COVID-19 Stimulus Package
Message Sent 3.30.2020
After what felt like a free fall, the market started to stabilize last week and made moves higher. For the first time in over a month, the market experienced back-to-back daily gains and recovered some of the losses from previous weeks. It is still early, but last Monday (Trade Day), the market reached the most recent low. All the major indexes had declined over 30%. Fortunately, things started to reverse on Tuesday, and the markets rose over 10% on the week with additional gains today. Fiscal stimulus and support from the Federal Reserve fueled most of the gains.
In relatively short order, Congress was able to put together and agree on the largest economic stimulus package in history, the CARES Act. With over $2 trillion in funding, the bill supports a wide range of recipients including large corporations, small businesses, and individuals. For our clients, the highlight will be direct payments of $1,200 per individual ($2,400/couple) for incomes up to $75,000 ($150,000 for married couples). The figures will be based on your 2018 or 2019 tax return. Most payments will go directly to your bank account if you’ve had a tax refund direct deposited in the past. People should start seeing the funds in early April.
Nearly everyone around the world is dealing with some level of shelter-in-place orders. The global economy has been put on hold while the world tries to limit the damage of COVID-19. The goal of the stimulus package is to allow companies and individuals to overcome the disruption. It also serves as a way to boost consumer confidence and provide the necessary spark to the economy once we can get back to our normal day-to-day lives.
With the virus cases continuing to grow, it’s difficult to be optimistic. But, here in Texas and most other areas around the country, the social distancing and shelter-in-place orders were enacted before significant infection. More testing sites will identify more cases but will also help to get the virus under control. As these measures help us limit the spreading, we can start to calculate when life gets back to normal. Dealing with strict restrictions today will help us get there sooner.
I hope that you and your family are doing well. At this point, most of our clients aren’t in the worst-hit areas. I’m hopeful the constraints put in place will keep it that way. We are here for you if you need anything. We are all in this together, and with smart decisions, it won’t be long before COVID-19 will be a thing of the past. Finally, let’s all say a prayer for those in the hardest-hit areas as well as the doctors, nurses, and healthcare workers fighting this battle.
Asset Management Advisor Update
Message Sent 3.27.2020
I hope this note finds you and your family in good health. The disruptions CONVID-19 has made on our lives are unprecedented, but some short-term isolation is much better than dealing with a dangerous disease. Please take all the necessary precautions to keep yourself safe.
Over the previous month, the market experienced the most rapid decline from all-time highs into a bear market ever. Amazingly, it almost all happened between Trade Days. The decrease from February Trade Day through expiration was the largest we’ve ever seen in the market in our history, with October 2008 coming in a close second. It was a swift, painful move leaving all investors wondering where we go from here.
We entered March’s Trade Day with a plan. The same strategy we’ve executed on the Monday after the third Friday for the last 15+ years. With emotions, particularly fear, at some of their highest levels, we were ready to keep implementing the Snider Method and following the rules that have led us through previous bear markets. That meant buying stock and selling calls as the market continued to decline. It is still very early, but as it stands today, that plan worked.
Thankfully, it is not all bad news, and I do believe there are a couple of reasons to be optimistic. First, because all this started right around the previous expiration, we had closed some positions, and our cash position was at good levels. This cash allocation was not subject to the steep declines over the previous month. It also gave us resources to put to work on March’s Trade Day.
Next, because of the historically high volatility, option premiums were at some of their highest levels. In almost all cases, we were selling calls over the purchase from this month, but the premium we received was significant. In fact, over our entire portfolio, we received more premium on Monday than we did in two previous months this year. We often talk about our ability to create income in both up and down markets, and this is some excellent evidence.
One final bit of good news, those purchases we made on Monday were at the most recent lows. For the first time in over a month, the market had a few consistent days of gains and is up over 15%. I realize it still has a long way to go, but seeing some stability and positive movement is encouraging. I’ve mentioned previously, I plan to send out regular updates each Monday. I also post all these notes on our blog. You can go back and read previous notes or follow along here.
Sadly, it is unlikely I’ll be able to meet anyone in person over the next month, but I’m more than happy to have a phone call or “meet” over the computer. I’ve already had a lot of great discussions with clients. These particular circumstances are new to us all, but I’m confident we can work through these declines and weather this storm like others in the past.
COVID-19 Trade Day
Message Sent 3.23.2020
Today’s Trade Day might be the most challenging our investors have ever faced. Even those of you that have been with us for over a decade and navigated the financial crisis never had to do so without leaving the house or limiting the social interactions that help us cope with difficult times.
With all the stress and pain from the recent drop, it’s common to let emotions drive our actions. Today more than ever is the time to stick to the rules of the Snider Method to take the emotions out of trading. I’ve said it in previous notes, but we built the Snider Investment Method to handle bear markets and produce income in both up and down markets. But, for that to work today, we must buy more stock right when it is hardest to do so.
