA, MPW, short DJT, and UMAC were things I became aware of through the news. INFA was rumored to be an acquisition target, MPW was expected to survive by the skin of its teeth, DJT defied all valuation logic, and UMAC's main valuation case seemed to be that Don Jr. was appointed to draw a salary. Going forward I am going to try to avoid news-driven items. If it's in the news, it's priced in and the opposite is just as likely to happen anyway.

Options losses on VIX, DJT, and GLD were driven by mental narratives in which markets were thought to be paying too much or too little for something. Going forward, I'm going to try to use options for hedging or income, rather than betting on the realization of a storyline.

Also, I'm going to focus on identifying opportunities to hit more singles more consistently, rather than swinging for the fences (e.g. VIX spreads). The strategy of selling puts on big tech names (e.g. RDDT) is obviously not something one would want to go all-in on at the same time, because of the risks of a correction. But there's a good chance one could amass profits from hitting singles to offset the eventual corrections - of which you'd usually only suffer the first couple of weeks before the next reset.

Intriguing ideas are going to become more important to me, because I've decided not to hold so many odds lots. For example, if I have 133 shares of IWM, 1 put, and -1 call, then 33 of my shares are unprotected*. So this year I'm looking for ideas that are less likely to tank than the index fund shares themselves. For me, "intriguing" might be a relatively low-yielding bond with short duration, or a covered call play.

*Yes, I could select different options deltas/gammas to do the same things as buying 1.3 puts and selling 1.3 calls would do, if that was possible. E.g. I could just select a combined delta 30% higher. However this would create a narrower path to maximum profits toward expiration time, because the strike prices for the options in my collar would have to be tighter (closer to the money). E.g. instead of allowing for 10%up/10%down I might have to go 7%up/7%down.  I don't want to go that route because I'd like to hedge for longer terms, capture the majority of gains, only avoid true SORR events, and set my strikes based on long-term trends. The math of time decay just works better the longer you set your hedges for. Then there's the strategic value, because bear markets can last years.

[reeshau]

Kudos on your public accountability, @ChpBstrd !

[BicycleB]

Kudos on your public accountability, @ChpBstrd !

+1

[ChpBstrd]

Asset: IBIT collar
Price:
          100 shares at $-58.95/share
          1 put option, 1/15/27, 58 strike: $-16.38/share
          -1 call option, 1/15/27, 80 strike: $+16.43/share
          net: $-58.90/share
Rationale:
I might throw up as I contemplate how ridiculous this is, but I'm thinking about buying the greater-fool scam product bitcoin. The administration has captured the votes of the 14% of the population and 24% of millennials who owned crypto in 2024, and is expected to deliver deregulation, rules to let banks facilitate more crypto investment and trade, and Republican crypto proponents have even talked about buying 200k bitcoin per year as a "strategic reserve." That would be 5% of the total float per year. The government would be running up the price on itself, buying at any price essentially, with very deep pockets in a very shallow market.

This is a horrible idea for the country - borrowing from increasingly skittish and shallow bond markets to finance the pumping of crypto at a time when the country's debt-GDP ratio is 123% - but it is what we're doing, so "don't fight the Fed". If a pump and dump has been announced by national leaders in charge of multi-trillion dollar budgets, we should pay attention. I should have paid attention on November 6th!

Politically, Republicans would do well to wait until the midterms to enrich their crypto supporters. I.e. "If the D's win, they'll block our attempts to send your crypto to the moon!" would flip a lot of votes and buy a lot of social media influencers in this crazy age. But eventually I think they have to deliver on some form of the "strategic bitcoin reserve" in 3-4 years (Jerome Powell's term ends in May 2026), and change the banking system to increase banks' exposure to crypto.

Of course, this is exactly the kind of news-driven, narrative-driven idea that has failed me in the past, and here I am suggesting it. This thought made me look at options strategies.

The interesting thing about IBIT is that its options market has gotten big enough that bid-ask spreads are generally in the range of a nickel, 2 year LEAPS are available, and its high volatility means you can make a double-digit return selling covered calls. The downside is that a stock correction could pull down bitcoin with it, as has happened in the past, or the ruling party stops promoting crypto in a credible way, or anything could happen to drive the price down. But you can now hedge IBIT, and with the collar I suggested the worst you could do over 2 whole years is in the range of a 1.6% loss. Your maximum upside is 34.68%, roughly comparable to 17.3% per year.

