Note: Summary notes of the meeting are below the video in this article.
Details
Stock Analysis: Micron, Terodine, and Western Digital Stephen Cox began the stock review with Micron, suggesting that based on technicals and fundamentals, it might be time to take profits off the table due to a significant run-up (00:02:13). Clive Wisdom confirmed that "Terra" was Teradyne (00:04:19). Stephen Cox reviewed Teradyne, noting strong fundamentals, including improving operating margins, stable shares outstanding, good debt ratios, and anticipated substantial future sales and earnings growth (00:05:19). They concluded that much of the good news for Terodine appeared to be priced in, but advised staying with the momentum until weakness was observed (00:07:24). For Western Digital, Stephen Cox indicated that their models suggested it might be overcooked or approaching overvalued status, although the current consolidation was viewed as positive (00:08:30). Clive Wisdom mentioned selling calls on Terodine and that Western Digital had recently "sank" but was saved by the jobs report (00:09:34).
Managing Momentum and Pullbacks in Trades Stephen Cox discussed the risk of significant pullbacks in stocks that have made large moves, such as Western Digital, noting a potential healthy correction of up to 22%. They differentiated between an investor's perspective (focused on long-term wealth) and a trader's perspective (which might suggest exiting due to the risk of large drops) (00:10:33). Stephen Cox emphasized that their model suggested Western Digital was fully valued, although further due diligence might offer deeper insight (00:11:32).
Current S&P 500 Trade Performance Stephen Cox provided an update on the XSP and IG index trades on the S\&P 500, noting substantial returns of 1.4% on the Interactive Brokers account and 2.9% on the IG Index account in less than 10 days, all based on $10K accounts (00:12:46). They confirmed that both trades would be allowed to run to expiry, expecting further profits. Specifically, the IG Index trade was expected to yield another €110, and the XSP position was anticipated to add 0.6% more, with the S\&P 500 having a 99.5% probability of staying above the 6,400 put strike (00:13:46).
Strategic Rationale for Strike Selection Stephen Cox explained the rationale for selecting the out-of-the-money 6,400 put strike instead of a closer strike like 6,800, despite the latter offering a higher premium (00:14:50). They analogized the strategy to selling insurance, highlighting that the lower strike provides a much larger buffer against market downturns, classifying it as a less risky approach designed to deliver consistent returns (00:16:56). The risk management plan for the S\&P 500 trade involves rolling out and down to a lower strike if the S\&P 500 hits 6,500, which would lower the break-even point well below 6,000 (00:18:02).
Discussion on Downside Risk and Strategy Statistics Brendan asked about the downside risk, noting that historically, 87% of trades worked, and 7% needed to be rolled out and down (which Stephen Cox clarified turned profitable) (00:20:03). They raised concerns about a sudden, rapid market drop that could happen while one is asleep, preventing the action point trigger (00:20:58) (00:26:06).
Managing In-the-Money Puts and Alternatives Stephen Cox discussed the options for managing a rapid drop, including taking a hit, or rolling out and across to extend the timeframe if unable to roll out and down. They also suggested that a bull put spread—buying a put option underneath the sold put—would be a safer alternative for those uncomfortable with the downside risk, although it offers a substantially smaller premium (00:29:02).
Comparison of IG Index and Interactive Brokers for S\&P 500 Strategy Jerry voiced concerns about the potential for mounting losses with IG Index during a significant market circuit breaker, preferring IBKR for the option of getting assigned shares (00:32:15). Stephen Cox agreed that IG Index is return-based, while Interactive Brokers allows taking assignment of the shares (with Spy, not XSP), which provides a hold-until-recovery strategy (00:36:40). They also noted that IG Index offers more opportunities to roll out and down because it trades 24/5 (00:40:58).
Market Outlook and S\&P 500 Technical Analysis Jerry inquired about the S\&P 500's current triple-top formation (00:33:23). Stephen Cox stated they expect a pullback in the first half of the year, possibly down to the 6,400-6,500 range, to bring in fresh capital. They also noted that the rally is broadening out beyond the "Mag Seven," evidenced by the QQQ not performing as well as the S\&P 500 since last October, indicating a healthy market trend (00:34:30).
Statistical Safeness of Short Put Strategy Stephen G provided statistics on historical S\&P 500 one-day drops, noting that drops greater than 5% are extremely rare (21 days out of 15,000) (00:37:41). He concluded that based on statistics, the strategy offers sufficient time to manage the position (00:38:55). Stephen Cox agreed with the statistical perspective, emphasizing that there is always risk, and it is crucial for individuals to assess their comfort level and have a management plan if things go wrong (00:40:02).
Bitcoin and Metals Technical Outlook Stephen Cox briefly discussed Bitcoin from a technical perspective, suggesting that the recent low will likely be retested, with the next possible low around $55,000 (00:42:02). Regarding silver, they noted that the aggressive move was unsustainable and has corrected significantly. They suggested silver will likely be rangebound for a while but predicted that both the recent high and low will be retested (00:43:57). Stephen Cox was less concerned about gold and suggested holding it, as its move up was less aggressive, predicting it will test its high again (00:44:58).
Stock Watchlist and Downtrend Management Stephen Cox mentioned that Dell is selling off and may be a good entry point soon (00:44:58). Oracle is approaching a breakout from its downtrend, but they cautioned about AI risks potentially eating into its business. They used PayPal and Lyft as stark reminders to wait for downtrends to end before investing, as earnings announcements can cause significant drops (00:45:56). Stephen Cox indicated that Nvidia and AMD look promising due to increased AI spending from major tech companies (00:46:59).
Trading High-Risk Stock (NNE) Stephen Cox suggested NNE, a micro nuclear reactor company, for those interested in aggressive, high-risk trading, noting its stock moves 5 to 10% a day despite poor financials (00:48:01). They stressed limiting allocation to well below 2% due to the high risk (00:49:09).
Clarification on Rolling Out When In-the-Money Stephen V asked why an XSP put option cannot be rolled out and down if it has dropped in the money (00:50:05). Stephen Cox explained that once a put option is in-the-money, it has intrinsic or "real value," making it more expensive to buy back and significantly limiting how far down it can be rolled for a credit (00:51:06). They reiterated that the key to the strategy is rolling out and down before the share price drops in the money (00:52:23).
US Dollar Outlook Brendan O'Reilly 262626 asked for a comment on the consensus view that the US dollar will weaken. Stephen Cox disagreed, stating that a substantial weakening would only likely happen if interest rates were slashed or the US economy significantly deteriorated, which they did not anticipate. They predicted the dollar would remain rangebound between 116 and 125 (00:53:19).
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