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6 Up Days In a Row, But Cracks Starting to Form? THE DAILY --- H.E.A.T. Torching Wall Street’s Obsolete Playbook. Delivered straight to your inbox 5 days a week. Subscribe Home Posts 6 Up Days In a Row, But Cracks Starting to Form? 6 Up Days In a Row, But Cracks Starting to Form? The 🔥 --- H.E.A.T.🔥 Formula : AI Driven Insights to Spark Your Portfolio Matthew Tuttle Apr 30, 2025 Subscribe now Share In Today’s Issue: 6 up days in a row, but cracks starting to form? SPACs may be back Coming regional banking crisis? SMCI buy, sell, or hold? How to play lower rates Why you should care about capacity auctions What AI has to say about some of yesterday’s earnings Deeper dive on cash secured puts and more…….. Bottom Line : The S&P is now up 6 days in a row, even though no specific trade deals are done. Starting to see a number of charts hitting up against resistance, given how far the market has gone a pause here wouldn’t be shocking. However, we are in the teeth of earnings so anything could happen. ETF Model Portfolio Changes We are bringing TBIL down to 25% and adding SPCX at a 5% weighting. Things are starting to move again in the SPAC market. More information here….. Fund Info www.spcxetf.com Next Webinar: Tariffs, Inflation, and Recession: What To Do Now 5/22 2pm EST GoTo Webinar dashboard.gotowebinar.com/webinar/6733673538207782492 News & Noise 🧠 News: — # (# ) — # (# ) — # (# ) ❌ Noise: Trump’s First 100 Days Were the Worst for Stocks Since Nixon. What History Says Happens Next. www.barrons.com/articles/trump-first-100-days-stock-market-0043abbe?mod=hp_SP_A_1_1 What Wall Street Is Saying Mohit Kumar, Jefferies….. ❝ On tariffs, our view remains that Trump administration will try to score easy wins and sign deals with a number of trading partners including UK, India, Japan and S Korea. However, deals with EU and China would prove trickier. With EU, there is a lot of discussion around the non tariff stuff including regulations around food and Tech industry and that would take time. For China, we are not even at a stage where negotiations can start. Our view remains that it doesn't matter whether tariffs are at 50 or 100 or 200%. Any of those levels mean that China exporters are losing money. The starting point of negotiations has to be much lower in order to get a realistic deal done. We also believe that this is a battle that Trump cannot win and eventually will need to back down. Mike O’Rourke, Jones Trading….. ❝ This rebound rally is culminating at an interesting juncture. Except for the Reciprocal Reversal on April 9th, one needs to go back to March 2020 during the pandemic to encounter an S&P 500 rally of more than 7.8% in 6 trading days, as has just occurred. Advance Q1 GDP reports from much of the developed world will be released tomorrow. In the United States, the estimate for Q1 GDP has been cut to a 0.2% contraction from yesterday’s forecast of 0.3% growth. The Atlanta Fed’s GDPNow tracking estimate is forecasting a 1.5% contraction for the quarter. Over the next two days, there will be earnings reports from more than $15 trillion of the S&P 500’s market capitalization. Among those reporting, Apple and Amazon have notable China exposure. Meta Platforms has advertising exposure to both China-based retailers and U.S. small businesses feeling the tariff squeeze. Although Nvidia is not reporting earnings for another month, there was a negative preannouncement from its supplier, Super Micro Computer, tonight. Super Micro provided EPS guidance 43% below forecasts and revenue guidance 15% below estimates. 6 Up Days in a Row, But Cracks Starting to Show? AI is the future….. — # (# ) Seeing a bunch of names start to bump up against resistance, not a huge deal as you need to bump up before you can break through, but be cognizant this market has come a long way in a short period of time, and we still don’t have any specific trade deals. Lots of earnings coming up and last day of a crazy month, so going to be interesting. Gold was down yesterday, and is down again today. Still too early to tell if it’s topped, or just paused. Both GLD…. And GDX…. Sitting around key support levels. Treasuries (more on that below) and Bitcoin, continue to be strong. Coming Regional Bank Crisis? We had Rebel Cole on the Podcast yesterday….. He talked about the ticking time bomb in regional banks—-RMBS, CRE, uninsured deposits, etc. ❝ “We are in the 5th inning, the real problems start in the 7th or 8th inning” -Rebel Cole His website has a screener that shows all sorts of regional bank exposures. You could use this is a short watch list…. U.S. Banks’ Exposure