Dear Reader,
Rachel Bodden, Jeff Clark’s senior managing editor here…
Today we’re doing a trial run of a new style of content for you – and you’ll have to let us know if this is something you’d like to see more of in the future at [email protected].
I’ll ask Jeff some questions about the markets, what strategies he thinks are best, where he thinks things are headed, and then we’ll answer some subscriber questions.
Check it out below or scroll down to read the transcript.
Transcript
Rachel Bodden, senior managing editor: Hi, my name is Rachel Bodden, and I’m sitting down today with Master Trader Jeff Clark for a trial run of what could become a regular podcast-style session.
So if you enjoy today’s talk, remember to let us know at [email protected].
But for anyone who’s new to Jeff and his work, I can give a brief introduction about him. Jeff’s been trading since he was 19 years old, meaning he’s got more than 4 decades’ experience trading the markets. His signature trading style thrives on market conditions where most investors are just running scared for the hills and honestly, losing money left, right, and center.
Times like the Great Recession when he gave his subscribers 26 doubles or the COVID crash or the 2022 tech wreck and most recently, this style and his strategies led to an incredible win streak since the April 2nd “Liberation Day” flash crash.
Jeff has 3 services in which he sends out trades to his subscribers. In Jeff Clark Trader, 4 out of his last 5 trades were winners, and that’s an 80% win-rate. In Delta Report, he’s gone 5 for 5, but most impressive is Delta Direct, his live trading blog where he posts in real time his thoughts on the markets and posts quick hit trades.
Out of his last 14 trades, 12 were winners. That’s an 86% win-rate in the last 4 months. It’s really something.
So Jeff, I remember us chatting around inauguration day about the impending period of extreme volatility, and you are really looking forward to it. Can you tell us a little bit about why?
Jeff Clark: Well, yeah, I mean, listening to that intro, it sounds like I enjoy chaos, which I actually do. I like volatile markets.
I am not comfortable when things just simply go in one direction all the time. And when you have a long-term bull market like we saw in 2024, where stocks just went up steadily, it doesn’t really fit my trading style.
I like things to go up and down and move back and forth and do all sorts of weird things.
And I thrive on that sort of situation. And that’s why, you know, when you mention You know, the, the great financial crisis, we, we had a really good track record. 2008 was probably one of my best years. 2020 was a very good year, 2022 was a very good year. And since Liberation Day, it’s been fun as well.
Like I said, the volatility and the chaos tends to lend itself to my particular style of trading. And I enjoy having President Trump in office because he tends to make things a little bit more exciting, a little bit more volatile. And, chaos might as well be his middle name.
There’s a lot of stuff going on, and I think we’re gonna, we’re gonna see a lot of volatility over the next several years. And so I think folks who are, you know, the old school style of trading or or style of investing, which is buy and hold, you know, you buy something today and you hang on to it for 10 or 15 or 20 years.
I don’t think that’s gonna work so much for the next few years. I think you, you have to be willing to go in and, and get out quickly. And move around a little bit, and you’ll have the opportunity to do that as we’ve seen over the last couple of months. And I know that markets are kind of back within spitting distance of their all-time highs, right? But most people don’t sit through that.
Like they get scared and they trade out of it and they lose money, and then they buy back in when they really shouldn’t. Yeah, it’s, it’s, that’s the difficult thing in the market is, is even the professionals do this, you know, when prices are cascading and, and things are, are just selling off day after day after day, people wig out, they, they get a little bit nervous and it’s
To stop that pain, they sell and they do the exact opposite of what they ought to be doing, you know, when we look at, you, you, again, going back to 2008, the great financial crisis, the best time in our generation to buy stocks was in 2008. Most people were selling in 2008. You know, we talked about my track record, we had what, 25, 26 doubles. But those were, most of them were on the buy side.
We were buying, at relatively cheap prices. And during, you know, periods of extreme volatility to the downside. And again, just even a couple of months ago with Liberation Day, we had that same opportunity and most people were selling.
