Nasdaq 100 IndexLong
How to flip $2,000 into a million in a bubble.
Updated
In this post I want to share with you an idea I've shared with my friends irl who have market exposure.
Heading into the 2022 high I strongly encouraged my friends to sell stocks. We were heading into a multi decade resistance level and I'd put the odds somewhere around 80% there'd be a notable reaction to this level. Could be a pullback, could be a crash. If it's a pullback it's easy to get back in, not so easy to get out in a crash. So, no brainer.
Late 2022 I started to tell them it was worth getting back in as long as they used good stop loss rules and then when we got to a 76% retracement of the 2022 drop I started to explain the concept I'll discuss in this post to them.
First let's lay the groundwork for this.
We can focus on the things we know. It's a known that indices have uptrended for a long time. And it's a known of trend development that trends do not get slower. A trend is always increasing in velocity. It goes up faster and faster and then when it comes down it comes down faster than it went up.
This is always what happens. Trends speed up. Regardless of the direction.
Now, in 2022 we hit a multiple decade resistance. This was evidenced by a local market top. Confirming the market also seems to care about this level.
Whatever happens, this is likely to be a major pivot point in the trend. Either we'll top out here or well head into a stage of hyper overperformance. In this overperformance, we will likely see indices up 100% from the current highs. 200 - 300% is on the table, 100% is a number that would have high odds of hitting, based on historical breaks like this.
And if the resistance is actionable, this could all come crashing down in a horrific way.
If you accept these premises that the market is due to either crash up or crash down, then it makes no sense at all to have common stock exposure (Or whatever you prefer).
If the long bet is wrong, you can take crippling losses and if the long bet is right you can make a lot more money betting on the hyper aggressive breakout.
Around 4500 I started to tell my friends this. I told them if I was them I'd drop my stocks. Bank the profits on those and then I'd take 10 - 20% of what I'd made in profits and use these to buy a portfolio of aggressive OTM calls.
My thinking here is if the market yanks, no big deal. SPX could drop 90% and my friends would take rather nominal losses. Giving back a fraction of what they made in the rally rather than seeing all their positions go from profits top negative.
On the other side of the coin, if the breakout comes - they'd make a lot more on the calls than they'd make with common. Depending on aggression level, they'd make a crazy amount more.
A rally similar to the Nasdaq breakout would translate as something like this on SPX.
At this moment in time you can buy Jan 2027 calls for under $150. In the event this move happened, these would be worth min over $65,000. A bit under $75,000 if the move is completed faster and this is not even accounting for the potential of an IV boost if the market goes into hyper performance.
$2,000 into a series of bets on that happening would return over a million in the event that it did actually happen.
This is not without risk. The plan I proposed to my friends has one main risk and that is the market slowly continues to uptrend. Making good gains but not hitting the bubble conditions to make it realistic these deep OTMs actually trade (For context, the statistical probability of profit on these right now is 0.2% - something would have to change).
In that scenario, they'd take some small losses on the call portfolio and they'd have missed out on whatever the gain of just owning the underlying asset would be.
That's the potential cost of the bet. On the upside of that, my friends who had 10s or even 100s of thousands exposure to the bear move can covert this to a few grand risk and still make mega bank if the bubble thesis comes into play.
If SPX hits the 100% move inside of 2 years, these calls pay somewhere around $25,000 per $130 risked. In the event this heads into a blow off event they start to get up to close to $100,000 on those positions.
This is hyper high RR way to bet on a developing bubble. Ensure you do not have excessive losses in a crash and the price of this is basically you convert your bet into a bet that the market will not range. If the market ranges for a year or two, this idea suffers.
I think this is the wise thing to do at this point if speculating in stocks. We're into a binary level in my opinion. A polarising decision will come in this area.
The smart thing to do is to put a hard cap on risk exposure so all bearish tail events do not hurt you and have the potential to make 1,000s of % of profit in the event of a bullish tail event.
I think the probability of a tail event in the coming years is high now. Rarely is the probability of a tail event high, but rarely do we test multiple decades of resistance in indices.
There is so much that can be made or lost in a tail event, that it makes a lot of sense to think about how you can structure bets to survive or thrive in the different outcomes.
If this proves to not be the end stages of a bubble, then I think it's only reasonable to assume we're actually somewhere in the middle of a bubble.
Which means something exceptional is likely to come in the following years - whatever way this inflection point resolves itself.
In my opinion, if you want to bet on continued up moves in indices, you might as well bet on a full fledged bubble.
The odds of indices breaking resistance and slowly limping higher I consider super low. I think we reverse or we fly. I have my bets structured to benefit from either one.