to Risk from Commercial Real Estate Screener | FAU Business This data analysis examines 157 of the largest banks in the United States to calculate their exposure to commercial real estate. We calculate each bank’s total commercial real estate exposure as a percentage of the bank’s total equity. Any ratio over 300% is viewed as excessive exposure to commercial real estate , which puts the bank at greater risk of failure. business.fau.edu/departments/finance/banking-initiative/bank-exposures-commercial-real-estate Of course this whole issue was the reason we started SKRE…. SKRE - Inverse Regional Banks ETF | Innovative Investment Strategy Explore SKRE, the Inverse Regional Banks ETF offering a unique investment strategy with -200% daily performance of the SPDR S&P Regional Banking ETF. Ideal for navigating volatile markets. www.shortregionalbanks.com Super Micro Stock Is On Track for Its Worst Day Since February. Here’s Why. www.barrons.com/articles/super-micro-smci-stock-price-709a15ec?mod=hp_WIND_A_3_3 — # (# ) SMCI is a name I own, Louis Navellier also talked about it last week on the Rebel Finance Podcast . Going to be down big it seems so I asked GPT whether it’s a buy the dip, hold, or sell…… Thesis Check Super Micro (SMCI) was built into the AI server supply chain by virtue of its strong direct‐liquid‐cooling technology and high‐performance hardware integrations (primarily NVIDIA). That positioning drove an epic run to ~$118 in early 2024. What Went Wrong? Customer Timing: Q3 guidance of $4.5–4.6 bn revs vs. Street’s $5.4 bn and EPS $0.29–0.31 vs. $0.53. They blamed “delayed customer platform decisions”—i.e. customers are sitting on older Hopper hardware and waiting for Blackwell launches. Accounting Overhang: Last year’s auditor resignation still lingers even though SMCI cleared itself via independent review. Trust isn’t yet fully restored. Valuation Reset: From $118 to ~$35 today the stock has repriced for execution risk and hardware‐cycle delays. Bull Case Blackwell Ramp: Once the new chips arrive, SMCI’s backlog and revenues should snap back. DLCT Leadership: Few peers match their liquid‐cool‐tech for AI racks. Improved Governance: New auditor + no‐fraud finding rebuilds confidence. Bear Case Cycle Timing: If NVIDIA’s own ramp slips, SMCI stays dark. Competition: Established OEMs (Dell, Hewlett Packard) will pressure share gains. Execution Risk: Multiple delays = multiple quarterly hiccups. Quantitative Snapshot Next Twelve-Month P/E: ~18× (down from 70× at peak) FWD Rev Growth: Street ~40% YoY → still high but slowing from 70–80% levels. Balance Sheet: Net cash/leverage neutral; able to weather a couple quarters of headwinds. Recommendation Short-term (next 1–3 months): Hold The pre-announcement 15% gap likely over-reacts to a one-quarter delay. Wait for clear signs of customer platform rollouts (i.e. incremental channel checks or NVIDIA Blackwell availability). Medium-term (3–12 months): Buy the Dip around $28–$30 At $30 your levered entry yields ~15× ’26 EPS consensus with >40% growth re-acceleration potential once Blackwell transitions. If SMCI recovers above $40 on confirmed hardware ramps, trim back to your core target weight (e.g. 4–6% of your AI sleeve) to lock in gains and de-risk execution. Rating on “Buy-the-Dip” Scale (1– • 10) 6/10 — still bifurcated risk: high upside once the cycle turns, but execution and competitive headwinds warrant caution. How to Play Lower Rates Longer term readers know I am of the belief rates are going to come down and have been playing this with TLT (personally I own some calls and have sold some cash secured puts). Had a conversation yesterday with a smart analyst, David Levenson (recommend you follow him on X @levenson_david). He suggested I add in TLH and IEF as I would get most of the upside and eliminate a bunch of volatility. I ran this scenario through GPT, and it liked it (I neglected to ask about a mix of TLT, TLH, and IEF, but it gave me the answer I needed)….. 1. Key Characteristics ETF Duration (yrs) 3-yr Volatility (%) 30-Day SEC Yield (%) TLT (20+ yr) 15.85 BlackRock 17.20 BlackRock 4.70 BlackRock TLH (10–20 yr) 12.28 BlackRock 14.47 BlackRock 4.58 BlackRock IEF (7–10 yr) 7.02 BlackRock 8.84 BlackRock 4.11 BlackRock Duration measures price sensitivity to a 100 bp parallel move in yields: TLT is ~16 yrs, TLH ~12 yrs, IEF ~7 yrs. Volatility (3-yr SD) tracks how “bumpy” each is—TLT is ~17%, TLH ~14.5%, IEF ~9%. 