Now, we were kind of anxious about the market in January and February as we’re going into this year, looked to me like prices were stretched a little bit. Valuations were certainly stretched, you know, the S&P 500 was traded at 23, 24 times forward earnings.
That’s expensive, no matter the conditions. Then you throw the trade war on top of it and, and people get nervous. So we were kind of expecting a little bit of a downdraft, and we took advantage of that downdraft by actually buying into stocks around early April. And then we’ve subsequently sold many of those positions. Now we’re back up within spitting distance of the highs again, and now I’m starting to look at the valuations.
So we’re here, here we go again. We’re 23, 24 times forward earnings. Stocks feel expensive, most people who were selling in early April recognize they made a mistake, and now they’re chasing those positions back now, and they’ve bought into it.
What worries me the most about this is when you look at typical bear markets. They tend to unfold in 3 distinct down waves. So you get that first move lower, then you get a rebound, then you get another move lower, then a rebound, then a final move lower.
It’s that second move lower that tends to do the most damage, because what happens is people sell out in that first move, then the market bounces all the way back up to within spitting distance of all-time high, and people go, Oh, I got bluffed out. So this time, they buy in and they go, no matter what, I’m not selling.
So it takes the market causing even more pain on another drop lower to force those people out of the market again. And undoubtedly, that’s what happens. And if you go back to, you don’t have to go back that far. Go back to 2022, you know, the market peaked in January of 2022. We got the sharp downdraft into March, April, huge rebound, almost back to all-time highs, and then a much deeper decline going into October.
I hate to say it, but I’m kind of expecting something like that this time around. I may, may not get it. Maybe I’m wrong, and maybe the market just goes right off to all-time highs again. It would, it would shock me if that actually happens simply because valuations are so stretched.
But if it does start to roll over from here, I think a lot of folks who just recently bought back into the market are gonna hold on a little tighter this time, which means it’s going to take the market moving even lower, below what we saw in early April, which was 4800 on the S&P.
5000 was the closing low, but intraday, it dipped as low as 4800. Going down below that level, it’s going to be painful for a lot of folks. So I would advise folks, if you were in the market in April, and you were wishing you had gotten out in February… Now you have a chance to get out.
You’re selling near the all-time highs, near expensive valuations, you could do a lot worse.
And given what I think is coming, I think it’s probably a reasonable time to start raising some cash. You don’t have to bet on the downside, you know, a lot of folks shorting stocks is maybe not in their wheelhouse.
I tend to like to do it, but I just like to have cash available, so when that market comes down again, I have an opportunity once again to put that money to work at lower levels. Most of the money that you make in a bear market is on those huge rip your face off rallies that come off of deeply oversold conditions. And that’s what we’ve seen.
We’ve seen that since April, and in every bear market, you look at the top 10 rallies ever in the, in the history of the market, every single one of them happened during the bear market.
Rachel: And you are really good at capturing these. Don’t get mad at me, I have a quote from Porter Stansberry about your performance in 2008.
He was writing about, your Short Report track record back in 2009. So this was your trading record in 2008, and he said:
Jeff’s trading record this year in the short report was nothing short of heroic. He made 52 recommendations, all of them short-term trades. Out of these, 42 made money. A win rate of more than 80% in options trading is ridiculous.
The average return of every trade was a bit more than 31%. That’s outrageous when you understand the short duration of these trades and the turnover in the portfolio. How outrageous? The cumulative total return was greater than 1,700%.
Jeff: Well, yeah, like I said, 2008 was a pretty good year, and, and I think we’ll have a similar opportunity this year.
2008 was a generational buying opportunity. They created a generational buying. I think we’re gonna have another one of those. Yeah, I, I do. I, I’m looking forward to it.
I don’t know if it comes in 2008 or it comes in, or I keep saying 2008, 2025. I keep going back to the good old days, 2025 or 2026. Either way, I want to be available for it.
And, again, my style of trading is I wait for things to get really extremely stretched, and then you just go in and, and start buying.
