For all those who never heard about Hedge Fund Managers / Traders and what they do...

...It is not what you hear or think. It is a fundamental DIFFERENT way of trading stocks.

For the most part people are misinformed or afraid of the unknown. Some pretend to know and some simply choose to be ignorant in the information age. We have the world's library at our finger tips. Use it! Your choice.

A Hedge Fund is simply a money fund like any other (mutual or growth funds) that invest a pool of money. The difference is that beside clients money, a hedge fund trader also trades with his own money AND usually every position in the fund is hedged against market downturns and also against Sector losses. The difference to Financial Investment banks that wait for clients to send money in order to buy certain stocks or their own Funds, Hedge funds do not only go long on stocks, they hedge them. Mutual Funds or Investment Banks are ALL LONG. This means when the market goes down you WILL lose money. Not so with a hedge fund. A hedge fund trades a stock in a pair just like in the FOREX market when you buy USD/JPY. You buy USD and at the same time you sell JPY. You are long AND short. You buy USD and you pay with JPY! Or CAD whatever. We do the same with stocks, we trade them as a spread /pair.

How do we find the right stock? OK.
We get our world view with the release of economic data. See sources below. Leading indicators that tell you 6-12 months in advance what is going to happen in the economy. With the ISM from the US, Europe and China and other leading indicators we determine if we are in a bullish or bearish market and how that plays out in different sectors and countries: Super Sectors and Industries. 

Here you pick your winning industries and losing ones.  I.e. Cyclical Retailers vs Defensive Retailer, since we are still in a bullish market. OR, Cyclical Retailers vs Energy, and now with Biden add Oil and Gas as losers.

Here in this example with all the calculation, even though the pair is NOT very lucrative, we trade AAPL/AMT, Apple as a tech stock that is 70% market driven and since we still have a great S&P500 the market is bullish and you go long on Cyclical Retail Stocks, Apple. You go short on Defensive Retail or Energy or REIT Stocks.

What that does it eliminates the market volatility. If the market goes down both stock go down but AAPL more than AMT, you keep winning on the SHORT Position and losing on your LONG, and vice versa. Market goes up you are winning on your LONG Position and losing on your SHORT.

This balances the pair and eliminates the market. Where is the profit? The profit is made like in the FOREX Market BETWEEN the stocks, in the pair relationship. Apple is the better company and gains more COMPARED to AMT over time! That is a Hedge Fund Position for the novice.

Lets look at it further in more detail.

This means Apple only pays 26 times its value to match S&P500 Index, not 42 anymore. Now you start looking for a Stock that is underperforming the market for a short position. In this example we take American Tower Corporation (REIT).

It is not the best and I will look further, but it shows what we are looking for. AMT is going up on the right, BLUE line, which means from being 11 times in the S&P500 it is now 16 times in it, hence losing value to the market. A stock to potentially sell short. Thus, what looks APPL vs AMT now when we combine the divergence?

This is why Spread Trades, the essence of Hedge Funds, outperform the market over time all the time because the impact of the market is very much reduced or non existing.

Now we have that, but the single stock in the pair still moves with a different volatility against the market. To sort this out we have to calculate BETA, the statistical Regression. I have the Regression or BETA for AAPL already. Here comes AMT. This is simply done by EXCEL.

This 99.13% number I do not like and will look further since this stock I want to short should perform worse than 99%. I like about 70-80%!! I dont want it to be LIKE the market but to underperform the market by 20% so that it makes extra money, right? 

But we also see it is a total number game. No human emotions attached. Just simple math.

 

A 45 degrees angle is a market follower. But in our example we will add one more step to finish the hedge. Now we have different values of BETA and we need to balance them to be market neutral. We also have to put the different stock values and balance their weight!! Remember we make our money in the SPREAD! We hedge against the market! The divergence of the two stocks not their relation to the market! This is a hedged trade or a SPREAD TRADE!

We balance the trade that way that the combined BETA is market neutral, say 100% or 1. The market is always 1.

