Trade Alert: Top Names Bounce

Bullish bets on a PA top name that plummeted yesterday.

Taking Our Top Names To The Next Level

A few years ago, I was looking for a way to improve Portfolio Armor’s security selection system. At the time, in addition to gauging options market sentiment, it was looking at historical returns over 6-month periods. So we started looking at 1-week, 1-month, and 1-quarter returns as well. As I wrote in an X thread about that in August of 2022:

In late June, we added a new factor to the process we use to pick our top names. Those are the names we estimate will do best over the next six months. We post them on our website and app for subscribers daily. A quick thread about that.

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.

The Result: Market-Beating Returns, On Average

Adding that factor boosted our returns by getting us better entries into volatile names. I started this Substack a few months later, at the end of 2022, and since then, Portfolio Armor’s top ten names have averaged returns of 16.7% over the next six months, versus 9.47% for SPY 0.00%↑. As you can see from our most recent top names cohort to finish its 6-month run, sometimes most of the returns in a top ten batch come from one name.

Today’s top names trades are on a stock that ended up in our top ten names on Monday night in part because of that factor we added back in 2022. The stock plummeted yesterday, on a bad news headline (one that, in my opinion, doesn’t invalidate its bullish case).

We have one short-term options trade on it, and another that expires after its next earnings release in August. The worst case scenario in both trades is a loss of 100%, and the best case scenario might be gains of 200% or 300%.

Details below.

Today’s Short-Term Top Names Trade