Right now we’re stretched the opposite way. Right now, we’re stretched a little bit too far to the upside, I think. So that rubber band has to snap back a little bit.
And if we do get that second wave in a bear market, that I’m sort of anticipating, we’ll have the opportunity to put money to work at significantly lower levels, significantly better prices. And so I just advise folks to be patient on that.
When you pay attention to the market every day and you’ve got a pile of cash, you’re just sitting here waiting to deploy, it can be frustrating sometimes waiting for prices to come down, especially as prices just keep seem to levitate. You just have to be wise about it and know that markets don’t move in one direction.
They will almost always give you an opportunity to buy. You just have to be able to to Avoid the FOMO trays, right? The fear of missing out. That probably causes more damage than anything else other than leverage. Leveraging and fear of missing out will destroy a portfolio.
So if you can be patient and you can operate on just, you know, it’s your money. Put it to work at the right time, you’ll probably have an opportunity to do very, very well.
I often say, everybody makes money in a bull market, but it’s the decisions you make in a bear market that can make you rich.
I think folks will have an opportunity to get rich this year. It’s really about harnessing all of those emotions.
Rachel: I think it was Men in Black that said, “humans are dangerous, panicky animals.”
Jeff: Leave it to Men in Black quotes to work their way into a stock market podcast.
Rachel: What would you say the best strategy that a person should know about in this kind of market?
Jeff: Well, I mean, not to be immodest, but a reversion-to-the-mean strategy is what works best in this. And all the reversion-to-the-mean strategy is, it’s that rubber band philosophy.
It’s that proverbial market rubber band stretches and stretches and stretches so far in one direction that inevitably it has to snap back. You just wait until the odds overwhelmingly favor a snapback.
And you say, well, what is that?
Well, if you’re looking at buying stocks, You look to buy stocks when they’re trading near the low of their historical fundamental values. So if you’ve got a stock that normally trades 15 times earnings, and right now it’s at 18 times earnings, that’s expensive. Probably not willing to buy it at these levels. It comes back to 15 times earnings, that’s normal. OK, that’s like going into a store and buying your sweater at an average price.
But if you can get it down to 12 times earnings, if you can pick up a stock that normally trades at 15, You’re getting it at 12, that’s a 20% discount. That seems pretty good. If you can get a 40% discount, that’s fantastic. So that’s what I’m talking about when I, when I talk about that rubber band stretching. If you can stretch into deep oversold conditions where you’re buying stocks at fractions of what they would normally trading for, That’s a good opportunity.
And then you get that snapback rally brings it all the way back up to neutral and maybe expensive again, and then you unload the stock. And you don’t have to wait 5 years or 10 years to make those sorts of returns. You can see enormous returns in a matter of days. Think about it. Back in April, you had Marvell Technologies trading at $50 a share.
It’s trading almost $70 just two months later. That’s a 40% return. In 2 months. The stock doesn’t move 40% in 2 years. So you’ve captured 2 years’ worth of returns in just 2 months.
That seems to me to be a pretty good time to be buying stocks in that situation. Now we have the opposite condition though. We have stocks that have stretched too far to the upside. You’ve got stocks that are trading 1520, 30 times revenue. Never mind earnings times revenue.
That just seems expensive to me. And yeah, they could stretch further. That rubber band can keep going a little bit, but ultimately, they always snap back. So I, I’ve not I’ve not experienced the Condition where it hasn’t snapped back. So I trust that it will.
It’s just a matter of having the patience to wait for that to happen.
Rachel: One of the strategies we’ve been doing recently is the bill payer strategy or the method of selling uncovered boats. And can you tell us a little bit about why that was such a good strategy or is a good strategy for right now?
Jeff: Well, the idea of selling uncovered puts means you are going to obligate yourself to buy a stock at a certain price, and for doing that, you collect income by selling the uncovered put. It’s a wonderful strategy used to generate income, and it’s an absolutely fantastic strategy in a volatile market where option prices are expensive.