Regardless of where you think bitcoin is going, that's a risk profile anyone should be able to appreciate. In terms of pure gambling odds, that range of outcomes would be worth pursuing unless there was an overwhelming probability of loss. The government as pump-and-dump actor narrative, plus years of sustained speculative interest without that factor, particularly among young investors, make me feel better about those odds.

Maybe in the past one did not invest in bitcoin in pursuit of double-digit returns, but now it is possible to do so with almost no risk of loss. So no need to swing for the fences and risk getting burned.

[MustacheAndaHalf]

When Trump won the Nov 6 Presidential election, Bitcoin and Coinbase spiked up about a third.  If those promises don't come to fruition, the market could take back that 1/3rd gain.  And as both of us know, the market is overvalued, and if it crashes, it will hurt Bitcoin's price far more.

But... when I looked at registration filings for Bitcoin ETFs a year ago, I noticed one name kept coming up as the custodian: Coinbase.  If the government needs to invest billions into Bitcoin, they need an exchange they trust to both keep their assets, and execute trades.  I predict the government would pick Coinbase for most, maybe all, of its custody and trading.

Bitcoin and Coinbase spiked together, which ignores any benefits specific to Coinbase but not Bitcoin.  If the U.S. government creates a Bitcoin reserve fund, I think Coinbase's $293.56/share stock price will rise faster than $IBIT's $59.76/share stock price.  But that assumes no other events happen before then, which seems unlikely.

[ChpBstrd]

When Trump won the Nov 6 Presidential election, Bitcoin and Coinbase spiked up about a third.  If those promises don't come to fruition, the market could take back that 1/3rd gain.  And as both of us know, the market is overvalued, and if it crashes, it will hurt Bitcoin's price far more.

But... when I looked at registration filings for Bitcoin ETFs a year ago, I noticed one name kept coming up as the custodian: Coinbase.  If the government needs to invest billions into Bitcoin, they need an exchange they trust to both keep their assets, and execute trades.  I predict the government would pick Coinbase for most, maybe all, of its custody and trading.

Bitcoin and Coinbase spiked together, which ignores any benefits specific to Coinbase but not Bitcoin.  If the U.S. government creates a Bitcoin reserve fund, I think Coinbase's $293.56/share stock price will rise faster than $IBIT's $59.76/share stock price.  But that assumes no other events happen before then, which seems unlikely.

COIN also offers an intriguing low-risk options trade, due to crazy-high investor optimism right now. I'd suggest setting it up as follows:

Asset: COIN collar
Price:
          100 COIN shares at -305.50/share
          -1 call at 350 strike, 12/19/25 expiration, for +70.08
          +1 put at 300 strike, 12/19/25 expiration, for -70.90
                    Net: 306.32/share
Rationale:
This trade has ((350-306.32)/306.32 =) 14.26% upside potential, and a maximum loss potential of ((300-306.32)/306.32 =) 2%. This is a very good risk/reward balance for an <11 month investment or bet. It's even a good place to hide in the event of a worst-case scenario, because of the firmly limited downside. As noted, COIN is sorta the last major exchange standing after the FTX and Binance debacles, and so the government will have to try to make it part of the machinery for their crypto-pumping goals. That means COIN could have significant pricing power and regulatory immunity. No matter what bad things might happen to COIN, one can tolerate a 2% maximum downside.

I find the IBIT collar to be the more attractive speculation, with higher upside and lower downside, so I won't be counting this among my recommendations. It's hard to imagine a scenario where IBIT does poorly and COIN doesn't also do poorly.

[ChpBstrd]

Asset: sell a RDDT short put at 170 strike expiring 1/17/2025
Price: $-14.65

I actually sold this intriguing investment idea for 14.65 on 12/13. Since then RDDT has continued to rise and the put has lost 36% of its value (read: I gained $534, against $17k cash set aside, +3.14% in two weeks). Meanwhile, the index fund I sold to get into this position, QQQ, has fallen.

Sounds like an excellent start!

RDDT has fallen about six bucks per share since I sold my puts. I'm in-the-money now, and could be assigned if I hold. However, I'm still UP about $2.14 per share because the put has lost so much value. The put is now $12.50. This is a great illustration of how time decay can overwhelm being wrong about the price direction.

It's 3 days before expiration and RDDT is down to $165.88. The value of the put is down to $6.77. I'm up $759, which is 4.46% of the $17k allocated to this investment. Obviously this speculation is performing a lot better than the indices across the last few weeks of down markets.

RDDT has bounced around in the past month and a half, and is now down about 4.2% since 12/13 when I hatched this idea. Not sure if I'll accept assignment or roll for another month. Depends on how much IV they offer. Right now, I could roll to a 1/24/2025 expiration for another $240. Another 1.4% return in a week on $17k at risk is attractive.

