Note: The following is not investment advice or a specific recommendation for anyone.
Since the last post on August 16th, the overall bear case has played out very nicely and rather quickly too, which wasn’t surprising. I added one more time to my puts before the summer rally ended. In hindsight, given the confidence I had in the TQQQ put play and the risk controls in place, I should have been more aggressive, but it’s ok. This is more of a swing trade, and compared to scalping or long term investing, it’s the one I have the least practice on.
Here’s the returns:
TQQQ Puts
$35 Strike, 1/20/2023 expiration, bought on 8/3 & 8/16. Return: +59.9%
$37.5 Strike, 1/20/2023 expiration, bought on 8/17. Return: +55.2%
The fundamental bear case isn’t even close to being over yet. At the annual Jackson Hole speech, Powell reinforced his seriousness on tightening liquidity. Jobs data from today was mixed and only resulted in a slight decrese in the odds of a 75bps hike. Other economic data continues to trend in roughly the same direction as before.
It’s been tempting to take profits in the last 2 days, since the technicals have flipped from very overbought to nearly oversold. As stated in the last post, I would exit the position if there was a steep drop similar to the three day June crash. This one has been more gradual.
The QQQ broke through all the daily moving averages, including the 50 & 100 SMA’s and the 200 EMA; it also ignored the summer trendline. SPY didn’t, however, and they are both are starting to test price ranges where we spent a lot of time at over the summer:
It’s a good area for the shorts to start taking some profits. The economic calendar is pretty light on the 4-day trading week ahead of us, except for Powell speaking on Thursday. The chance of a short term bounce is increasing, so instead of exiting the trade I decided to hedge with an SQQQ in-the-money put today, $50 strike and same 1/20/23 expiration. That moves the weighting of the portfolio from 100% bearish to about 74%.
SQQQ will likley be a shorter term trade, even though holding both could end up profitable. The combined TQQQ (bull) and SQQQ (bear) annual performance isn’t pretty, because that’s how a leveraged ETF tends to work:
2019: -63.13%
2020: -79.18%
2021: -6.4%
2022: -34.75% (so far)
Longer term, I’m not looking for the TQQQ puts to return much more than 100%, and if they do, it will probably be time to reassess or roll the options anyway. In the meantime, we’ll wait for more serious market moving data, such as the CPI on September 13th and the FOMC meeting on the 20th-21st.