We explain a little bit about that. When you look at the VIX, the volatility index, and that’s sort of the easiest way to measure option prices. VIX normally trades right around 15%, or it has been over the past several years. It’s been right around 15%. Anytime it’s below 15 is probably a poor time to be a seller of options because you’re not getting paid that much to do it.
So oftentimes when the VIX is low, it’s probably better to be a buyer of options, right? You buy cheap things, you don’t sell cheap things. When the VIX is high. It’s expensive, it it’s. Probably not so good to be a buyer of options.
It’s better to be a seller. So recently, with all the volatility in the market, the VIX has been averaging somewhere around 20. It’s a little bit lower than that right now, but it’s been averaging about 20. That’s expensive. It’s about 33% more expensive than normal.
That means option prices are expensive. If you’re buying options in an expensive premium environment. The odds are against you making money. And the reason I say that is, when you buy an option, you have to be right in a couple of ways. You have to be right on the direction of the stock.
You have to be right on the timing of the stock, and you have to be right on the, the magnitude of the move, meaning you’re paying premium for the right to buy a stock at whatever price you’ve agreed to. Stock has to move up, and then it has to move up enough to recover your premium before you can even start making a profit. So it’s possible to be right on the timing and on the movement and still lose money when you’re buying an option because you haven’t captured enough of the premium. You haven’t, it hasn’t moved enough for that. When you are selling an option.
All of those things work in your favor. You can, if you sell an uncovered put. As opposed to buying a call option. They both make money as the stock moves up. But when you sell an uncovered foot, you make money when the stock moves up, you make money when the stock stays the same, and you make money even if the stock falls a little bit, as long as it doesn’t fall below your break even point on the put sale.
So the more money you can get for selling an uncovered put, the more room you have before that break even point gets violated. So you can be wrong even more than that. So when you have a, when you have a sell-off in the broad stock market using Marvel technology is a good example, the stock went from I think $120 a share down to $50. Marvel at 50 was trading 16 times earnings. Marvel normally trades about 30 times earnings, about twice that.
Even at 16, you go, well, that’s not that cheap. Well, it is for Marvell. It’s historically it’s cheap. So, I don’t mind buying Marvell at 50. I like even better the idea of selling to somebody else.
An uncovered put where I’m obligating myself to buy the stock at $50 you’ll pay me for that. And we did this in, Delta Report, where we got paid something like $400 to obligate ourselves to buy 100 shares of Marvell at 50. That’s a healthy premium for that. And then a couple of days later, the stock moved. The option basically went down to almost nothing.
We bought it back, closed the position, had a nice little profit. The point of it though, is by selling the uncovered put, we’re not only obligating ourselves to buy a stock we want to own at a cheap price, fundamentally, and even the technical picture looked good, but we’re getting paid to do it. It’s like going into Nordstrom’s and saying, God, I love that sweater. Sweater used to be 100 bucks. Now it’s $50.
You go over to the cashier, you say, here, hold this for me. If it ever gets to $40 give me a call, I’ll buy it. Not only that, the cashier opens up the, the register and hands you 20 bucks, and then you walk away. So you just got paid to agree to buy something that you want to own at a price cheaper than what it’s going for right now. Nothing wrong with that.
Rachel: I’ve been working with you for a while now, and that’s the best, metaphor for it that I’ve heard. I can really grasp that. That’s that’s really good.
Jeff: It’s going to sound sexist, but you’re female, if I put it in shopping terms, maybe it makes sense. I know that’s the easiest way I can explain it to my wife.
Rachel: Your wife is a smart lady. Well, talking about put options is a great segue into a few questions we received, and I figured we could go through a couple of them.
All right, so our first question, about selling uncovered put options and even though we can’t give individual investment advice, I’ll go through a little scenario for the subscriber. We recently recommended selling an uncovered put option and even though it eventually closed for profit.
This subscriber lost on the trade because he got spooked and sold out. And I think it was for Humana, and the subscriber asked, is this strategy only for people with bigger capital in their accounts because it would have been $22,500 to be put the position.
