Did you think we would make an all time high in SPX this week?

BY ANDREW GIOVINAZZI

January 21, 2024

Yo Pit Crazies,

I capped my International Business Machines (Ticker: IBM) strangle with a 74% win at the end of the week in my Easy Trade Button strategy. The best part is where I owned my calls for a credit. As George Soros said, it is easy to bet big with house money. That means he rolled a gain for more and was in a cannot lose position.

That is trading in a nutshell.

In 2002, the Invesco QQQ Trust (Ticker: QQQ) was $18. Today it is over $400. All of the promise of the internet was having a 90% off sale. One of the smartest traders I know went all in there and has not had to work for 10 years. The point is trading requires imagination to make money. That is different from a crappy trade going to 0 and smoking the hopium bowl thinking it goes back to even or green.

The Internet Revolution cratered 80% from the peak and most of those companies were not profitable. AI is delivering 100% revenue gains to some chip companies.

QQQ 12 year chart

Time to use my imagination with a little floor story

1990s were long and long

I am old enough to have been a floor trader in the 1990’s. The best trade was owning strangles and finding ways to pay for them. Selling options can pay the rent, owning options buys the house.

Turn back the clock to the late 1990’s and the internet boom was in full swing. Susquehanna Investment Group (SIG) put up the largest short option trade at the time selling 10,000 or more Dell Inc (Ticker: Dell) puts when the markets were unraveling. Long Term Capital was going to crater the market in the boom but that did not stop SIG from selling options.

Not long after, every SIG trader on every floor got the call from on high, “Don’t sell any options or you will be fired.” SIG wanted to own gamma at any price because they thought the market had drastically underpriced options. SPX launched from the bottom, and SIG had a record year. The guys that run SIG are brilliant traders and they understand probabilities very well.

When things are running, I want to own options. Not many people were calling for all time highs at the beginning of 2023 but someone somewhere had the imagination to stay long and invested. There are lots of folks who stayed out and they will want to get back in. In the meantime there will be chop. Historically all the stupid stuff is caused by governments because they make big, dumb political decisions. COVID is a great example where every big decision was wrong save for letting states find their own way. Innovation and growth happen in the private sector which is why I buy stocks.

QQQ could run to 500 this year on AI promise but the road will be choppy. The Easy Trade Button will go along for the ride as I add more explosive tech names to the roster. Come and check it out.

To Your Trading Success,