The Samwise Portfolio

⚠ Disclaimer: The Samwise Portfolios are for educational and informational purposes only and does not constitute financial advice. All investments involve risk, and there is no guarantee of profit or protection against loss. Past performance does not indicate future results. Always conduct your own research and consult with a licensed financial professional before making investment decisions.

The main objective of the Targaryen Portfolio is to take on the $5,000 to $1,000,000 Challenge. The $5k to $1M challenge is a sort of internet-based contest that challenges particularly experienced traders to produce a $1,000,000 return off of a $5,000 portfolio investment.

The $5k to $1M challenge is a high-risk high-reward trading strategy that by its very nature requires the use of extreme trading strategies to accomplish. We’re talking about a 20,000% return here.

The $5k to $1M challenge is a high-risk high-reward trading strategy that by its very nature requires the use of extreme trading strategies to accomplish. We’re talking about a 20,000% return here.

It is extremely difficult to successfully accomplish the strategy for a large number of reasons we’ll be outlining below. The biggest of which is the relationship between return profile (20k% returns and risk of capital loss). Several successive high risk trades must be made in order to accomplish the end goal. Any one of those trades fails and it’s potentially game over. That’s why the a challenge that rarely ever succeeds. This is more for entertain than anything else.

That begin said, Sam Weiss has accepted the challenge for a reason. With strict adherence to a set of rules and with a long enough time-line of 4-years, we believe the challenge can be accomplished.

Going from $5,000 to $1,000,000 amounts to 20,000% returns. It is literally a 200x return on investment. There are no reasonable strategies that can produce those types of returns in one go. That’d be impossible. So how does one feasibly accomplish that feat? The hint: COMPOUNDING RETURNS

We’ll be using the power of compounding returns over a period of 4-years to complete the challenge. Each major trade we put on will attempt to produce 100% returns through the use of vertical call-spreads. In fact, all it takes is eight (8) consecutive successful call-spread trades yielding 100% each to produce the returns we’re looking for. And if we successfully accomplish one vertical call-spread trade every 6-months, we’d accomplish our end goal. Hence why we choose 4-years for the challenge period.

Here’s how that might look like:

Trade 1: $5000 > $10000
Trade 2: $10,000 > $20,000
Trade 3: $20,000 > $40,000
Trade 4: $40,000 > $80,000
Trade 5: $80,000 to $160,000
Trade 6: $160,000 to $320,000
Trade 7: $320,000 to $640,000
Trade 8: $640,000 to $1,280,000

The next question is, what type of trade would net us a 100% return. For me, I’ve always found vertical call-spread to be the best high yielding instrument at a reasonable risk profile. Let me give an example of how we might succeed using vertical call-spreads.

Near-term expiring Vertical Call-Spreads that trade just outside of the money tend to return 100% at expiration. If a stock is trading at $250 a share today, the $250-$260 call-spread of that stock generally yields 100% returns at expiration. This is particularly true of big tech companies which are the exact types of assets we’re going to trade in the Targaryen Portfolio — the code name for the challenge. Take a look at the table below. The table shows a list of different call-spreads for a variety of different tech stocks. The table is as of Monday, February 17, 2025. Note that while these individual options are no longer relevant for those reading this article well into the future, this general notion never changes. The key takeaway is that when looking at call-spreads whose lower strike sits just outside of the money, that call-spread generally yields 100% returns:

Take a close look at the table above. Notice how every $10 spread that trades just outside of the money yields 100% returns at expiration. This is true for most of the near-term expiring spreads at 1-4 months from the current date.

Our core strategy involves purchasing an Out of the Money (OTM) call-spread on various tech stocks when we believe there’s a high probability that our target stock will close in the money at expiration. If we successfully execute eight (8) such trades in a row over a period of four-years, then we’ll have met our objective.

Obviously, the next question to answer is this: How do we know that the spread we’ve purchased will close in the money at expiration? What is the underlying basis of our core strategy?