I exited this position on 1/14 at $7.50 for a $713 profit in a non-taxable account. RDDT had already fallen to $165-166 at the time, and I didn't want the high-delta risk exposure during the release of the CPI report. So I figured why not take the win?

Had I held, the short put would have expired out of the money today, and I'd have made an extra $750 over 3 days. 'Tis the price of cowardice. In hindsight I should have rolled forward to greedily collect more premium, mitigating gamma squeeze while holding my position. Not that I'm complaining about making $713 by clicking a mouse! This is definitely a first-world millionaire-level problem.

I just sold another RDDT 170 put expiring Jan 31 for $625. That will be a 3.68% ROI in 2 weeks against $17k cash set aside to buy the shares if assigned. The math for doing this 26x per year would be quite a favorable return. Plus, a TikTok ban is looking more likely, consolidating the social media industry into something like the trusts of the gilded age. This remains my "most intriguing investment idea of the day."

I rolled out my RDDT short puts again yesterday, because there was minimal potential for decay remaining.

I rolled my one 180 short put from 1/31 to 2/14 expiration dates for a net $704.
I rolled my two 170 short puts from 1/31 to 2/14 expiration dates for a net $869.

So in exchange for tying up ((180*100)+(170*200)=) $52,000 for two weeks, I am being paid $1,573. That's a 3% return averaged out over the next 15 days, which would be about 73% per year, not compounded.

Since starting this trade on December 12, I've received $4,208, though I was initially on the hook for only 200 shares instead of 300.

But, alas, RDDT has risen about 18% since I started selling puts on it. Aside from the regret of not just buying the shares, I face the problem that as the share price rises farther and farther above my strikes, I am unable to roll up and out to higher strike prices without moving more cash into this investment from other investments. For example, to sell one RDDT put at 180, I need to set aside $18k in cash to avoid margin costs. But if I wanted to increase my strike price to 200, I'd need to set aside $20k. So I must invest another $2k to keep up.

So why not just keep selling puts at 170 and 180? Because the premiums I can receive will keep getting smaller and smaller if the price continues to rise. Perhaps I'm getting greedy with receiving premiums; the original intent was to get assigned at 170 or 180 and have a cost basis per share somewhere in the 150s or 160s. For now, I'll continue selling puts and waiting for the pullback that gets me assigned.

It is, after all, a tech company selling for 31x sales and 18x book value in a frothy, bubbly economy. The ownership experience could be more nerve-wracking than selling puts at comfortable discounts.

[vand]

ChpBstrd's Intriguing Year In Review:

See snip below for performance (as of today if there was no expiration date)...

Conclusions:
Most of my "intriguing" picks underperformed the markets in a banner year 2024. Overall, my picks gravitated toward dividend payers (HR, FLG-PA, EDV, MPW, PLDGP), options plays (VIX, QQQ collar, DJT, TLT, GLD) and the occasional tech stock (INFA, NVDA covered call).

Obviously, the indices are what you primarily invest in, and "intriguing" ideas are speculations/gambles with play money. So the things I jot down as "intriguing" are generally different than index funds. They are alternatives to or hedges to index funds.

So my picks occurred in the context of a commitment I kept to stay invested in index funds this year, and to use a collar strategy to hedge. Overall, I'm doing well with the majority of assets in QQQ and IWM collars that have several percent left to run up before they hit the strike prices of my short calls. I have 5-11 months of forward protection, during which my short calls will bleed theta at a faster pace. This thread is a reminder to stay this course.

When my intriguing ideas go bad, I like to look at the rationale to learn more about what NOT to do and how NOT to think.

My main stock duds like INFA, MPW, short DJT, and UMAC were things I became aware of through the news. INFA was rumored to be an acquisition target, MPW was expected to survive by the skin of its teeth, DJT defied all valuation logic, and UMAC's main valuation case seemed to be that Don Jr. was appointed to draw a salary. Going forward I am going to try to avoid news-driven items. If it's in the news, it's priced in and the opposite is just as likely to happen anyway.

Options losses on VIX, DJT, and GLD were driven by mental narratives in which markets were thought to be paying too much or too little for something. Going forward, I'm going to try to use options for hedging or income, rather than betting on the realization of a storyline.

Also, I'm going to focus on identifying opportunities to hit more singles more consistently, rather than swinging for the fences (e.g. VIX spreads). The strategy of selling puts on big tech names (e.g. RDDT) is obviously not something one would want to go all-in on at the same time, because of the risks of a correction. But there's a good chance one could amass profits from hitting singles to offset the eventual corrections - of which you'd usually only suffer the first couple of weeks before the next reset.

