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On Wednesday, I covered what makes these markets look safer than they really are.
They're being led ever higher by behemoth leadership stocks while the VIX plumbs ever-lower lows. Investors are doing very little hedging. Some of the brick-and-mortar retail companies we've targeted are getting an extension put on their death sentence as they're being lifted with the rising tide.
But that doesn't mean that these companies are suddenly better. And it doesn't mean that the positions you are already in that are preparing for their demise are now worthless.
Far from it.
Here's what the VIX is missing and how our positions in SHLD and KSS have been affected...
What Volatility?
There have been only 52 days this year when the S&P 500 closed up or down more than 0.3%.
That's eerily quiet - and it speaks to complacency. That's passive investing rolling up the carpets before sundown.
That's what is making the VIX and the anticipation of volatility so subdued.
But you need to look underneath the headlines of VIX doldrums... There's a ton of volatility just below the surface.
Look what happens to stocks that miss revenue projections or sales or net earnings. They get hammered. That's volatility, folks! It just doesn't show up in the big-picture VIX, thanks to leadership stocks like the Fab Five and passive investing lifting what looks like all boats with the tide.
This is the most cautious I've been in many months.
We've just got to let this play out. It may take a few weeks more, but probably not longer than that.
It's not that the markets are going to suddenly collapse. It's that after our brick-and-mortar retail stocks have been floated higher, they'll be at better levels for us to jump back on them (and hold their heads under water, so to speak).
The markets as a whole may keep on pushing higher. I knew they would, and I saw this coming a mile off. But if they keep going at the pace they've been going - which is actually showing a considerable slowing of momentum - we may be rounding a corner and approaching an inflection point.
Like I always say... It's all good, until it isn't.
If the broader markets take a breather, or worse, a tumble on profit-taking, that will spell really bad news for our favorite terrible stocks... Which means, of course, great news for us.
A Look into Your Portfolio
The last time we checked in on the trades I suggested for Sears Holdings Corp. (Nasdaq: SHLD) and Kohl's Corp. (NYSE: KSS), things were looking pretty great.
Now, not so much.
Here are those same trades, as of Aug. 15:
| SHLD Puts | Price as of 5/4/2017 | Price as of 8/15/2017 | Returns |
| December 2017 $9 puts | 3.40 | 2.95 | -13% |
| December 2017 $8 puts | 2.70 | 2.20 | -18% |
| December 2017 $7 puts | 2.17 | 1.65 | -24% |
| December 2017 $6 puts | 1.61 | 1.14 | -29% |
| December 2017 $5 puts | 1.15 | 0.76 | -34% |
| SHLD Puts | Price as of 5/4/2017 | Price as of 8/15/2017 | Returns |
| January 2017 $9 puts | 3.50 | 3.30 | -5% |
| January 2017 $8 puts | 2.77 | 2.67 | -3% |
| January 2017 $7 puts | 2.17 | 1.95 | -10% |
| January 2017 $6 puts | 1.62 | 1.38 | -14% |
| January 2017 $5 puts | 1.22 | 0.95 | -22% |
| KSS Puts | Price as of 5/8/2017 | Price as of 8/15/2017 | Returns |
| October 2017 $37.50 puts | 3.40 | 2.09 | -38% |
| October 2017 $35.00 puts | 2.22 | 1.20 | -46% |
| October 2017 $32.50 puts | 1.45 | 0.55 | -62% |
| October 2017 $30.00 puts | 0.92 | 0.24 | -74% |
| October 2017 $27.50 puts | 0.60 | 0.12 | -80% |
| KSS Puts | Price as of 5/8/2017 | Price as of 8/15/2017 | Returns |
| January 2018 $37.50 puts | 3.40 | 3.70 | 8% |
| January 2018 $35.00 puts | 2.22 | 2.50 | 12% |
| January 2018 $32.50 puts | 1.45 | 1.60 | 10% |
| January 2018 $30.00 puts | 0.90 | 1.03 | 14% |
| January 2018 $27.50 puts | 0.60 | 0.65 | 8% |
All have taken a sharp dip from the double- and triple-digit returns they had back in May. But why?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.