Note: Summary notes of the meeting are below the video in this article.
Summary
Stephen Cox shared the positive performance of recent trades, including on IG Index and Interactive Brokers, and advised that selling puts should be the "go-to strategy" for the year, especially on the S&P 500, to manage potential market corrections while aiming for new highs near 8,000 by year-end. Stephen Cox provided trade justifications and outlooks for TLT, oil, natural gas, silver, and gold, reviewed watch list stocks like Oracle and Dell, and discussed the AI trade thesis, with Brendan O'Reilly 262626 noting Salesforce's focus on improving sales execution for their AI tool. Stephen Cox also explained to Stephen Vajda the preference for XSP over SPY for short put strategies in smaller accounts due to lower margin requirements and cash settlement, concluding the meeting with a successful start to the year and plans for the next US 500 short put trade in February.
Details
Trading Strategy Philosophy and Market Outlook Stephen Cox discussed the risk of listening to "doomsday economists," noting they are only right one time and should not solely influence trading decisions. Stephen Cox stated that a market pullback is likely this year, but their overall prediction for the S&P 500 is to reach new highs near 8,000 by year-end, disagreeing with "doomsday sellers" (00:01:21) (00:06:08). Stephen Cox introduced the strategy of selling put options as the focus for the first three to six months of the year due to expected market volatility (00:03:07).
Current Trade Performance Review Stephen Cox shared the positive performance of recent trades, noting a trade on the IG Index platform was up 200 euros in two days, representing 2% tax-free profit on a 10k account, with a 95% probability of profit (00:03:07). The corresponding trade on Interactive Brokers using XSP (a mini S&P 500 index version for smaller accounts) was up $100 (1% in two days), and a longer-term TLT trade was up $30, aiming for a 1% monthly return. Stephen Cox indicated that the S&P 500 trade would expire next Friday, aiming for a total return of about 1.3% (00:04:04).
S&P 500 Trading Strategy and Risk Management Stephen Cox advised that selling puts should be the "go-to strategy" for the year, especially considering the potential for a 5% to 20% market correction. Stephen Cox explained that the current S&P 500 trade was structured to profit even if the market fell 5% (00:05:06). The defined risk management plan involves "rolling out and down" if the S&P drops significantly, specifically to 6,600 before the next Friday expiry (00:06:08) (00:08:03).
Earning Season and Netflix Analysis Stephen Cox highlighted the start of earning season, mentioning Netflix's disappointing guidance led to a significant drop in its share price. Stephen Cox noted that Netflix is nearly 40% down from its all-time high but advised against buying it currently, as it is still making "lower lows" (00:07:05).
TLT Trade Justification (US Treasuries) Stephen Cox explained that the TLT trade, which tracks US treasuries interest rates, was initiated because of a significant two-day pop in the 10-year US yield, caused by nervousness over the Greenland issue. They viewed this spike as temporary, not warranting the rise in interest rates, and sold puts on TLT for a 1% return, willing to take assignment on TLT for a 4% bond yield if necessary (00:09:01).
Outlook on Oil and Natural Gas Stephen Cox expressed nervousness about trading oil, citing strong US production levels and the potential for a peace agreement between Ukraine and Russia to increase oil supply (00:11:11). Stephen Cox suggested the only way to participate would be by selling short puts far out-of-the-money, in the low 50s (00:12:13). Regarding natural gas, Stephen Cox noted that they missed the boat on buying earlier, and following the recent polar vortex-driven jump, they now view it as too expensive and suggested a potential short trade using defined-risk strategies like a bear put spread on futures contracts (00:13:17).
Natural Gas Trading Example Stephen Cox demonstrated how to place a bear put spread trade on natural gas futures contracts using Interactive Brokers for Stephen Gavin. They clarified that options on futures contracts have two expiration dates and noted that the multiplier for the natural gas contract is 10,000, making one contract highly significant (00:15:19) (00:18:10). Stephen Cox cautioned that this type of trade is speculative, dependent on weather forecasts, and has a lower probability of profit (00:17:14).
Metals Market Analysis (Silver and Gold) Stephen Cox recommended traders sell silver, suggesting a potential drop of 12% back to the 82 Fibonacci retracement level, despite the existing uptrend, following the recent rally driven by market uncertainty (the Greenland issue) (00:21:11). Stephen Cox also suggested investors might want to take some silver profit off the table due to the risk of China changing its export policy (00:22:14). For gold, Stephen Cox advised both traders and investors to hold their positions, believing the bullish trend is intact and a stab at 5,000 is likely (00:23:17).
Watch List Stock Analysis Stephen Cox reviewed stocks on the watch list, encouraging the use of the history tab in Equity Scan to track changes in analyst target prices (00:24:14). They noted that new watch list additions like Oracle, Caribbean Cruises, PayPal, and Salesforce were mostly tech stocks selling off (00:25:22). Stephen Cox emphasized waiting for the end of the current downtrends (lower lows/lower highs) before entering long-term positions for stocks like Dell, Caribbean Cruises, and Oracle (00:26:18) (00:30:03).
AI Trade Thesis and Stock Specifics Stephen Cox believes the AI trade is only at the start and recommended using the current consolidation phase as an opportunity to buy into companies like Oracle and Dell, as they are expected to recover and make new highs. Stephen Cox mentioned that Google, where they have a long position, is performing well due to the efficiencies provided by their AI tool, Gemini (00:32:19). Brendan O'Reilly 262626 noted that Salesforce's CEO, Marc Benioff, is focused on improving sales execution for their AI tool (00:34:23).
Strategy Comparison for Different Account Types Stephen Cox compared the short put strategy on the S&P 500 for a "low stress way to make money" with investing in individual stocks (00:37:55). They advised that for self-administered pension funds, buying SPY during a selloff is low-risk (00:39:13). Stephen Cox recommended that investments in individual equities should be limited to less than 5% of a portfolio's value for diversification (00:40:20).
XSP vs. SPY for Short Puts Stephen Cox explained to Stephen Vajda that XSP is preferred for smaller accounts because it has lower margin requirements compared to SPY, demonstrating an $8,000 margin impact for XSP versus $12,000 for SPY on the same trade (00:41:20). XSP is a cash-settled instrument, meaning investors take the profit or loss at expiry, while SPY allows for the physical assignment of shares upon expiry (00:42:17).
Conclusion and February Trade Planning Stephen Cox concluded the meeting by highlighting the successful start to the year, being well on target for the 30% challenge on the IG Index account. Stephen Cox indicated they are preparing the next short put trade on the US 500 for the end of February, which could bring in about 4% for the month (00:44:28). They mentioned that trade updates and risk management actions are posted daily on their knowledge base and available via chat or WhatsApp (00:45:24).
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