Heading into the 2022 high I strongly encouraged my friends to sell stocks. We were heading into a multi decade resistance level and I'd put the odds somewhere around 80% there'd be a notable reaction to this level. Could be a pullback, could be a crash. If it's a pullback it's easy to get back in, not so easy to get out in a crash. So, no brainer.
Late 2022 I started to tell them it was worth getting back in as long as they used good stop loss rules and then when we got to a 76% retracement of the 2022 drop I started to explain the concept I'll discuss in this post to them.
First let's lay the groundwork for this.
We can focus on the things we know. It's a known that indices have uptrended for a long time. And it's a known of trend development that trends do not get slower. A trend is always increasing in velocity. It goes up faster and faster and then when it comes down it comes down faster than it went up.
This is always what happens. Trends speed up. Regardless of the direction.
Now, in 2022 we hit a multiple decade resistance. This was evidenced by a local market top. Confirming the market also seems to care about this level.
Whatever happens, this is likely to be a major pivot point in the trend. Either we'll top out here or well head into a stage of hyper overperformance. In this overperformance, we will likely see indices up 100% from the current highs. 200 - 300% is on the table, 100% is a number that would have high odds of hitting, based on historical breaks like this.
And if the resistance is actionable, this could all come crashing down in a horrific way.
If you accept these premises that the market is due to either crash up or crash down, then it makes no sense at all to have common stock exposure (Or whatever you prefer).
If the long bet is wrong, you can take crippling losses and if the long bet is right you can make a lot more money betting on the hyper aggressive breakout.
Around 4500 I started to tell my friends this. I told them if I was them I'd drop my stocks. Bank the profits on those and then I'd take 10 - 20% of what I'd made in profits and use these to buy a portfolio of aggressive OTM calls.
My thinking here is if the market yanks, no big deal. SPX could drop 90% and my friends would take rather nominal losses. Giving back a fraction of what they made in the rally rather than seeing all their positions go from profits top negative.
On the other side of the coin, if the breakout comes - they'd make a lot more on the calls than they'd make with common. Depending on aggression level, they'd make a crazy amount more.
A rally similar to the Nasdaq breakout would translate as something like this on SPX.
At this moment in time you can buy Jan 2027 calls for under $150. In the event this move happened, these would be worth min over $65,000. A bit under $75,000 if the move is completed faster and this is not even accounting for the potential of an IV boost if the market goes into hyper performance.
$2,000 into a series of bets on that happening would return over a million in the event that it did actually happen.
This is not without risk. The plan I proposed to my friends has one main risk and that is the market slowly continues to uptrend. Making good gains but not hitting the bubble conditions to make it realistic these deep OTMs actually trade (For context, the statistical probability of profit on these right now is 0.2% - something would have to change).
In that scenario, they'd take some small losses on the call portfolio and they'd have missed out on whatever the gain of just owning the underlying asset would be.
That's the potential cost of the bet. On the upside of that, my friends who had 10s or even 100s of thousands exposure to the bear move can covert this to a few grand risk and still make mega bank if the bubble thesis comes into play.
If SPX hits the 100% move inside of 2 years, these calls pay somewhere around $25,000 per $130 risked. In the event this heads into a blow off event they start to get up to close to $100,000 on those positions.
This is hyper high RR way to bet on a developing bubble. Ensure you do not have excessive losses in a crash and the price of this is basically you convert your bet into a bet that the market will not range. If the market ranges for a year or two, this idea suffers.
I think this is the wise thing to do at this point if speculating in stocks. We're into a binary level in my opinion. A polarising decision will come in this area.
The smart thing to do is to put a hard cap on risk exposure so all bearish tail events do not hurt you and have the potential to make 1,000s of % of profit in the event of a bullish tail event.
I think the probability of a tail event in the coming years is high now. Rarely is the probability of a tail event high, but rarely do we test multiple decades of resistance in indices.
There is so much that can be made or lost in a tail event, that it makes a lot of sense to think about how you can structure bets to survive or thrive in the different outcomes.
If this proves to not be the end stages of a bubble, then I think it's only reasonable to assume we're actually somewhere in the middle of a bubble.
Which means something exceptional is likely to come in the following years - whatever way this inflection point resolves itself.
In my opinion, if you want to bet on continued up moves in indices, you might as well bet on a full fledged bubble.
The odds of indices breaking resistance and slowly limping higher I consider super low. I think we reverse or we fly. I have my bets structured to benefit from either one.
Trade active
In terms of tactical entry levels now (because we're not at 4500 any more), I'd think 5900 a good level).
If and when we trade there, I'll be taking a lot more actionably about the ways one could structure a bet on these.
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