For this trade accordingly the amount of stocks for the long and short position are determined, deriving from the MAX Theme limit and position limit. Also consider that stocks have different prices. Pretty straight forward.

AMT has a BETA of 99,13% and AAPL of 112%. The result is that the LONG position is weighted with 46.95% and the SHORT position with 53.05%. This results in 99 shares for Apple for $11,869 and for AMT 59 shares and a total of $13,411. Thats it for the capital allocation.

Usually you go 5% per trade or per theme, or you double that, up to you. I go with 5% per theme and that is a spread trade position. A theme is a multiple of positions combined in one trade, a theme. There is a max limit of capital allocation. I chose 5%.

After we have all this the position runs its weekly check because we trade of the weekly charts for the most, Fridays is happy Hedge-Fund-Day and we update all potential and existing trades in our Wish Lists.
Now we have to determine the Stop Loss and also the ENTRY. Remember we do not play on standard charts, we create our own with EXCEL because we trade Spreads!

In the next image you see that the idea only might generate a gain of 2.55% over a 10 weeks period with an average gain of 0.26 per week. This is not great.

I usually go back for 10 weeks and determine within the next few weeks if the idea will actually become a trade.

This trade idea also seems to be very choppy. These are things we all filter out. There are better and more constant stocks, just find them and run them through the process. Check on your positions once a day or twice! Update all spread sheets on Saturday or on Friday after trading hours.

If we decide to take this trade there are two more hurdles to overcome before we enter. We have to determine the STOP LOSS and the SOFT PROFIT TARGET. We do this by calculating the ATR, the Average True Range of a stock. SL will be between 10-12, max 15% is cut off, there are better trades then!! The Target is 3 times SL, realistically sorted out!

The ATR for AMT is 7.8% and AAPL is 8.8%. So we combine the two and get our Stop Loss and Soft Target, Easy numbers, no? So we mark our SL and TRGT on the EXCEL graph since we cannot do this on most platforms. ALSO, the SL is to be kept in mind since most platforms dont have ratio SL of two assets. If the SL is hit we close BOTH Trades!!!

If we hit Soft Target we move SL and double the position since this trade is now WITHOUT downside and totally in the plus.

This is what I do all day long at the moment. Sorting out numbers and building up a Spread Trade portfolio. 

The most ridiculous investment in the stock market are people that trade with technical analysis only. I did this too. Now, I only use them including Candle stick pattern for determining the ENTRY ONLY!!! The most losing trades are mutual funds and Investment Banks since they only go long and that is super risky as we saw when COVID hit, the Black Swan event of 2020.

All information are publicly available. This trading approach makes you 100-200% a year!

But who am I to know that?

THIS IS BASICALLY WHAT A HEDGE FUND IS DOING. Just numbers.

Sources:

https://elite.finviz.com

https://elite.finviz.com/map.ashx?t=sec&st=w26

https://finance.yahoo.com/quote/AMT/financials?p=AMT

https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business

https://www.questrade.com/home

https://fred.stlouisfed.org/series/GDPC1

Go in fully or stay out wholly.

For all the secret followers of us. Life has a new chapter, true. And those who follow are doing it for their own reasons. What am I doing?

1. With every post I do I drain my brain. I wake up early and do this Hedge Fund Manager Course for 6 months. It is better than a bachelor's degree in economics since a title doesnt generate any real money. I am on the computer all day and most of the time until late at 1 a.m. In order to digest the day I write posts. We dont watch TV. CNN or MSNBC are not allowed in our house. No cable TV or radio. No liberal talk. Fck off commies. Thus, become self-reliant.
2. I want to document the journey for my children and grand children. The painstaking effort to succeed. The hard work it takes. Too tired to stay awake. Too many thoughts in your head to sleep. Two steps forward and one back. And all the Know-Betters who try to hold you down and to discourage you. They are like crabs that pull each other back into the cooking pot. The many mistakes I did in my life and recovery. Breaking with old structures, "friends", and organizations. More than once. The help you get from unexpected sources when in prison. Thank you still. The new generation is so weak.
   If you dont like it you can block or mute me. Remember you came here to read it. I did not ask you to do so.
3. I want to inspire others that you can change your life for the better. You can stop doing drugs, smoking or drinking. You just need a boot camp. Something so gigantic in thought that it is too heavy for you to pick up. Something you must dig yourself into so deeply that there is only the new way and nothing else. This will change your mind and thought and hence your way. No rope to hold you back on the old tracks. Cut the rope! For all those who looking for a new way of life find something that inspires you so much that it becomes a sweet hobby, and you become the very meticulous fanatic of it. I have done it four times. It is always good! You have to leave everything behind and start new. Leave your tribal habits behind, stop talking your native language, move far, break with friends. Thoroughly to clean the house? No, tear it down and rebuild it better.

