DailyPlay – Closing Trade (V) – December 14, 2022

Closing Trade

• V -85.4% Loss:  Sell to Close 4 Contracts Dec. 16 $205/185 Put Vertical Spreads @ $0.74 Credit. DailyPlay Portfolio: By Closing all 4 Contracts, we will be receiving $296. 

Investment Rationale

The better-than-expected CPI figure gave the market an instant boost when it got released yesterday at 8:30am, taking S&P futures from about a 30-pt. gain to over a 100-pt. gain in very short order.  The bulls seemingly had their reckoning, and the Tom Lee’s of the world were celebrating their believed prescient bullish calls.

But, as I wrote you yesterday in the DP email, a bullish move today would mark a Sequential +13 signal, potentially getting many bulled up at precisely the wrong time. Later in the morning, I sold the largest single trade position I have ever put on in the fund I trade for, shorting $5mm worth of S&P futures. I plan on holding them for several days if today’s Fed announcement doesn’t force me out of the trade, but having sold higher I also have some cushion to play with.

SPX – Daily

We have two option positions on that expire on Friday: one in Visa and one in Lennar. As mentioned yesterday, Tony suggested getting out of the Visa trade yesterday. Added my own thoughts to that it might just pay – at this point and the large loss – that perhaps it made sense to hold on till today to see if for any reason the market plunked after the Fed announcement. Either way, you want to be out of it by no later than Thursday’s close.

Lennar reports today after the close. We still have one of three short put spreads on in it, and with it having closed at $90.59 yesterday and our being short a Dec. 16th $82.5/$77.5 put spread, we have almost a 10% cushion to the downside before the remaining spread would move against us. Thus, we’ll take our chances and hold this through tomorrow, but will exit it fully by Thursday’s close.

Lastly, look at how the market bottomed in October after the bearish CPI report came out, and what possibly could be how it topped yesterday after a bullish CPI report came out. They look very mirror-like – but inverted. So, I continue to be a bear up here until proven wrong.

S&P 500 Futures – Daily