Stephen Cox discussed the market outlook and investment psychology for metals, advising traders to exit silver at its peak and consider re-entry after a 5% to 10% pullback, while recommending investors hold gold due to its uptrend. Stephen Cox provided an update on the S&P 500 short put strategy, explaining that low implied volatility (VIX around 16) has kept premiums low, and clarified margin considerations for rolling out and down on the IG Index platform in response to a question from Roy. Additionally, Stephen Cox suggested taking profits in oil-related holdings due to potential price drops, highlighted Dell, Arista Networks, and AMD as stocks benefiting from the AI trend, and advised Stephen on trading versus investing approaches for their AMD position.
Details
Market Outlook and Investment Psychology for Metals Stephen Cox started the meeting by noting that silver had reached a peak and emphasized the different psychologies required for traders versus investors. For traders, the approach with silver, agreed upon with Jerry Prior, was to exit at the high and look to re-enter if the price pulled back 5% or preferably 10%. The discussion also covered key drivers for silver prices, including a levy by China on exports, its use in renewable energy and data centers, and its correlation with gold as a byproduct of market uncertainty, leading to a "goldilock scenario" at the time.
Silver Price Volatility and Trading Strategy Stephen Cox noted the risk in commodity investing, specifically mentioning the potential for silver prices to drop heavily if China were to lift its embargo, bringing more supply to the market. As predicted, silver experienced a rapid selloff, dropping 8% at one stage, nearing the 10% retracement target for re-entry from a trader's perspective, as consolidation is expected after a new high. For traders, Stephen Cox suggested waiting for a 10% or more pullback, possibly a retest of the low, before going long and exiting before retesting the subsequent high to mitigate the risk of a new top forming.
Gold Investment and Trading Approach Regarding gold, Stephen Cox observed that it had recently made a new high, which is a positive sign, and suggested that gold is less inclined to be traded compared to silver due to silver's greater movement. For investors, they recommended applying an investor's psychology, leaving gold on and not trying to time the market, as it is in a clear uptrend.
S&P 500 Short Put Strategy and Volatility Stephen Cox updated the team on the S&P 500 short put strategy, noting that no options trades had been placed this year due to low options premiums caused by low implied volatility, as measured by the VIX being around 16, which is significantly below the average of 20 and above. They explained that option premiums are based on volatility, and low VIX means less pay for selling option premium, though a selloff in the S\&P 500 would increase implied volatility and option premiums.
Short Put Strategy Mechanics and Index Preference The short put strategy involves selling a put option with the goal of profiting from time decay, exemplified by selling a 660 put on SPY, resulting in a high probability of profit as long as the price stays above the break-even point. Stephen Cox strongly advised using this strategy only with indexes like the S&P 500 for a return-based strategy, cautioning against individual equities unless the intent is to own the stock, especially around earnings season when implied volatility increases for individual stocks. The preferred trade at the time was the 650 short put for the end of February, but Stephen Cox was waiting for a market selloff to secure better premiums.
Trade Management and Rolling Out and Down Stephen Cox detailed the management of a short put trade, explaining that a trigger point, such as SPY falling to 656 from 693, would necessitate action. The action would be to "roll out and down," which means buying back the original contract and opening a new one further out in time (e.g., to the end of March) at a lower strike price (e.g., 625) to cover the cost, effectively lowering the break-even point and increasing the wiggle room, which contributes to the strategy's high success rate.
IG Index Platform and Margin Considerations Stephen Cox outlined the short put strategy for those using IG Index in the UK and Ireland, noting that the platform wraps options trades as a tax-free bet. Roy Tyrrell inquired about the margin when rolling out and down on the IG Index, and Stephen Cox clarified that the margin from the old contract disappears when bought back, and the new contract's margin would be roughly the same, advising to keep the margin below 60% to allow for wiggle room if positions move adversely. They also pointed out that placing a trade on the IG Index results in an immediate loss due to the difference between the sell and buy price.
Oil and Oil Stocks Update Stephen Cox provided an update on oil, observing that it had sold off following a prior jump due to events in Iran, and they anticipated it could drop back down to 55, suggesting that holders of USO or related stocks should consider taking profits. They considered oil to be too dangerous for involvement at the time, noting that a ceasefire between Ukraine and Russia could lead to Russian oil returning to the market, causing a drop in prices despite potential OPEC production cuts.
Focus Stocks and AI Trend Stephen Cox highlighted three stocks—Dell, Arista Networks, and AMD—all benefiting from the AI trend. In discussing AMD, they noted its strong backlog of orders but cautioned about margin pressures and high valuation multiples. For AMD, Stephen Cox was waiting for two scenarios before acting: either a breakout above the recent high or a breakdown to retest a triple bottom, indicating that a dollar cost averaging strategy is suitable for long-term investors in the stock.
Arista Networks and Long-Term View on AI Arista Networks was shown to be in a consolidation phase, similar to AMD, with Stephen Cox monitoring it for a bit longer, noting a potential double top formation. Stephen Cox maintained the opinion that the AI trade is not overdone, encouraging those who believe it is not to invest in the three highlighted stocks.
Guidance for AMD Traders vs. Investors Stephen Vajda asked for advice on their AMD position, which was up 20%. Stephen Cox advised that an investor should hold the stock, but a trader should consider exiting now, taking profit near the high of the consolidation range, with the possibility of re-entering during a retest of the high as support. Stephen Cox also advised against selling a long-term equity option ("leap") while holding onto a sold call option against it, as this carries a risk of substantial losses if the stock jumps significantly, recommending instead to close both positions together.
Technology Development Updates Stephen Cox concluded by announcing that an app is currently in development and is expected to be ready in four to six weeks, offering features such as booking mentoring sessions and tracking courses and the equity scan. Additionally, a new technology tool, similar to Equity Scan but focused on the US 500 short put challenge, is being built and is anticipated to be ready in about two months, allowing users to track open trades, performance, and actions in real-time with automatic updates and WhatsApp alerts.
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