In all of this my wife is the real El Commandante of the voyage, the cornerstone of the foundation. She knows how to read the map of life. She knows to spot the dangerous cliffs even in the mist and fog. She knows all the lighthouses along the coast and islands. She can hear the whispering sound of gossip and envy, the lowest level of communication, talking about others to compare. The sound of roaches competing for food. The sound of Crickets chirping for self-pity.
She knows every harbor to ride out the storm along the journey. She is my anchor and the guiding hand to new lands at the same time. She is the real captain. Her tongue is sharp. 

I am just the XO who has to report the investments to her. The progress. I have to provide the BETA calculations of the Spread trades, document the weekly profit or losses. What is the ISM this month? The GDP? I have to find new trade ideas and draw the lines into the map. She sets the destination, I make sure we follow the course. She will enforce the rules on board and gives directions. Prepare for the exam. 

Our communication becomes very specific. Away from talking about events and what happened on the other side of the world since I deleted all TV and radio over 10 years ago. The 2nd level of talk between people. Delete it. Background noise as she will say.

Our communication is about how to better our business and what we need to do to go forward. What are the exact steps, how much money is needed. How to get it. When? Dont do Do-Dads. Pay off CCs. Where to get investors. Where we going to be 12 months from now. Covid helps. No more bars, No more travel, dont waste your time, dont spend any money. good! It was a very successful year.

Then there are the deeper talks, level 4. Nobody will follow you here. It is beyond people's comprehension. It is Chinese in English. Not Chinglish but Engnese. Video apps and sound studio. Camera angle and light emissions. Marketing of ecommerce or videos. 
It is the specific talk about option strategies and what companies to short. What to expect from Cobalt mining. What is Acceleware doing? How far are they with their "breakthrough" technology? Will we visit Marwayne in Saskatchewan? Will they get bought out? Do we still trade an Iron Condor?
There are endless opportunities at hand nowadays, and all information you need are right in front of you for FREE! The world is a super treasure trough. 

The question is, what are you willing to do to get somewhere you want to be? Autopilot or learn flying. 
So this is going on and my head is full. If you value your time, how much does it make you when you wasting your time? Time is limited and so are real friends. We value both. But the roaches will eat each other. Crickets will chirp all night long.

Enjoy the ride with us or be silent on the sideline. Your choice as always. I dont care.

 

Techs down. Apple dropped even though its Financials were phenomenal

APPLE is down as well as Facebook. SPY was down yesterday and stopped out my FB position. And today I closed APPL for a loss as well. Going back to the books and rules.

Apple announced financial results for its fiscal 2021 first quarter ended December 26, 2020. The Company posted all-time record revenue of $111.4 billion, up 21 percent year over year, and quarterly earnings per diluted share of $1.68, up 35 percent. This is phenomenal!!

New set of RULES to apply immediately:

1.  