2. The Upside/Vol Trade-Off If yields fall by 1 percentage point (100 bp): TLT ↑ ~15.85% TLH ↑ ~12.28% IEF ↑ ~7.02% Combined Blend: By weighting TLH/IEF you can dial in any intermediate duration—and thus capture a fraction of TLT’s move with proportionally lower volatility. Example (60/40 TLH/IEF): Duration ≈ 0.6·12.28 + 0.4·7.02 = 10.18 yrs (~64% of TLT’s) Volatility ≈ 0.6·14.47 + 0.4·8.84 = 12.22% (~71% of TLT’s) Price gain if rates drop 100 bp ≈ 10.18% (vs. 15.85% on TLT) You give up ~36% of the upside but also enjoy ~29% less historic volatility . 3. Option Implications TLT Options: Higher vega (sensitivity to implied‐vol changes) and higher theta decay (time decay) versus TLH/IEF options. TLH+IEF Calls: Lower IV & Premiums: TLH/IEF implied vols run ~10–15% vs. TLT ~20–25%, so calls cost less. Weighted Greeks: You can buy, say, 0.6 lots of TLH calls + 0.4 lots of IEF calls to approximate the delta and vega profile of 1 lot of TLT calls—at a smaller premium and smoother P/L curve. Risk/Reward: You smooth out the “gamma spikes” and reduce the probability of large losses if volatility collapses post‐move. 4. When It Makes Sense Moderate Bearish‐Rates View (25–75 bp drop): The TLH+IEF blend captures most of the move cost‐efficiently. High‐Convexity Views (>100 bp): Go straight TLT (or TLT convexity‐weighting via butterflies) to maximize gains from the long end’s curvature. Volatility‐Aware Traders: If you’re concerned IV will crater after Fed cuts, TLH/IEF options give you a smoother ride. 5. So… Should You Switch? Criterion TLT Only TLH+IEF Blend Max Upside (1% yield drop) 15.9% ~10.2% (60/ • 40) Volatility 17.2% 12.2% Option Premium Efficiency Low High Convexity Profile High Moderate Sharpe‐Optimized for Modest Moves No Yes TLT calls remain the purest play if you want every basis‐point of yield drop. TLH+IEF calls score higher on risk–reward for a modest Fed‐cut scenario, thanks to lower vega cost and smoother delta exposure. 6. Winner/Loser Score (1– • 10) Strategy Rating Rationale TLT Calls (levered) 8/10 Maximum participation & convexity, but high cost & vol. TLH+IEF Blend Calls 9/10 Efficient capture of moderate rate drops, lower vol & IV. Plain‐Vanilla TLH/IEF 7/10 Strong for buy‐and‐hold, but misses some upside. Bottom Line: If you expect a modest rate cut (<75 bp) : switch to a TLH+IEF option mix to lock in 60–80% of TLT’s gains at ~30% less volatility and 20–30% cheaper premium. If you’re targeting a large long‐end rally (>100 bp) : stick with TLT (or even levered TLT structures) to maximize convexity. In either case , use the duration/volatility stats above to size your option deltas and vega exposures rationally—and avoid the all‐or‐nothing payoff that pure TLT puts you at risk of if volatility collapses post‐move. What’s a Capacity Auction—and Why You Should Care Jefferies wrote a report about AI power generation yesterday that caught my eye. We did a deep dive on VST yesterday, had GPT do a deep dive on this report…… Electric grids need not just energy, but reliable standby power for the hottest, coldest, or most data-hungry hours. To guarantee that reliability, grid operators run capacity auctions each year: power plants and other resources bid for the right to be paid simply to exist and be ready to generate if called upon. Independent Power Producers (IPPs): Think of IPPs as merchant power plants. They don’t sell electricity directly to your home, but instead bid into these capacity auctions (and energy markets) to earn revenue for being “on call.” Utilities vs. IPPs: Traditional utilities own the entire customer relationship and routinely pass through capacity costs. IPPs, by contrast, are pure sellers of generation and capacity—so when auction prices spike, IPP profits jump directly. Who Runs These Auctions? PJM covers the mid-Atlantic and parts of the Midwest. MISO (Midcontinent Independent System Operator) covers 15 states from Louisiana/Mississippi up into Minnesota and Manitoba. Both are nonprofit grid managers that ensure enough power—and enough standby capacity—exists at all times. The Big News PJM’s 2026/27 Auction Looks Set to Clear at the New Cap (~$325/MW-day). FERC approved raising the auction ceiling to ~$325/MW-day. PJM’s demand forecast is up ~3.5% (largely from new data centers). With limited new plants coming online, it’s very likely the auction will clear right at that cap—meaning every cleared generator (especially IPPs) earns top‐tier capacity payments. MISO’s Capacity Prices Are Also Jumping—From ~$20 Last Year to $212–219/MW-day Next Year. Retirements and tighter accreditation rules mean utilities and IPPs alike must pay far more to secure standby capacity. Winners & Losers Winners Talen Energy (TLN) – A pure‐play merchant generator. Higher capacity prices flow straight to --- the bottom line. Rating: 9/10 Vistra (VST) & Constellation (CEG) – Large IPPs with