The Big Short

01/30/25 Prospero.Ai Investing (188th) Edition (Midweek)

I've been trading for a minute and I personally can't remember a crazier week than this one! As most of you are aware, China released their new A.I. toy, DeepSeek, and the world exploded. We won't get into Deepseek because it's been written about AdNauseum; but what we do think is worth discussing, is this week revealed the primary strength AND weakness of Prospero's Net Options Sentiment. Let's start of with the hardest thing for anyone to predict, Black Swan Events. For those of you that don't know what a Black Swan is, it's a completely unforeseen event that impacts the markets in a profoundly negative way. One fairly recent example was when Russia invaded Ukraine. Unless you're Nancy Pelosi, who mysteriously invested millions in fertilizer stock a month before the invasion (Ukraine is the world's leading fertilizer producer), when a Black Swan Event occurs, it takes the market completely off guard and you see quick and violent drop as fear spreads and people rush to get out of their positions. Here's the problem with Black Swan Events; even hedge funds and institutions typically don't see them coming. Remember the movie "The Big Short" that dealt with the housing crisis of 2008? The whole point of the movie is that the main character (Michael Burry) and a couple of his friends were the only people on the planet that saw the Black Swan Event coming. Most everyone else had NO IDEA a massive drop in the housing market was about to happen. It caught the world off guard and the world-wide economic crisis ensued. Here at Prospero, we often talk about how Net Options isn't a crystal ball. It can't predict the future. It only tells us what institutions think is coming in the future. So if an event catches institutions off guard, Net Options simply won't see it coming. The release of DeepSeek is a classic example! Last Friday, QQQ Net Options Sentiment was sitting at a firmly bullish 50. Monday, DeepSeek got released and the bottom fell out of the market. NVDA lost HALF A TRILLION DOLLARS in market cap!! It was the largest loss of wealth by a company in the history of the U.S. To put it into context, Exxon's market cap is around 500 Billion. What happened on monday would be the equivalent of the worth of Exxon going to ZERO in one day. It's mind boggling. Full confession, here at Prospero, our win %, briefly fell below the S&P benchmark for the first time in our history. But it was after the huge drop where Prospero's Net Options Sentiment's greatest strength kicked in! From 1/27 to 1/28 we were 100% win rate vs SPY - 25 for 25 (13 longs and 12 shorts) While the world was still on fire, Prospero's signals picked up on a huge reversal. While the price of NVDA was still dropping, its Net Options Score suddenly jumped 30 points into bullish territory! A short time later NVDA's price began to rapidly rise and regained a solid % of its value. As you can see at 9:40 AM on the 28th the price was still $118.10 but Net Options Sentiment already charged back up to 82.

Through the whole process, our CEO (George Kailas) stayed calm and with that 100% win rate was able to get our % beat of the S&P back up to a whopping 110%! Not bad. Black Swan events suck and they always will. But Prospero's signals have helped us recover in a powerful way. Now a word from our CEO.

A WORD FROM OUR CEO

Because this was such a unique event, in our livestream yesterday I made a running diary of my thought process this week. The main idea I want to bring to the top here is that fortunes are made and lost on these events. Sometimes it is prudent to wait things out, sometimes it is best to adjust to protect yourself. Even if that means multiple adjustments. The speed of technology is accelerating and that means the speed of everything around us is accelerating too. We always caution you to not get too far outside of your comfort zone; but it might be time to gradually increase your comfort zone into things like shorting stocks and hedging with inverse ETF’s like the SQQQ because the ride ahead could be quite bumpy. More on this, this weekend…

Well it is only really possible in the beginning of the year but it was crazy to see our paper trading portfolio go up 100%+ annualized in just a day. As one of our YouTube commenters said we "challenged our own thinking.” The ability to do that and execute is what separates the great from the good. We are beating the S&P 500 by 105% annualized, with a win rate of 72% against SPY benchmarks.

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