1. Continue to maintain the Global perspective:

            - US ISM as a general leading indicator, 6 to 12 months leading, determines S&P500

            - US ISM Sectors Performance as a leading indicator, 6 to 12 months leading

            - US UMCSI as a leading indicator, 6 to 12 months leading, determines S&P500

            - S&P500 as a leading indicator, determines GDP

            - US New Building Permits as a leading indicator

            - European ISM as a leading indicator

            - China ISM as a leading indicator

            - GDP is lagging leading indicators by 6-12 months

            - Non Farm Payroll as a confirming indicator of world view, is lagging 6-12 months

            - Durable Goods as a confirming indicator of world view, is lagging 6 months

            - Industrial Production as a confirming indicator of world view, is lagging 6 months

2. NO CALLS or PUTS until account is up by 15% from January Losses.

3. Only trade Stocks or Commodities until account is up 15% from January losses.

4. Do only SPREAD TRADE Hedging, One stock long and another stock short.

5. Each position does have a maximum 10% capital limit.

6. Stop Losses are calculated per ATR and set at 10%.

7. Soft target to be realistic and at a 3:1 ratio with the SL.

8. Find the right Super Sectors to trade

9. Select the Industries

10. Select the Stock

11. Sit back and let run

I bought FB ahead of earning reporting on Wednesday after market closes

I am quite bullish on FB. Financials are strong and the macro economy looks bullish.

Earnings coming out on Wednesday after hours, and so is AAPL. I will keep a close SL on FB due to regulatory risks. 

As much as I want to see FB and other Tech Giants losing their privileges of Bill 230, and their ability to censor, it would not be good for business. And with Beijing Biden I dont think they gonna do it now. Trying to ride Mark Zuckerberg with a tight leash. Yahoo!!

So I bought FB 16 JUL 2021 285 CALL for 29.50. That controls 100 FB shares! Stop Loss is set to 22.50. The soft target should be 3 times the SL. Here it means can FB climb to the $300 level and even break it? If it reaches 300 I will tight the SL, if it breaks I will add to the position. If it will reach 300 the position should be at a 17% profit. A hard SL is set for safety to trade out the position. We will see.

Here the Option Calculation.

Who is the Fangman?

After going long on Apple I continue searching for Short opportunities. 

Five vs Target = NO, The spread would have bad numbers. Both companies doing fine.

Five vs Blue Apron = Not now, maybe later, numbers not lining up yet

Five vs Destination XL Group = Maybe if the FIB retracement goes below 50%. This stock is about to bankrupt and a good candidate to short if the price further falls. I borrow the shares and sell them first and buy them back later and return them to the broker. If they will go under the trade will be a 100% win and the broker has to book a loss. If the stock just falls I will buy them back at a cheaper price, cash in a profit and return the stocks to the broker and pay my interests on it.

DXLG was already down big time but one of the executives made an insider trading and bought some stock to push the price up. 

Will see how long that holds.

Fangman on the lose.

It shows that if you only had invested all your money in NViDiA and AAPL your portfolio would have made over 100% return in 2020.

 

Looking for SHORT Positions.

The cruise industry is in trouble since last year and COVID. I am still looking for a decaying company. I found a few. The German TUI promised the best for a spread trade. 

I am still planning to buy AAPL but 2 x CALL 18th JUNE, $140 Strike, seeing what the EARNINGS report will bring on Wednesday, expectation are Apple will do its first 100 billion dollar Revenue report ever, good. Then I want to hold it for a month or two months and sell it. 

Meanwhile for a Hedge Fund Manger, you have to go short to balance your portfolio. So we will go short in the Cruise Industry, especially since CCL, NCLH and RCL came out that they will abandon ALL cruises until MAY 21 and some even until OCT. German TUI was about to go under due to lot of debt, leverage expenses and operating costs. I abandoned the idea since Germany gave them 4.8 billion EUR to cover their operating costs for 2 years. They also managed to negotiate long term debt. Thus, they will be fine if nothing big happens. But in the image below they would have overshot the top by a lot.

Viking Cruise was another one. But they dont have options available and you have to short the stock itself. No big deal. But my view is their stock is casting along and loosing 3-5 dollars in 6 months. Even though the ratio between Apple and Viking is widening fast, see the red line. Their debt burden is increasing and revenue is shrinking fast.

RCL at the blue bottom is only trading at around half of Apple stock price. 

