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DrosNotes - 11.18.2018 - Hedging Lesson and Stock Tips


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A brief lesson on hedging as well as my favorite picks from the options market that I think investors and traders should take a look at for the week of November 18th, 2018.

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DrosNotes - 11.18.2018 - Hedging Lesson and Stock Tips

  1. 1. November 18, 2018 DROSNOTES The Art Of Hedging and Stocks To Watch If you’ve been following me for a while on StockTwits or Twitter, or more so if you’ve been in my trading room you’ve probably heard me say to ALWAYS hedge. What does that mean exactly? I use a see-saw analogy…despite how many kids are weighing down the side against you, if you have a fat-kid friend he can always hop on there and switch the scales in your favor in an instant. The thing is, you can never be sure when you’ll need that fat kid to help switch the balance of power for you so your side ends up on top. My 1 David Tepper - Legendary Hedge Fund Manager - Picture via CNBC
  2. 2. November 18, 2018 solution? Always keep the fat kid around. Even in the most bullish markets around…keep a little bit of the fatty around somewhere. Which one you want to keep around depends on what you have in your portfolio. I also recommend using hedge equity so you don’t get totally burned on the position if the bull rally continues. My favorites are $SDS (inverse of the S&P 500), $QID and $SQQQ (both inverses of the Nasdaq 100; $SQQQ. Is triple leveraged….so if your portfolio is heavyweight on tech thats the one for you). Then there’s my favorite inverse Dow Jones ETF ($DOG) and my favorite inverse $FXI (China Large Cap) ETF $YANG. I also keep $TVIX equity in my portfolio. I keep all of the above in my portfolio at all times. I add as I need to (as markets pull back more and seem more bearish) or I trim positions for profits (if markets are very bullish). But I ALWAYS keep some equity of them all because you simply never know which morning you’re going to wake up and wish you had them. I always explain it like this also to those who are scared to own positions that protect against downside in super bull markets…if you own a tiny % allocation of your portfolio in those ‘hedge’ equity names and the markets continue on in a bullish form, the money lost on the hedges will be more than made up by your bullish gains. But if the market takes a sudden hit, you’ve got the fat kid in your corner that will pop in whenever you want him to and keep your afloat rather than burning through your port. 2 Peter Lynch quote via Trade Ideas and Thoughts For The Week Ahead I would expect another fairly volatile week ahead unless some sort Of resolution is made with China. And Russia. And after the latest news about Khashoggi, the UAE as well. At the time of this writing, 7:40 PM EST on Sunday, the futures look decent….from a chart perspective at least. Price-wise $ES_F is down 9 bucks, $NQ_F is down 25, and the Dow is down $58. The charts look decent though so I don’t think we open blood red tomorrow morning. But you never know what the overnight session will bring, as well the morning with some data and earnings. Regardless, here’s some names I’ll be looking at.
  3. 3. November 18, 2018 3 Let’s start with some of my “drosFlow”, or the favorite UOA I saw last week. $PZZA DEC18 $62.5 Calls | Notional Value: $237,510 | Bought with underlying @ $59.75 $CTSH 30NOV18 $70 Calls | Notional Value: $320,000 | Underlying $68.90 $SMH 07DEC18 $95 Calls | Notional: $839,000 $ET JAN19 Cs $MLCO JAN19 $17 Cs $VMIN JAN19 $3 Cs $NXPI DEC18 $85 Cs | Notional: $775,000 $AAPL 23NOV18 $190 Cs | Notional: $1,320,000.00 That’s enough drosFlow for now; come stop by the trading room for more: Now for some of the top UOA from Friday…. Bull Flow $TLT (short-term bull spread) $PAGS JAN19 $25 Cs $FXI NOV18 $44 Cs $WTW JAN19 $50 Cs $BILI NOV18 $12.5 Cs $LPI APR19 $7 Cs $ECA JAN19 $8 Cs $IQ JUN19 $22.5 Cs $XME JAN19 $31 Cs $CVE JAN19 $9 Cs $DHI JAN19 $31 Cs Bear Flow $URBN JAN19 $31 Ps $DG JAN19 $110 Ps $BBBY 10JAN19 $12.5 Ps $STX JAN19 $42 Ps $XLB JAN19 $51 Ps I still think the markets aren’t terminal, but you should expect a ton of chop this week. Note that my favorite flow up there is mostly out to January; in this scenario theta is your friend. Good luck out there and trade safe.
  4. 4. November 18, 2018 4 Cheers, - Dros
  5. 5. November 18, 2018 5