Intriguing ideas are going to become more important to me, because I've decided not to hold so many odds lots. For example, if I have 133 shares of IWM, 1 put, and -1 call, then 33 of my shares are unprotected*. So this year I'm looking for ideas that are less likely to tank than the index fund shares themselves. For me, "intriguing" might be a relatively low-yielding bond with short duration, or a covered call play.

*Yes, I could select different options deltas/gammas to do the same things as buying 1.3 puts and selling 1.3 calls would do, if that was possible. E.g. I could just select a combined delta 30% higher. However this would create a narrower path to maximum profits toward expiration time, because the strike prices for the options in my collar would have to be tighter (closer to the money). E.g. instead of allowing for 10%up/10%down I might have to go 7%up/7%down.  I don't want to go that route because I'd like to hedge for longer terms, capture the majority of gains, only avoid true SORR events, and set my strikes based on long-term trends. The math of time decay just works better the longer you set your hedges for. Then there's the strategic value, because bear markets can last years.

Keep at it - I put two kids through college trading options.

Unfortunately they were my Broker's kids.

[ChpBstrd]

Asset: six-month PLTR collar with 9% upside and <1% downside
Price:
          +100 shares PLTR at $-100.72/share
          -1 call expiring 8/15/25 at 110 strike at $+16.77/share
          +1 put expring 8/15/25 at 100 strike at $-16.63
          Net: $-100.86
Rationale:
Palantir is the ultimate meme-stock big-dumb-tech company, with a PE ratio of 536. Yes, five hundred and thirty six. It is up 27% in the past month, and up 145% since November 5. According to the hype, PLTR's artificial intelligence and data analytics services will soon be contracted to fulfill the roles of laid-off government employees and save money. The company is very politically connected.

With this proposed six-month trade, it doesn't make or break us if that vision happens or not. Market sentiment is so lopsided to the upside that nearly risk-free money can be made trading collars. Specifically, calls are much more expensive than puts, and we can arbitrage this difference at minimal risk.

The strike prices I've chosen represent a total, locked-in downside risk of just ((100-100.86)/100.86 =) -0.85%. The upside, meanwhile, is ((110-100.86)/100.86 =) +9.06%. That full upside will be attained if PLTR gains at least ((110/100.72)-1 =) +9.21%. The position doesn't start losing money until and unless PLTR is below 100.86 on August 15. Actually it just far exceeded that cost basis while I was writing this.

If you feel the market is frothy, overpriced, and due for a correction, but you'd also hate to miss out on juicy returns during the final burn-up, this trade is worth a look. This bet with less than -1% downside and +9% of upside in just six months seems more appealing than hiding out in bonds (which can decline a lot more than 0.85% as we learned in 2022). If we have further froth and gains ahead, you get a very respectable +9.06% six-month return. If the market's music stops, you only lose -0.85%. I would estimate that if you accepted these odds in 1,000 randomly selected market scenarios, you'd come out way ahead on average. 

[ChpBstrd]

Asset: Citigroup Capital Series XIII trust preferred securities (C-N)
Price: $28.10
Rationale:
Summarized in this article: https://www.barrons.com/articles/citi-preferred-stock-dividend-7a338456?siteid=yhoof2

This variable-rate security is treated like a hot potato because it is callable and trading above par. The fear that this security could be called away at $25 is probably less founded amid today's conditions than ever before. If they haven't called the shares in the last 10+ years, C is not about to reduce their Tier 1 capital now to pay off something that has tax benefits to them. According to Barron's, Citigroup's CFO said in 2017 that they have no incentive to redeem C-N. If that was true in 2017, it's also true today. It's definitely not getting redeemed at a time when banks are getting squeezed for capital, recession is ahead, and pressure from a rising SOFR is expected to abate.

The lack of tax advantages for these dividends make it perfect for my Roth or traditional IRA. The shares are less valuable and the dividends are higher because of the non-qualified nature of the dividends. But I as a small individual investor have a workaround that the big price-setters don't have - just put it in an IRA. Earning 6.37% above SOFR from a security based on Citigroup's debt is worth a look. I picked up 300 this morning.

The price of C-N / C/PRN is now up to $30.66 and the trailing yield is 9.93%. I'm getting a little bit jittery about the risk of getting called at this price, because there's a $5.66 capital loss at stake (an -18.5% loss if called). If would take over 8 quarters of dividends to make up for the capital loss of having one's shares cashed in at $25. Back when it was only a $3 capital loss at stake, the risk was a bit easier to swallow.