The black line is Apple vs the Norwegian cruise line. Not to bad. Increasing divergence 3 to 4 fold! The thing is NCLH has a modern fleet that is not too big and hence has less maintenance and operating costs.  

Here is another view of the same performance graph of the same stocks vs Apple.

CCL is edging on Viking and NCLH is coming in third.

Here we have the two final candidates. I eliminated VIKING since that stock only dropped 3 Dollars in 5 months. My trade would be 100 shares short at $15.80 with a potential gain of 1.5 Dollar in 2 months.

That would be around a 10%. Thus I leave this one out.

Now we come to CCL. Since they seized operation for the next 3-4 months, they are selling their weakest ships and the upper management sold some stocks. There will be a reduction in assets and revenue. I think this stock can still fall 4 Dollar.

Buy 3 x PUT 16th JULY, $22.50 Strike @ 5.25 = $1575 A drop by $4.00 by the end of March would make a $600 profit or 38%. I like that, even half of it. Stop will run as a trailing stop at 2.50

In remarks to Apple, we discussed this in a previous blog. As pointed out I expect AAPL to gain $5.00 on Wednesday and and a break of the 139 level and then going full steam ahead. Plus $13.00 by end of March?
2 x 18th Jun $140.00 Call @ $13.50 = $2,700. Potential win at 14 Dollars = 1,000, ROI = 37%. Like that. Trailing Stop at $4.00

Thats it for now on Sunday Morning at 1:30 am

Carnival Stock, CCL and others

A great source of information: Finance.yahoo.com and finviz.com. Even at 1 am when everybody else is sleeping.

All you need to know about Sectors and Industries. Their peers and suppliers. Financials and Tech Analysis. All there.

Do I expect the stock to drop when it is not earning anything for the next 4-5 months? This industry is in peril and the outcome is uncertain. China should pay for all of it!

A trader makes money either way. If the markets go up we buy CALLs and Long positions.

When the market goes down like this one we make money on the demise of the business, buy PUTs or short the stock.

When there is no movement and the market stays flat we sell credit spreads and Iron Condors and make money that way. 

Either way, the research looks for trading ideas and leading indicators will make sure you are on the right side of the equation. Full steam ahead, Baby.

It is not easy to be a Hedge Fund manager, LOL

It is 00:15 midnight and I still enjoy my work digging for nuggets. My health problem? I cant sleep. 

But here is another stock to look into. CCL. And with it goes RCL and NCLH. When the cruise line industry tanks I make money going short or buying PUT options. Markets going up or down, it doesnt matter as long as they move.

I should have been on it earlier but I am new to this business. Well then, full steam ahead, Baby

Carnival CEO Arnold Donald, Chief Financial Officer David Bernstein, and Arnaldo Perez, the cruise line’s general counsel, sold a total of $2.7 million of stock.

RHONA WISE/AFP/Getty Images

Carnival stock cratered last year, as the coronavirus pandemic wiped out the market for cruises, and in mid-January, three top executives, including chief executive Arnold Donald, sold shares.

Carnival (ticker: CCL) shares plunged 67% in 2020, and that was following a December boost.

On Jan. 11, Carnival stock dipped after the company preliminarily reported a large fourth-quarter loss. The shares are now down about 5% this year.

Read the full article at Barron's 

Get ready for Apple’s first $100 billion quarter in history

 

What to expect

Earnings: Analysts tracked by FactSet expect that Apple earned $1.41 a share in the December quarter, up from $1.25 a year earlier. On Estimize, which crowdsources estimates from hedge funds, academics and others, the average projection calls for $1.45 a share.

Revenue: The FactSet consensus models a record $102.54 billion in revenue for Apple’s fiscal first quarter, up from $91.82 billion a year prior. The Estimize consensus is for $103.76 billion.

Analysts tracked by FactSet model $59.58 billion in iPhone revenue for Apple, up from $55.96 billion a year earlier. Apple declined to give formal guidance for the quarter on the last earnings call, but Chief Financial Officer Luca Maestri said at the time to expect growth in iPhone revenue even though devices would begin shipping later in the quarter than they did a year prior.