Option premiums this month will be some of the highest we’ve ever seen. With volatility so high, option prices will meet or exceed the highest levels we saw during the financial crisis. Because stock prices fell so steeply so fast, in most cases, we will just be selling calls against our purchase this month. The future is unknown, but a couple of things could happen. If prices stay at these levels for a few months, we will accumulate more and more stock to lower our average cost and sell more calls. On the other hand, if prices recover quickly, we create and climb our price ladder back to our higher purchases.
No one knows how long this might last, but we are well-positioned to handle a slow recovery. However, I expect a good bounce back once we have more clarity on the virus’ impact. Markets tend to overreact and dislike uncertainty more than anything. Even bad news could move the markets higher if it helps define how long this will last or how many people will be affected.
Please know we are here for you. We are proud to be your partner in overcoming this obstacle. Remaining focused and consistent will help us come out of this conflict sooner. As always, please don’t hesitate to reach out to us if you have any questions. Today we will focus our efforts dealing with trade-related problems, but if you’d like to schedule a time to review your account or address your concerns, we will be more than happy to do so.
Take care of yourself and make wise decisions to stay healthy in these tough times. Also, be positive. We will overcome this. Thank you for your trust and support.
Message Sent 3.18.2020
The world is in a much different place from our last Trade Day. I hope that everyone is safe and taking good care of their health. Limiting our interactions with others and using caution will help us overcome this virus as quickly as possible. The best thing that can happen right now is to curb the spreading of the virus.
From day-to-day, the market is swinging wildly up and down. We went from record highs to a bear market nearly between Trade Days. As I mentioned previously, we’ve planned for these types of conditions. When building the Snider Method, we knew it needed to generate income in both up and down markets.
No one wants this type of decline, but from a strategy standpoint, happening so quickly is beneficial compared to a slower decline of the same magnitude. Most portfolios have a large percentage of cash protected from the decline and ready to put to work at these lower levels. As it stands today, we will be placing our trades on Trade Day just like every other month. I will send out another update early Monday morning, but at this point, you should plan on implementing the Snider Method as usual on Trade Day. (We recommend one minor adjustment for Lattco and Lattco PRO users. Please see the article below about using Limit Orders on your option trades.)
We know these are scary times. This is exactly why we built the Snider Investment Method and the rules to guide us through the investment process.
COVID-19 & Our Commitment to You
Message Sent 3.16.2020
First, we want you to know we care greatly about our clients, and your health is extremely important to us. The majority of our clients are in the demographic facing the greatest risk when coming into contact with the virus. Please be safe and use caution when making decisions over the coming weeks.
Next, you can rest assured that Snider Advisors will be here to help you. Whether we are here at our office or working from home, we can provide you with the same support and guidance you’ve come to expect. We have a Business Continuity Plan in place for these types of circumstances so that we can continue operations with little or no disruption to our clients and services.
In times of crisis, communication is key. For that reason, I will be sending a weekly update each Monday going forward. I said last week the market would face more big swings until the world gets a better grasp on COVID-19. That was very true last week, and I don’t see any changes in sight until we receive some “good” news. Unlike last week, the virus is a lot closer to home now impacting all our lives.
Finally, I encourage everyone to seek out reliable news sources. Too often, we see things shared on social media that are simply incorrect or exaggerated. News can spread rapidly in this day and age. It is best to get your information from national news agencies with the journalistic integrity to fact check their reports.
My thoughts and prayers are with everyone. I’m confident that we will get this under control, and our lives will return to normal. Let’s hope the drastic changes we’ve made to limit contagion happens sooner rather than later.
Thank you for your continued trust and support.
Addressing Current Market Conditions
Message Sent 3.9.2020
Today was a bad day in the market following a rough few weeks. The near future will likely hold more big swings until the world gets a better grasp on COVID-19. It is a scary situation, but nothing the market and the Snider Method hasn’t survived in the past.
The market took a dramatic change of direction in mid-February. Large swings in the market have dominated the last few weeks, but with the overall direction lower. Fear has stormed into the mind of investors. Since the S&P 500 set an all-time high on February 19th, it has declined nearly 20%.
The most important message I can share with you in these declines is to remember, we planned for market conditions just like this. When the Snider Method was initially designed, and as we continue to make improvements, we have never forgotten the fact that we will experience bear markets along the investment journey. Building an investment approach to accommodate price declines was critical in creating a successful strategy.
However, even the best planning doesn’t make the situation feel any better in the heat of the moment. As prices fall, it feels like it may never stop. Our instincts push us to react when patience is the best response. Right now, it feels like no action will be a mistake. When in fact, the decision to have a systematic approach like the Snider Investment Method in place in these emotional times was the best course of action.
I purposely wanted to keep this message short. But keep in mind, I am just a phone call or email away. We are here to deal with this uncertainty and ensure the best decisions are made for you and your financial well-being.