I've noticed some other financial institutions have called similar SOFR+premium preferreds in the past several months, such as CFG-D and ZIONO (look them up on quantumonline.com) and these institutions have nowhere near the liquidity as Citigroup.

C-N dividend forecast:
SOFR = 4.35%
+0.26161%
+6.37%
-------------------
=10.98% at par price of $25, or $2.745
2.745/30.66 = 8.95% current yield

Alternative investments that are not waaay above their callable prices include GS-K which is trading right at about par and yields about 6.37% or BAC-B at 5.98%. 

I think I'll take the win and sell rather than chasing an extra 2.5% yield at the risk of an 18.5% loss. Just thought I'd let y'all know C-N worked out well for me! So well in fact, that I had to exit.

Other contributing decision factors:

• NFCI continues to plummet, indicating easy money and ample bank reserves
• bank deregulation may be incoming, which could persuade banks to call away their high-yielding preferreds at the expense of tier 1 capital
• The spread between treasury yield and BBB-rated debt fell from 1.6% in March 2023 to 1.04% today. So it's even cheaper for Citi to swap these preferreds for bonds. A quick look at the bond market for Citigroup bonds shows they are paying about 5.6% to borrow for 15 years. Not bad compared to nearly 11% on C-N, which matures in 15 years.

[BicycleB]

Great update, @ChpBstrd, and congrats!

[ChpBstrd]

My RDDT play took a sharp punch to the nose, with the stock falling from about $216.50 to about $178 at the bottom, an intra-day drop of over 17%! Shares then recovered to this morning's price of $202.

The cause: user growth was only 101.7 million daily active users IN THE FOURTH QUARTER ALONE as opposed to analyst estimates of 103 million. Otherwise, the company beat on sales and earnings (36 cents vs. 25 cents estimated). Sales grew 71% yoy.

My positions include -1 put at the 190 strike, expiring tomorrow, and a covered call with 200 shares and -2 calls at the 242.5 strike. I also own odds lots of 70 shares across several accounts.

The short put is still out-of-the-money and priced about where I originally sold it. I probably will wait until tomorrow to roll, because there is so much IV about to evaporate off this put in the next 36 hours. The covered calls are down only 5.6% because the short calls took the brunt of the price move and are now worth less than a burger. I may roll this short call down today, to grab a couple hundred dollars in gains, before rolling up and out tomorrow.

I view the pullback as a gross overreaction to a minor analyst miss (-1.27%), and a buying opportunity. Such a dramatic move does reveal that lots of investors were apparently using stop loss orders or were squeezed out of long options positions. The volatility is, in the long run, a good thing for me, as it keeps the stock from running off without me and it keeps the price (and time decay) of options high.

Although I'm usually making quick bucks from my RDDT options trades, I actually like the stock and want it as a long-term play. RDDT is worth $38B compared to $1827B for META. The difference is that Reddit is growing faster than Facebook, and has not yet been monetized the way Meta's platforms have been. Meta's platforms are barely usable because they've been so packed with ads and influencer trash, but Reddit is still in the aggressive user acquisition phase - where FB was ten years ago. RDDT has swung to a profit even before licensing their content, which includes hundreds of millions of humans solving problems in text over the course of 20 years, for AI's.

[bacchi]

The aluminum and steel tariffs, which caused a $500M revenue drop in Ag machinery in 2021;
the reciprocal tariffs on Ag machinery in China;
the shut down of payments to US farmers for modernization and crops;
and the potential for mass deportation;

all indicate that Deere and Co (DE) is a nice looking short.

[daverobev]

user growth was only 101.7 million daily active users IN THE FOURTH QUARTER ALONE

I'm going to guess that the majority if not the vast majority of these were bots...

I mean it's not like 400 million new unique people joined in 2024. Reddit's been around a while.

[MustacheAndaHalf]

user growth was only 101.7 million daily active users IN THE FOURTH QUARTER ALONE

I'm going to guess that the majority if not the vast majority of these were bots...

I mean it's not like 400 million new unique people joined in 2024. Reddit's been around a while.

"daily active users", not "new users".  You cannot multiply "daily active users" by four.

"While the company’s daily active unique visitors in the fourth quarter climbed 39% to an average of 101.7 million from a year earlier, the metric fell short of the 103.2 million consensus."
https://www.investopedia.com/reddit-stock-slips-after-disappointing-user-growth-watch-these-price-levels-11679111