The FactSet consensus calls for $7.38 billion in Pad revenue, up from $5.98 billion; $8.63 billion in Mac revenue, up from $7.16 billion; $15.17 billion in services revenue, up from $12.72 billion; and $11.49 billion in revenue for the wearables, home, and accessories category, up from $10.01 billion.

Read the full story at MarketWatch

Apple is lining up for a break through

Assuming that the Earning report will be good on Wednesday I am pretty bullish on Apple stocks. They are financially well positioned, lot of cash at hand, entering 5G network with iPhone 12 and going into the autonomous vehicle driving business.
The Technicals show a Channel up. There could be a 6 Dollar move to the upper channel level. But there is another technical GOODY. See below

There is also the up sloping wedge with a flat top present in the same picture. The all time high of APPL was hit on September 02, 2020. This wedge is also calling for a break through to the top.

And then there is the CUP and HANDLE pattern, which predicts a break through to the upside. Look carefully to see the pattern!

Whats the conclusion?

I will try to buy 4 x 145 CALL 16APR21 for 8.10

Total cost = US$3,240

We will see what the market is willing to give.145 in the first day and 150 in the second day?

Apple is in the focus next week. Apple Stock Surging Ahead Of Possible Record Holiday Quarter

Apple 4Q Earnings coming out on Wednesday. It could be greater than expected. See what the technicals say next post

PATRICK SEITZ

• 04:24 PM ET 01/21/2021

Wall Street analysts are pounding the table for Apple stock ahead of the company's December-quarter earnings report next week. Morgan Stanley raised its price target on Apple (AAPL), saying investors are underestimating the consumer electronics giant's holiday sales. 

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"Our recent conversations suggest investors expect Apple to release solid, but not great, December-quarter results," Morgan Stanley analyst Katy Huberty said in a note to clients Thursday. "We disagree and believe that Apple is likely to report  all-time record quarterly revenue and earnings."

Huberty reiterated her overweight rating on Apple stock and hiked her price target to 152 from 144.

On the stock market today, Apple stock jumped 3.7% to 136.87.

IPhone 12 Seen Fueling Apple's Quarterly Results

Cupertino, Calif.-based Apple plans to report its fiscal first-quarter results late Wednesday. Wall Street estimates have Apple earning $1.40 a share on sales of $102.62 billion. In the year-earlier period, Apple earned $1.25 a share on sales of $91.8 billion.

Apple is seeing strength across its portfolio of products and services, Huberty said. The company's December-quarter results will be driven by the 5G-enabled iPhone 12, sustained App Store engagement and the work-from-home, learn-at-home trends, she said.

"In our view, the iPhone 12 has been Apple's most successful product launch in the last five years," she said. Also, consumers are gravitating to the higher-end Pro and Pro Max models, which should boost profit margins, she said.

Elsewhere on Wall Street, D.A. Davidson analyst Tom Forte reiterated his buy rating on Apple stock on Thursday. In his note to clients, he said, "AAPL looks delicious to us."

"Apple's first lineup of smartphones on 5G networks are better positioned than investors completely appreciate," Forte said. He pointed to carrier support for the handsets and favorable discretionary income trends.

Apple Stock Nearing Fresh Buy Point

Monness Crespi Hardt analyst Brian White also restated his buy rating on Apple stock on Thursday.

"The strength and linearity of this economic recovery remains a wild card," White said in a note. "However, we believe Apple's strong balance sheet, iconic brand, rapidly growing services business, pipeline of innovations and hard-line stance on personal privacy will allow the company to emerge from this crisis stronger."

Apple stock is trading just below its record high of 138.79, reached on Dec. 29. In recent weeks, Apple shares have moved above aggressive entries at 122.09 and 125.49, according to IBD analysis. It is now approaching a new buy point at 138.89, according to IBD MarketSmith chart analysis.

Apple stock is on IBD's prestigious Leaderboard watchlist.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.