Best Idea This Week

The Long Vol Report

Just some quick updates in this post today. As many of you know my Dad has been battling some health issues the last few years and this Summer it progressed a bit with multiple surgeries. Last week he unexpectedly caught an infection post-surgery and was rushed to the ER where he was sent to the ICU for the last four days hence me being absent with the video-cast/article this week. The positive news this weekend is that he is off the breathing machine and talking and, if all goes to plan, will be moved out of the ICU into another floor here tomorrow or sometime this week. I have a little downtime this morning as I go through some work so I want to get this quick note out to start this week and do a quick recap of some earnings last week.

Once things clear up I should be back and I appreciate the messages from those of you that took the time to reach out.

Earnings Season:

Earnings are a big deal for me because they let me not only get the updates on some of the portfolio positions we own in the fund but also to find dislocations that we can start to do work on for eventual new longs. I told readers here back as we started Q3 that there would be “no shortage of ideas” and that was the title of PDF report 29.

And there has not been a shortage with earnings being a big week last week for readers and it’s going to get busier as some names have dislocated a bit….like Paypal.

We’ve covered this in the report as of Q3 and I own a position in this personally and in the fund for our partners, sold off -10% last week from earnings. Adjusted FCF came in lower YoY which was the soft-spot here and that’s all the market needed to drop this and the sell-off was NOT a slow-down in the business but other issues in working capital. They RE-AFFIRMED FY FCF guidance of $6-$7B.

But then again, most don’t read the report and act off impulse which dropped it. Am I mad at it? No, it’s part of this business and you get ebbs and flows plus I run a portfolio not an “eggs all in one basket” approach so while this dropped last week others were up big.

There are improving fundamentals there and price is not showing it which is good for us because we can buy it lower and then get paid out well as others panic….plus management is still planning to buyback $6B in shares this week.

But people panic and that panic presents opportunities and speaking of that we found one of those in Generac a few months back when nobody wanted it…..

Then we had $GNRC: We talked about this in DeltaOne and from what I saw a lot of members put up some serious gains which I am sharing below but this is an example of doing the real work on a Company months ago then sticking with that investment and getting paid off handsomely as it pressed more than +30% since earnings

Congratulations to those of you that were in $GNRC ( ▼ 0.54% ) and to those in $PYPL ( ▼ 2.4% ) it’s part of the game - the position was positive into the event then pulled back because of it and that has happened plenty of times in my career and will happen again so if you expect to find “no pain” with investing then I’d suggest you make this one change:

Don’t hold positions for long, switch to a 1-21 day trading window and leave the investing to those that can stomach the ebb-and-flows. One, you’ll feel better and two, I won’t have to hear you complain 😃 

Moving on….

I am going to get into an idea from the “Best Ideas” section of the PDF report and explain what I look for when I short an index like the Nasdaq, why I am looking at it in the first place and then break down how that generates other stock shorts from that. For those that are readers you know that I don’t really talk about broad market trading topics like this or really worry about the broad market direction unless it relates to larger moves, likes this, that we might be on the verge of getting soon.

So, I am going to explain this:

• Why the high-time frame analysis process matters to me

• How to look at the major index and generate ideas off of that index

• Anticipating larger moves and why that matters for filtering ideas