Jeff: Well, the Humana trade that he’s talking about was a one-day trade. We sold an uncovered put on Thursday, and we sold it Friday. The stock was starting around $230.
So we sold the $225 put that expired the very next day, and we got, I think, $2 for it. So we’re breaking even at $223. Anything above $223, we make money on this trade. The stock intraday traded down to $225. That subscriber, if he closed his position, then he bought the put back, probably took a small loss on that.
Had he held it to the next day, like we did in the service, it expired worthless, that 200 bucks was yours to keep.
You only sell – this is the most important thing – you only sell uncovered puts on stocks that you want to own and at the prices you’re willing to pay. If you don’t like the idea of owning Humana, which was trading at 13 times earnings, cheap relative to its history, it had a bottoming pattern in place.
Everything looked really good, and we were only looking at a one-day hold on it. If you don’t like the idea of owning Humana at $225 a share, you don’t sell that uncovered put.
You say thanks for the idea, but I can’t take that recommendation and move on to something else. If it’s too large of a position. Each option covers 100 shares. So you’re committing ultimately to to buy 100 shares of Humana at $225 a share. That’s $22,500.
If you don’t have the capital to do that, you don’t do that trade because you might wind up doing exactly what the subscriber did, wigging out a little bit, spooking out of the trade, and suffering a loss. You don’t want to ever be in a position to where the emotion behind that trade is too large.
This happens when you sell one contract on a stock that’s too expensive, or you sell 10 or 15 or 20 contracts, and it’s your entire account moving along with that stock.
That’s also a very common mistake is that people overleverage their trades. If you can avoid doing that, avoid making those mistakes, you can react unemotionally in positions. I was okay if the stock fell to 225, 224, 223, whatever. Humana was a cheap stock to me. I
I mean, it was fundamentally inexpensive, and I wouldn’t mind owning it at $225. So it didn’t matter to me if the stock moved down below $225. It just so happened it didn’t. It came on back and the option expired worthless, and we had a nice little profit off of it. But had it moved lower, that would have been OK too.
I don’t mind buying the stock then. So it’s not that the strategy isn’t appropriate for smaller accounts. I would say that you ought to have at least $10,000 in your account if you’re going to use this strategy, , just because the nature of it requires that you be able to buy 100 shares of a stock, and I can’t imagine, you know, doing that on less than a $10,000 value account. But, you know, if all you have in the world is $2000 you’re not doing the strategy.
And if being put $22,500 worth of stock is not good for your account, then you should not take the trade. We have weekly option recommendations all the time. So you miss one, it’s not a big deal.
We got one coming next week. There’s that control the FOMO. Exactly. It’s not a matter. Don’t ever fear missing out.
That is an emotional reaction and emotions when you’re trading stocks and options generally a bad thing. Actually, we covered a lot of the questions that came in about really good.
Rachel: OK, here’s one. I’ve gone over the training videos to the point where I almost have them memorized, and I still don’t understand the term “buy to close.” What is the purpose when you sell an uncovered put?
Doesn’t the trade automatically close on the expiration date?
Jeff: OK. Buy to close simply means if you sell an uncovered put option, you are selling to open that position. So you’re starting the position by selling the option. So to close the position, you have to buy it back.
That’s all buy to close means. So you’re going to close the position by buying the option back. So if you sell an option for 2, And now it’s at 10 cents, and you want to close it, you buy it back to close, 10 cents, that’s it. If you sell a put option and you let it go ahead and expire worthless, you don’t ever have to buy it back to close. It just expires worthless, and the brokerage firm, the day after it expires, removes it from your account like it doesn’t exist anymore, cause it doesn’t exist, it expire.
So, if you let it expire, then you don’t necessarily have to ever buy it back to close. Where it makes sense to buy back a put option is when you’re looking at the risk reward situation. For example, if you have an option that has maybe a month or 2 months or 3 months left of time, and it’s down to 10 cents. Why risk that the possibility of the stock might move in the opposite direction and you might wind up with a liability on the trade?