fleets in both PJM and MISO. Expect a windfall in capacity revenue. Rating: 8/10 Calpine (CPX) – PJM‐focused merchant generator. Gains directly from cap pricing. Rating: 7/10 Ameren (AEE), CMS Energy (CMS), WEC Energy (WEC) – Utilities in MISO that can develop or contract new capacity. Their regulated models allow them to recover higher capacity costs. Each Rating: 7/10 Losers NiSource (NI) – MISO utility facing retirements in Indiana. Must pay steep new capacity rates or scramble for replacements. Rating: 3/10 American Electric Power (AEP) – Similar Indiana exposure in MISO; higher capacity spend will compress margins. Rating: 4/10 Bottom Line Load up on IPPs like TLN, VST, CEG and CPX to capture the surge in capacity‐auction revenues. Favor MISO utilities (AEE, CMS, WEC) that can both build and pass through higher capacity costs. Steer clear of NI and AEP until they secure new capacity at reasonable rates or until retirement risks abate. Watch July 22 for the actual PJM auction clearing price—and the MISO PRA results—to confirm this story in real time. Using AI to Parse Earnings Releases I put yesterday’s mornings earnings releases into GPT to see if there are any “must” buy or “must” short or avoid names….. 🔑 High-Level Themes & Trades China Exposure Is a Two-Edged Sword Weakness: UCTT’s subcomponent pull-backs and SANM’s tariff caution. Opportunity: NXPI and CDNS have less direct China risk and better guide discipline. Volatility Skews Premiums on Put Sales Elevated IV in semis (NXPI, UCTT) and EMS names means juicy premiums for cash-secured puts—just pick strikes at levels you’d be happy to own. Differentiation Matters Leaders (CDNS, TER, INTA) are tightening guide ranges—signaling execution confidence. Those are spots to add or write covered calls. Data-Center & AI Kickers AMKR, FFIV and OKTA benefit from secular tech upgrades. Look for cross-sector pairs trades: e.g., long AMKR vs. short UCTT on China risk. Bottom Line: This batch of reports paints a clear schism: execution-confident leaders (CDNS, TER, INTA) versus cyclical laggards with China or tariff overhang (UCTT, SANM, KFRC). For HEAT readers, that means focusing capital (or selling puts) on the former, while steering clear of the latter until visibility returns Must-Buy Names Cadence Design Systems (CDNS) – 8/10 conviction. Guide discipline, no tariff headwinds, and AI/EV design tailwinds make it a best-in-class EDA play you want on day-one. INTA (Intapp) – 8/10 conviction. Leading niche in financial-services SaaS, strong AI-driven new ACV, and high-20s% revenue growth with durable enterprise spend. Must-Sell / Avoid UCTT (Ultra Clean) – 4/10 conviction. China weakness, guide cuts, and customer push-outs leave little room for upside. KFRC (Kforce) – 4/10 conviction. Staffing attrition and early-cycle headwinds argue for steering clear until the end-market proves steadier. Other Names The rest fall into “Buy on weakness” (TER, AMKR, CAP-FR, QTWO, OKTA) or “Hold / watch for technical setups” (NXPI, FFIV, SANM), but aren’t urgent “musts” on either end. Deep Dive on Cash Secured Puts As I’ve mentioned I am writing more cash secured puts than I normally do. It’s not an asymmetrical trade, but I like it better than buying outright calls in many cases with vol this high. I had GPT take a deeper dive on the strategy than we did the other day…. Executive Summary Selling cash-secured puts is a high-probability, income-generating strategy that empowers investors to (a) collect premium up front and (b) potentially acquire high-quality stocks at a discount. When executed with discipline—choosing stocks you want to own, sizing positions conservatively, and respecting downside risk—this approach can deliver double-digit annualized returns with defined risk. This paper walks through the what, when, why, and how of cash-secured puts, plus best practices for risk management. 1. What Is a Cash-Secured Put? A cash-secured put is an options contract in which you sell (write) a put option on 100 shares of an underlying stock while simultaneously setting aside enough cash to purchase those shares if assigned. Strike Price: The agreed price at which you’ll buy the stock if it falls below this level by expiration. Premium: The up-front cash you receive for taking on that obligation (and risk). Secured by Cash: You earmark cash equal to (Strike × 100 shares) so you’re always able to fulfill assignment without using margin. 