Enhanced DRIP Strategy & Covered Call, Swing & Hedge in a High Volatility Market

 I、DRIP Strategy & Sell Covered Call with Lower Expectation

The above are the screen shots at late night of Feb 21^st and a little over one and half hours before the market close on Feb 22^nd(San Francisco time), mainly regarding planning ahead and buying Intel during the panic on Feb 22^nd：【Intel is currently less than $44, and it is highly likely a good value investment in the medium and long-term. Meanwhile, it is a good hedge for short positions in over hyped growth stocks and over value Nifty Fifty style stocks】, and added 【From the mid-term perspective, the market likely has not reached the rock solid bottom yet. Last year and this year(expected), Intel's revenue growths are both negative, not optimistic at all. However, during the next 5 years, its overall revenue growth will likely still reach the average annual rate of 7% (significant capex investments). For sure, there are some uncertainties, such as, the effective progress of its IDM 2.0 Strategy, and its most critical Foundry business, of which the side effects of the likely future global over capacity needs to be closely watched】, and around July this year, the self-driving Mobileye business will likely be spun off to realize shareholder value more efficiently. Intel did drop below $44 both on Tuesday and Thursday, which is indeed a good opportunity to buy dips for the long run. Of course, it is better to lower the expectation during the current market conditions, especially in the short term, thus it's better to adopt an enhanced DRIP strategy, that is, “apply the DRIP strategy supplemented by routinely selling out of the money covered call”, such as, sell Apr 1^st $50 covered call for $0.76. Assume the average cost of buying the dip is $43.9, then so far, the gain is 8.68% already. If by Apr 1^st, Intel is over $50, then the total gain including call premium collected is 15.6%, not bad at all for a little over a month; if less than $50 by then, just simply continue to sell covered calls of higher strike price, as it's deemed to be a long term investment, very stable and steady.

II、Shorting the rally on ARKK、Tesla、Roku & Swing Trading

On Jan 25^th, I warned that, “short-term, Tesla will likely drop another 20-30%”, and on Feb 17^th, right before the quarterly earnings release of ROKU,“I particularly disagreed with the pseudo-innovation and excessive valuation of ROKU”, and emphasized again that “ARKK's target price is around $60 (Davis double kill), if not lower”. Note: Tesla and Roku are ARKK's first and second largest holding respectively. Surely enough, Roku dropped over 22% after its quarterly earnings, and Tesla dropped to as low as $700 on Feb 24^th, which was a 23.78% haircut from its $918.4 at the close of Jan 25^th when I gave the warning, and these are good opportunities to at least take partial profits of the short positions. Similar for ARKK, which dropped below $60 on Feb 24^th, met my correction target of $60 sooner than expected, it is a great opportunity to at least take partial profit and run, and hedge the rest short positions as well. Even though, look forward, by the end of the first half of the year, very likely there is still more downside potential for ARKK, but similar to what mentioned at late night of Feb 21^st：【However, Rome was not built in a day, a rock solid bottom most likely will take some time to be materialized, and the exact bottom is anybody's guess, yet surely there will be technical rebounds along the way, and such rebound can be comparatively sizable sometimes as well, such as in the magnitude around 4-5%, as the big worries of all the possible consequences including “Nuclear blackmail” regarding Russia's invasion of Ukraine will be reduced. Thus, it is strongly recommended to use the current panic selling in the major index futures as a good opportunity to at least lock in partial or all profits of short positions, and go long on some selected long-term good value stocks tomorrow(Tuesday), such as the recent badly beaten down Intel(INTC), use the strategy similar to this paragraph in my January article 《End of a Currency Carnival Era & Rising Global Stagflation Risk》：“Under the current overall global trend of tightening liquidity, it's better to look for global deep value to buy at the low (require much more patience and reduced expectations, such as, through selling secured puts to entering a position for the long-term investment at a very likely better price, then apply the DRIP strategy supplemented by routinely selling out of the money covered call), adhere to the long-term investment philosophy of value supplemented by growth, and meanwhile, need to short the rally on the over hyped speculative stocks, and supplemented by hedge and swing trading.”】

III、Partial Hedge of Short Positions through futures

In the above first screen shots, there is this paragraph at late night of Feb 21^st: 【Tonight, the S&P500 future plummeted to the lowest of 4255.5, near the previous low on January 24; and the large-cap high-tech Nasdaq 100 once plummeted to the lowest of 13591.9, which was quite a bit below the previous low of a little above 14000 in late January. Such kind of panic selling in the futures created a very good opportunity to lock in the profits of short positions by hedging through futures】. And there was the even bigger panic selling during the market hours of Feb 24^th, with S&P 500 reached as low as 4114.65, which presented an even greater hedge opportunity for short positions by going long futures.

Why only the partial hedge of short positions in over hyped growth stocks and over value Nifty Fifty style stocks?  Simply put, a rock solid bottom most likely will take some time to be materialized, and there are big market swing along the way, thus very likely there will better probability to short the rally at better prices in the near future. As I have mentioned a few times that【very likely we haven't seen the rock solid bottom yet，which could be around 4000 （could be worse）for S&P500 in the first half of the year, after considering the Pendulum Effect – momentum to the downside】.

Note：All screen shots are from【Swing Trading、Quantitative Strategy、Short Hedging and Asset Allocation】WeChat group.