A Rough Week For The Apes
After hitting a high of $30 on Wednesday, shares of Bed Bath & Beyond (NASDAQ:BBBY) fell to $18.55 Thursday, on news that billionaire Chewy, Inc. (NYSE:CHWY) founder, GameStop Corp. (NYSE:GME) chairman, and pied piper of Wall Street Bets apes Ryan Cohen had dumped his entire stake in the ailing retailer.
Chart via ZeroHedge.
After hours, the bloodbath continued, with BBBY dropping another ~45% to $10.27.
ZeroHedge had all the sordid details, but since I traded BBBY in my personal account during this fiasco, I thought I'd note here where I went wrong and where I went right. Then, I'll show what names Portfolio Armor was picking around the same time. It's an interesting contrast between a speculative human approach and an empirical algorithmic one.
Buying Puts on BBBY in July
On July 7th, I bought $5 strike November puts on BBBY at $1.53, as I thought the reaction to the CEO buying additional shares was unwarranted.
Fading this. $BBBY https://t.co/yy7cgNIEol
— David Pinsen (@dpinsen) July 7, 2022
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Where I went wrong: Obviously, I bet against BBBY a bit too early here. I was influenced in part by my general bearishness, after reading Zoltan Poszar predict doom.
The NY Fed wunderkind-turned-Credit Suisse strategist on why the Fed's helicopters are dropping "financial napalm" this time. $SH $WEAT $TECS $BOIL https://t.co/hKLjrgLKse
— Portfolio Armor (@PortfolioArmor) May 17, 2022 - Where I went right: Buying puts instead of shorting. It would have been hard to stay short BBBY from $5 to $30, but I'm still holding those $5 strike puts.
Buying Puts on BBBY This Week
On Tuesday, August 16th, I bought $20 strike November puts on BBBY at $8.88.
Bought puts on $AMC, $BBBY, and $FIVE in case he’s right. https://t.co/LGBIOlmBBd
— David Pinsen (@dpinsen) August 16, 2022
- Where I went wrong: At the time, those were at-the-money, and they were extremely expensive. I probably would have been better off buying cheaper ones at a $10 or $15 strike.
- Where I went right: Fading the parabolic move in a money-losing stock.
If BBBY trades near or below its after hours close on Friday, I expect my $5 strike puts to move closer to what I paid for them and my $20 puts to be up significantly.
An Empirical, Algorithmic Approach
While I was buying puts on BBBY in early July based in part on my general bearishness, Portfolio Armor was becoming less bearish, thanks to the new security selection factor we added to it at the end of June. The thread below shows the performance of the first four weekly top names cohorts since we added the new factor on June 24th, followed by the names the system would have picked without factors. As you'll see, the new factor improved performance significantly by keeping us out of bearish names such as the Direxion Daily Technology Bear 3X Shares (NYSE:TECS) over the last two months.
The new factor was based on historical data we've been tracking which shows that, all else equal, securities that underperformed over the last week and month relative to their historic averages, outperform ones that did well over the most recent week and month.
— Portfolio Armor (@PortfolioArmor) August 18, 2022
July 1. One thing the new factor seems to be doing is getting us better entries into volatile names like $BOIL. pic.twitter.com/14FLYesN63
— Portfolio Armor (@PortfolioArmor) August 18, 2022
July 14. pic.twitter.com/UB6bv1bq8p
— Portfolio Armor (@PortfolioArmor) August 18, 2022
Let's look at how the "plain" top ten has done so far from the same four dates. June 24. Another example of getting better entries in volatile names, the new factor kept us out of $TECS then. pic.twitter.com/E3qJ0po2ZF
— Portfolio Armor (@PortfolioArmor) August 18, 2022
July 7. $EPV another leveraged ETF our new factor screened out this week. pic.twitter.com/6TmEp1Ku5J
— Portfolio Armor (@PortfolioArmor) August 18, 2022
July 14. $EDZ too. Looks like we're on the right track. pic.twitter.com/jWMsM8dgIN
— Portfolio Armor (@PortfolioArmor) August 18, 2022
One point of clarification: the new factor isn't going to always keep us out of bearish ETFs, but it looks like it will get us better entry points in them and other volatile names.