2. Why Sell Cash-Secured Puts? Income Generation: Premiums are yours to keep immediately. In elevated volatility regimes, option prices swell—boosting yield. Discounted Entry: If the stock falls below the strike, you acquire it at an effective price of (Strike − Premium). Often far below current levels. Defined Risk: Maximum loss is known upfront: you pay the strike for shares but keep the premium. Asymmetric Payoff: Small probability of large capital deployment (assignment) versus high-probability of collecting premium with no assignment. 3. When to Use Cash-Secured Puts Neutral-to-Bullish Outlook: You believe the stock will stay flat or rise modestly over the option’s life. High Implied Volatility (IV): IV rank > 60% suggests option premiums are rich. You’re paid more for assuming risk. Quality Underlying: Only write puts on businesses you’d be comfortable holding for years—blue-chip names, strong cash flow, and moat characteristics. Attractive Valuation: Strike price should represent a valuation you’d happily own at. Avoid strikes above fair value. 4. Key Risks & Mitigations Risk Impact Mitigation Market Crash/Gap Down Shares assigned well below strike; large paper loss Use conservative strikes (5–10% OTM), diversify across sectors Capital Tied Up (“Opportunity Cost”) Cash locked until expiration Ladder expirations; rotate capital to new trades upon expiry Early Assignment Forced purchase prior to expiration Avoid close-to-expiration dividends; monitor stock corporate actions Volatility Crush Rapid IV drop post-earnings reduces premium value Avoid selling puts through major earnings or binary events 5. Step-By-Step Trade Setup Stock Selection: Screen for high-quality, liquid names trading at or below your target valuation. Expiration (DTE): 30–90 days is typical—balances premium size with time decay. Strike Selection: Choose an out-of-the-money strike at a level you’re comfortable owning. For example, 10% below current price. Premium Calculation: Option price per share × 100 = total premium per contract. Check IV rank: higher is better during volatile periods. Position Sizing: Risk only 1–5% of portfolio per trade. Example: $100 K portfolio, 5% risk → $5 K max notional exposure → one contract at a $50 strike (= $5 K). Place the Trade: Sell to Open (STO) the put. Ensure cash equal to strike × 100 shares is reserved. Monitor & Manage: If stock stays > strike at expiry → premium = profit, capital released. If assignment → purchase shares; adjust cost basis by subtracting premium. Roll strikes or expirations if you wish to adjust the trade before expiry. 6. Best Practices & Advanced Tips “Think Like an Underwriter” : Only underwrite (sell) puts when “insurance” is most expensive—i.e., when IV is high (VIX elevated for indices). Avoid Binary Events: Skip selling puts into earnings, FDA decisions, or regulatory catalysts unless playing specifically for that event. Use a Trade Journal: Track every put sold—strike, expiration, premium, outcome—to refine your strike and rollover decisions over time. Scale into Positions: Rather than one large contract, layer multiple strikes/expirations to average risk and capture varying premiums. Combine with Covered Calls: Convert to a synthetic covered call (risk reversal) if you want upside participation—sell puts and buy calls simultaneously. 7. Conclusion When deployed judiciously, cash-secured puts transform a simple options strategy into a powerful income engine and discount-entry mechanism for beloved stocks. By focusing on: High-quality underlyings you’re happy to own, Rich volatility regimes , and Prudent risk management , you engineer a strategy that mirrors the profitability of insurance underwriters—collecting premium day in, day out—and only ever buying shares at prices you deem attractive. Next Steps for The --- H.E.A.T. Formula Readers: Review current IV ranks for your watchlist names. Identify 2–3 securities where you’d happily own shares at strikes 5–10% below today’s price. Practice a small-scale cash-secured put sale (one contract) to experience premium collection and assignment mechanics firsthand. How Did You Like Today's Newsletter Love it It's Okay Not Great Login or Subscribe to participate Before you go: Here are ways I can help ‍ ETFs : We offer innovative ETFs that cover all aspects of The --- H.E.A.T. Formula, Hedges, Edges, and Themes. Consulting: I'm happy to jump on the phone with financial advisors at no charge. I've built a wealth management firm and helped other advisors grow their practices through the use of substantially differentiated investment strategies. If you want to talk just send me an email at [email protected] Monthly investing webinars Rebel Finance Podcast https://www.youtube.com/@TuttleCap Wealth Management-Coming Soon Paid Newsletter Service-Coming Soon All rights reserved. Keep Reading No posts found View more caret-right 0