Just go ahead and close it out. And then if it does move the opposite direction, maybe you have an opportunity to sell another uncovered foot against that stock. So that’s the only time I would say it makes sense to buy back early, or if the company has an earnings announcement coming out, and you want to just get out of the position, take your profit and move out. That’s OK too. So, buy to close just closes a position that you sold to open, but you don’t have to do it, you can just let it go ahead and expire worthless.
All it does is when you’re, when you’re looking at the risk reward situation, if the option’s trading for 10 cents and it’s got 2 months left. Pay the 10 cents, buy the option back, close the position, move on with your life, rather than leaving the position open for another 2 months, and the most you can make off of it is another 10 cents.
Rachel: Might just be a situation where the language is kind of weird as well if you’re new to options trading, but I think that was really good explanation.
All right, so we’ve been talking about uncovered puts and you put out this really put out this really great video in Jeff Clark Trader on May 19th about how to do the strategy, and one of our subscribers wrote in with a request. “Teach us an easy way to filter out those companies that fit the fundamental and technical criteria you suggested.”
And he said he tried it out on Tradesmith and they have an elaborate system and couldn’t figure it out. So what would you say to that?
Jeff: Well, we’ve got half of it solved. The technical side of things, when I joined Tradesmith, Keith Kaplan, who’s the CEO, he said to me, we can make your life so much easier. And I laughed because, you know, I love the idea of people thinking they can make my life easier, but a lot of times people say that and they don’t really come through.
But Keith, of course, came through. They put together a screener for me. Basically, what it was is they, they interviewed me and said, OK, what is it that you’re looking for? Show us on this chart, what do you look for when you are selecting stocks to purchase or to sell uncovered.
My, typical Saturday routine is I get up super early in the morning before my entire family’s up and I pour a giant pot of coffee.
And I spent hour after hour after hour just going through chart after chart after chart, looking for the type of bottoming setups that I like to sell uncovered puts on. And it’s laborious.
It takes a lot of time, a lot of effort, and whatever, but it’s always been worth it, which is why I enjoy doing it. , basically, what Keith Kaplan and his team at Tradesmith did is they put together a stock screener that takes the parameters that I look for and does uses computers to generate a screen that spits out exactly the charts that I’m looking for without me having to go one by one by one by one by one.
And so every day gets emailed to me, I get a list of, I don’t know, maybe 150 to 200 stocks that fit the criteria that I’m looking for. And then I can go through those, and then pick my favorites out of that. The fundamental side of things, though, you got to do a little bit of homework. So, what I do is I take that screener, then I look for the socks that I think are fundamentally cheap. And I do my homework on it and try to figure out if it makes sense to, to sell uncovered puts on.
There’s no way to make an easy screener for that, because to determine whether or not a stock is fundamentally cheap, you have to dig into the, the balance sheets and the income statement and the annual reports and the earning statements and those sorts of things. So there’s no easy way around that. I guess maybe you could put together a screener that says, hey, I’m looking for these words, these parameters, etc. but that’s beyond the scope of what we’re doing right now. For right now, though, just being able to get the technical set up on a screener, is very valuable.
And even though I might still get 150 or 200 stocks, there’s usually a, a pretty good layer of cream at the top of those lists. So I have stocks that, that fit my parameters for selling uncovered puts, and I have stocks that fit my parameters for shorting if I’m interested in buying puts or don’t do this, sell uncovered calls. I’ll do some sort of strategy personally on something like that for a lot of folks, not an appropriate strategy. But, yeah, that work will eventually be done in that. For that subscriber.
Rachel: Fabulous. Well, I think that’s really all that you’ve got for today.
Jeff: So hopefully we’ll make this a regular thing and it’s just a matter of, you know, whenever we get together, I’ll share with you my thoughts on the market, where I think things are headed, where I think opportunities exist, and then we’ll answer some subscriber questions on top to make this a regular thing.
Rachel: And remember, if you enjoyed our talk, or if you have any questions that you want Jeff to answer in the future, send them to us at [email protected], and we’ll do another one of these installments.