Gamma Risk rolled 1 4-sided dice:
4
Total: 4 (1-4)
Gamma Risk
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- Posted: Thu, 28 Mar 2024 04:24:13 +0000
Positions–
>453 QQQ (4/05 3.83 debit)
->875 NVDA (4/12), >900 (5/3)
Plans:
Update 3/27 post-market- QQQ key level break 445.50 ish. Constructive bullish price action for bullish breakout after rejecting 445.50 again (broke out of triple top consolidation, formed cup and handle). Predicting beginning of April price breakout.
^Downside breakdown target 438.50
^452.10 upside target, potential butterfly
-IWM looking to breakout, pullback to 208 offers favorable entry into bull call spread. Prefer butterfly targeting 215, though may need to skew because it can go much higher (eliminate upside risk).
-Wow, lots of cup and handles forming. QQQ, IWM, GOOGL (target 154)
-NVDA NEEDS to close above 902.50, otherwise bullish momentum is lost and bull spreads are at risk.
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Main events of the week: PCE
Monday: Bostic speech, New home sales, 2Y note auction
Tuesday: Durable goods orders, Consumer confidence, Atlantafed GDP, 5Y Note auciton
Wednesday: Waller speech, 7Y note auction
Thursday: Inflation expectations, jobless claims
^Expect hedging to take place before PCE, especially with trading closed.
Friday: PCE, Powell speech, personal spending
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Lessons:
-Don’t day trade zeroDTE spreads. Technical rules are easily disrupted by expiration
-Give debit spreads until EOW to work out. RIVN short resulted in $2000 loss because of early closure (due to emotional attachment to the upfront capital. It seems my emotional attachment cap is around $1000). Patience would have resulted in $3000 profit. Only risk what you are absolutely okay with parting with for debit spreads. So for your CRM trade, think of that $1000 as lost already. Hold until post ER.
-Bullish spreads betting on mean reversion only work on already high RS charts. IE MSFT mean reversion failed while AMD succeeded (and LLY would have been good too).
-MACD downside crossover isn’t necessarily bearish. A strong chart that undergoes consolidation can give the appearance of a bearish crossover. Always keep context in mind.
-don’t short ATH Markets!
-Double check all orders. -$18,456.02 fat fingering NVDA
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Shower thoughts:
-Hedging and speculation are the two elevators of the market. Both bring two layers of positive/negative gamma to the tape. Fear drives hedging, driving the market lower. Much like real life, anticipation of an event often brings more than the actual event or experience itself. Of course, there are occasions in which an event can be greater than the anticipation, such as the Jan 31 fomc. Hedging occurred during the event, but the black swan was march cuts not being the base case. Hence, the event was under-hedged and resulted in a steep selloff intraday.
-Crowded trades are fragile. Bubbles occur when everyone is on the same side and market breadth dies. As long as there are AI bubble doubters in the mainstream media, the NVDA long term trade should remain solid.
-My prop 50-60-80 rule of bases for D-W-M timeframes
-AMD seems to lead the market by about 4-5 weeks. This suggests that our market top before reconsolidation should occur after the first week of April.
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NVDA: Automated driving, Ray tracing gaming, widespread application of generative AI (data centers, robotics- Isaac platform, images- Picasso, drug discovery-Amgen), cloud gaming service launch, OBS/twitch streaming, transition from ethernet to infiniband for HPC, massive switching costs from CUDA platform, bitcoin mining.
^Update 2/9/24: Now addressing big tech competition. In talks with competitors to design collaborative ASICs. (Note: NVDA does not directly sell ASICs, but now Maia, inferentia, tranium, GOOGL’s TPUs, AAPL’s A-series and M-series GPUs, are less likely to be threats to NVDA’s market share in the future).
-waves of NVDA’s potential future demand (at least 3 years of demand?): application wave, inference (less compute, potential inventory correction), heavy industry (largest use case according to Huang. AI models can be used to generate solutions, solving problems and improving efficiency and safety in industries like manufacturing, energy, and construction. Some examples include predictive maintenance, defect detection, robotic path planning, safety simulations, and even material discovery), sovereign AI
PANW earnings update (2/20): Exceptional buying opportunity for PANW for the long term. Giving away free use of platform until prior contracts with previous vendors run out. There are two ways to view this "charity" action: either PANW has no moat, because if their product is really that good, why give away it for free (until contracts expire with prior vendors)? OR, once contracts from prior vendors expire in 6-18 months from customers and a consolidation wall hits, PANW becomes the largest cybersecurity giant. I'm willing to bet the ladder because in the meantime of the free use of PANW's products, firms will grow accustomed to PANW's solutions and become entrenched in the PANW platform. Once a firm's entire cybersecurity stack is integrated into PANW, switching costs become monumental, cementing ARR for PANW for years to come.
CAT:
-Leader in heavy machinery industry, benefiting from future rate cuts and the current improving economy (the LEI recently finally started trending positive again, GDP trending higher, both suggesting we have been in a recession and are just starting our recovery). CAT sells construction and mining equipment, as well as industrial engines for power generation (currently benefitting massively from the buildout of AI data centers). As long as the economic environment continues to improve, CAT should benefit. I believe we are near the beginning of the next economic expansion.
^Further tailwinds in the future can come from lithium and power generation demand from clean energy when rates are lowered, giving a second wind of growth for what CAT is currently seeing.
-CAT has a history of about 10-15% accumulation pullbacks after rallies. I expect the price to pullback towards the 310-330 range before entering a bull call spread.
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Current 2023 fed hawkishness that are voting members: Dovish-Goolsbee, Cook, Harker (neutral), Barr (neutral)
-Hawks-least to most hawkish : Jefferson, Williams, Powell, Loretta Mester, Logan, Waller, Bowman, Kashkari
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Notes:
-Jan and July OPEX historically negative while April is positive
-Quadruple witching: March, june, september, and december (index, index futures, stocks, stock futures)
-Strong sectors for bull butterflies: Travel, semiconductors, asset managers (ABNB, ASML, BAM). Open on March 4th or later.
