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One of the more amusing posts on X after shares of Elon Musk's other business Tesla, Inc. (NASDAQ:TSLA) spiked after hours yesterday was this one, picturing someone throwing Benjamin Graham's classic book, The Intelligent Investor, in the trash.
$TSLA +7% https://t.co/KyDGq8C4wU pic.twitter.com/m0VVSqKdFU
— Mads Capital (@MadsCapital) April 23, 2024
Of course, Warren Buffett's mentor Graham wouldn't have been surprised by Tesla's spike after missing its earnings estimates. As he famously wrote, "In the short term, the market is a voting machine; in the long term, it's a weighing machine". In the long term, the market will weigh Tesla's earnings and various valuation metrics, but in the short term, the market is voting on the stock's prospects. So when you trade, you've got to think about how the market will vote.
I did that yesterday, though, to be fair, there was a bit of luck involved. As I watched Arsenal blow out Chelsea in yesterday's Premier League match, I remembered Tesla was reporting earnings after the close. I also remembered these two Zero Hedge posts about the stock.
Last two times TSLA dropped seven straight days, it ripped back (Sep 2018, +50% in next two months; Dec 2022, +100% in next two months) https://t.co/BtyFZLXdwo pic.twitter.com/vGTzi6V79z
— zerohedge (@zerohedge) April 22, 2024
With that in mind, I placed a bullish options trade on TSLA just before the market closed.
Here's the part where luck wasn't involved. I knew that options were pricing in a move of about 9% in either direction for TSLA. I also knew that the odds of my trade working were probably close to 50% (ideally slightly higher). With both of those facts in mind, I decided to go a bit out-of-the-money to give myself a shot at a >100% gain if the trade worked. That way, even if this sort of trade only works about half the time, you're setting yourself up to profit over time.
With TSLA trading at about $144, I opened a vertical spread expiring on Friday, buying the $152.50 strike calls and selling the $155 strike calls for a net debit of $0.75. The max gain on that spread would have been $2.50 if TSLA was trading for more than $155 at Friday's close, but I decided to lock in a smaller profit instead today. I just exited that spread this morning at $2.05, for a profit of 173% overnight.
These sorts of earnings trades can be hit-or-miss, but our core strategy in the Portfolio Armor Substack--buying equal dollar amounts of our top ten names, putting 15%-20% trailing stops on them, and then replacing them as we get stopped out with new top names--has been pretty consistent so far. As you can see below, since I started the Portfolio Armor Substack, our top ten names have outperformed the market by 21.82% over the next six months, versus 11.8% for the SPDR S&P 500 Trust ETF (NYSE:SPY).
This was when we first started sharing our weekly top names cohorts in the Portfolio Armor Substack.by 21.82% over the next six months, versus 11.8% for SPY.
Starting Date Portfolio Armor 6-Month Performance SPY 6-Month Performance December 29, 2022 30.94% 15.57% January 5, 2023 39.55% 18.14% January 12, 2023 30.05% 13.65% January 19, 2023 47.63% 18.47% January 26, 2023 34.96% 13.83% February 2, 2023 2.54% 9.24% February 9, 2023 4.70% 10.75% February 16, 2023 14.18% 8.92% February 23, 2023 30.43% 11.84% March 2, 2023 17.95% 14.72% March 9, 2023 23.87% 15.09% March 16, 2023 5.30% 13.62% March 23, 2023 10.69% 10.27% March 30, 2023 9.00% 6.66% April 6, 2023 16.57% 5.74% April 13, 2023 -1.79% 5.12% April 20, 2023 6.88% 3.01% April 27, 2023 9.45% 0.31% May 4, 2023 13.28% 8.08% May 11, 2023 8.52% 7.69% May 18, 2023 9.91% 8.31% May 25, 2023 -2.77% 10.61% June 1, 2023 -6.11% 9.63% June 8, 2023 12.72% 8.02% June 15, 2023 19.14% 7.25% June 22, 2023 9.37% 9.34% June 29, 2023 11.32% 9.32% July 6, 2023 -0.97% 7.24% July 13, 2023 -0.61% 6.84% July 20, 2023 -4.82% 7.51% July 27, 2023 4.78% 8.54% August 3, 2023 20.98% 10.98% August 10, 2023 35.94% 13.26% August 17, 2023 89.37% 15.37% August 24, 2023 62.22% 17.13% August 31, 2023 30.72% 13.68% September 7, 2023 44.34% 16.61% September 14, 2023 33.97% 15.22% September 21, 2023 51.45% 21.54% September 28, 2023 38.51% 22.56% October 5, 2023 61.35% 22.62% October 12, 2023 29.96% 18.28% October 19, 2023 32.93% 16.59% Average 21.82% 11.80%
So Portfolio Armor's top ten names averaged 21.82% over these 43 6-month periods, versus SPY's average of 11.80%.
If you want to stay in touch.
You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
