"Magic" of Net Options Sentiment
8/15/24 Prospero.Ai Investing (146th) Edition (Midweek)
It has been a great week for us, as you will read below QQQ Net Options Sentiment has given us comfort to get a lot more aggressive. Timing is everything and after being very defensive we took almost literal moonshots this week and are beating the S&P 500 by 87% annualized, with a win rate of 64% against SPY benchmarks.
Part of our great week is our ongoing big bet on ASTS while we made a some very well timed moves for our paid users not too long after we shared the move on our free discord.
We have some other good news to share, Prospero was featured on a cover story for ABC South Florida!
For newer readers linking our short intro + learning videos.
Here at Prospero, we've recently had a huge influx of new subscribers, so we decided to take this midweek newsletter to help you understand better how to use some of our more important signals. To do that, I want to tell you a true story I heard this week from a Prosero "rookie". The story comes from a young man (he's in his 30's…that's starting to sound young to me), named Adam, who lives in Baltimore. He's married, has little kids and works for a non profit start-up. Needless to say, money is tight. I've been mentoring him in trading and using Prospero's signals to help supplement his income. Now, before I tell his story, let me take a minute to explain one of Prospero’s most important signals: Net Options Sentiment (NOS).
Here's a simplistic way to think about what Net Options Sentiment numbers do. Our NOS numbers show in real-time, if institutions and hedge funds (the main movers of the market) are betting whether a stock will go up or down in the short term < 6 month options markets. The short term aspect is important because those options decay in value every day by much more than long term options. So if an institution is better with them they are that much more certain they are right. If a stock's NOS numbers are high and increasing, that means the majority of market movers are making options bets that the stock will increase in value. The same is true for NOS numbers that are declining (they're betting that a stock will go down). That's important because hedge funds and institutions are professionals and often have access to information that the everyday retail investor doesn't. Let me give you a powerful example.
One of the most important signals that we look at is QQQ's Net Options Sentiment. I personally keep it on my “favorites” list in the app. QQQ is a Tech ETF. While every stock's Net Option numbers are different, we look at QQQ this way; if its NOS numbers are over 40 we are generally bullish and believe tech stocks will go up in price. If QQQ NOS numbers are 30 or below, we are bearish and think Tech stocks will drop. Look at the graphic below:
It's currently at 58. 18 points above our “Bull Line” of 40. That is pretty darn Bullish from a historical perspective. Well, a couple of weeks ago, our QQQ NOS numbers experienced a sharp decline. When I say sharp, I mean they dropped from the high 40's to ZERO. That's about as bearish as you can get! What did that tell us? It told us that Big Money was (in-mass) betting that Tech Stocks were going to drop. In response, we sold a lot of tech positions and took a very defensive portfolio stance, while increasing our short positions. Sure enough, two Mondays ago, tech stocks fell off a cliff! It was the largest one day drop since Covid in 2020. The brilliance of it all, was that WE SAW IT COMING!
Now, it's important to note that Net Options Sentiment numbers isn’t a crystal ball. In other words, they don't predict the future. But what it does is give you a crystal ball into what Billion Dollar hedge funds think a stock is going to do. Our CEO George Kailas is often quoted as saying: "You are against giants and robots and giant robots. Fight then head on and you will likely lose, learn to walk in their shadows and your outcomes will be far better". In other words, we have insight into what Big Money is doing and we can follow along! Even someone that worked at his first hedge fund 20 years ago doesn’t just give this advice, it is central to the strategies he utilizes on top of the signals he’s dedicated over a decade to building.
By the way, that's the advantage of Prospero's signals versus only using good old fashioned technical analysis. Technical Analysis is looking at trend lines, or technical indicators like "ROI" (which tells you whether a stock is overbought or oversold). Those can be helpful tools, but they only tell you a part of the story. We've seen stocks with a really high ROI, (typically a sign a stock will decline), but our Net Options Sentiment numbers were still INCREASING. (Hedge Funds betting it's still going to go up) If you only looked at ROI, you would probably sell the stock. But we held on because of our NOS numbers, and sure enough, the stock kept increasing. The magic happens when you do your technical analysis AND you check our signals. When those two pieces of information line up, it's as good a bet as you will ever make in an uncertain market. This is no
THAT brings me to the story of my friend. On Wednesday morning, George Kailas sent an alert to our substack group to buy SMCI (Tech /Microchip Manufacturer). It's been REALLY beaten up over the last few weeks and become very oversold compared to its intrinsic value. Early Wednesday morning, we saw a big increase in SMCI’s Net Options Sentiment numbers and George made the call to buy. Adam (the guy I mentor) called me and said: "Matt, George just went long on SMCI. I checked and its Net Options Sentiment Numbers are going up. I also just checked QQQ Net Options Sentiment (Best overall indicator for Tech) and it’s in the mid 50's (very bullish). I think I'm going to swing hard!" I explained to him that it was risky because SMCI was pretty volatile, but everything was as aligned as you can get.
It had:
1. Good Technicals. (It was oversold & bouncing off a moving average)
2. Good SMCI Net Options Sentiment. (Increasing from where it had been)
3. High QQQ Net Options Sentiment. (Great indicator for overall Tech)
He went for it, and SMCI started making a pretty rapid increase in price. He was able to secure a $1500 profit in a short amount of time. He decided to sell because SMCI can be volatile, and $1500 is incredibly helpful for his young family. Pretty good for a “rookie”. But isn’t that the genius of Prospero?
If you're new to the Prospero Family, welcome! We're on a journey together that will hopefully, not only help make you money, but more importantly will make you a better investor. As always, if you have any questions, please don't hesitate to reach out. Our team is here for you!
George just added another SMCI position this morning when it started a little slow and its numbers as well as QQQ NOS remained strong.
To make it a little easier to get in on moves like SMCI and ASTS in real time we are sharing a 30% off link from a value investing Webinar we did with Finimize yesterday. (FYI we rarely offer discounts on monthly memberships)