Blood Bath & Beyond

AI Apes

AI Apes.

A Rough Week For The Apes

After hitting a high of $30 on Wednesday, shares of Bed Bath & Beyond (BBBY) fell to $18.55 Thursday, on news that billionaire Chewy, Inc. (CHWY) founder, GameStop Corp. (GME) chairman and pied piper of Wall Street Bets apes Ryan Cohen had dumped his entire stake in the ailing retailer. 

(Click on image to enlarge)

Chart via ZeroHedge.

After hours, the bloodbath continued, with BBBY dropping another ~45% to $10.27. 

ZeroHedge had all the sordid details at the link, 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 a $5 strike November puts on BBBY at $1.53, as I thought the reaction to the CEO buying additional shares was unwarranted. 

  • 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.
  • 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 a $20 strike November puts on BBBY at $8.88. 

  • 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 (TECS) over the last two months. 

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. 

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Disclaimer: The Portfolio Armor system is a potentially useful tool but like all tools, it is not designed to replace the services of a licensed financial advisor or your own independent ...

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