That’s where overbought/oversold contrarian trade comes into play. During stock market corrections — particularly in the NASDAQ-100 — there are a broad range of overbought/oversold and momentum indicators that tend to show when stocks have bottomed or are close to a bottom. These indicators have been backtested and are extremely reliable as forecasting tools. The biggest of which is the daily relative strength index (RSI). When the RSI reaches oversold conditions in the NASDAQ-100 (QQQ), all of tech tends to bottom as all tech stocks are highly correlated with the NASDAQ-100. We match a broad range of different indicators and rely on experience to determine when it’s time to buy. The Targaryen Portfolio will largely trade vertical call-spreads in stocks that we believe have reached a bottom and are likely to rally/rebound 10%+ from their lows.

Diversification v. Full Allocation
In most cases, the Targaryen Portfolio will make smaller spread trades across a variety of different stocks. The market doesn’t always reach oversold conditions during regular corrections and at times we’ll observe much smaller sell-offs in the market. In situations, where we have a relatively moderate degree of confidence in the outcome, we’ll make smaller measured trades in a variety of different stocks to produce our 100% return every 6-months.

In the first three months since the challenge began — November 15 to February 15 — we have opted to make smaller measured trades and have successfully produced 54% returns at the half-way mark of when the first 100% return must be delivered for challenge to remain on schedule. During that the first quarter of the challenge, the stock market failed to sustain a large enough correction to warrant a full allocation of toward any one trade or group of trades.

In situations where the stock market does sustain a major correction, we may very well fully allocate the entire portfolio toward one or more spreads.

In most cases, we’ll typically select a spread that is further out of the money than what we’ve outlined above. The entire point of the table above was meant to illustrate that spreads which trades just out of the money have the potential to produce 100% returns at expiration. The problem with those spreads is that they require the purchaser to hold those spreads until expiration. Those spreads don’t reach 100% returns until the option actually expires. They’ll rise 30-40-50% if the stock ends up fully in the money, but to reach 100% returns, the stock must cross the expiration date.

This creates a lot of timing related risks. For one, there’s a real risk that while the stock we buy rebounds exactly as expected, it could then decide to pull-back again just as we reach expiration. In many cases, if we’re in a bull market, we need not worry about that risk. But in more volatile environments, the stock may very well rebound 10% and then drop back down toward the lows.

Having that excess time until expiration could be a strategy killer.

So here’s how we address this. Rather than buying a spread that only yields ~100% at expiration, we’ll often buy a much further out of the money spread that yields 200-300% at expiration. In doing so, we can produce our 100% returns on the rebound itself and close out the spread early. For example, in February 2025, we purchased the Nvidia (NVDA) April 2025 $140-$145 call-spread for just under $1.00 when Nvidia was at $117. They’re worth $5.00 expiration which is a 400% return. On the Nvidia rebound from $113 to $138, that spread rose to over $2.00 a contract producing a 100% return in just a few weeks time. Had we bought a closer strike, we’d have to wait until April 17 to capitalize.

In practice, we’ll opt to buy further out of the money spreads in most cases. There will be situations where we do buy just outside the money spreads. But counterintuitively, we’d have to have a lot of confidence in the outcome to be a near-the-money spread. More confidence than we’d have in buying far OTM spreads. We’ll explain why below.

Obviously, if we allocate our entire portfolio to a spread or group of spreads, we take on an existential levels of risk that the entire portfolio challenge could fail. To date, we haven’t allocated to such a degree that warrant any active risk mitigation. But when we do make larger allocations, our plan is to use the 80-20 strategy.

The 80-20 strategy involves purchasing ultra near-term puts to protect the portfolio from downside risks at a ratio of 80% long spreads to 20% long puts. In a correction, volatility skyrockets and the risk of heavy selling drastically increases.

What we’ll do in those situations — as we described above — is buy further out of the money options that produces a larger 200%-300%+ return with 80% of our capital. If we buy a $10 spread for $2.50 with $8,000 and further buy $2,000 worth of puts to protect that spread, here’s how this would all play out in practice.

A 200% return on $8,000 yields a total return of $16,000. If we assume a $2,000 total loss on the puts, we still end up with a full net return of $14,000 on a $10,000 total allocation. We’ll have produced 140% total net return. $10k starting portfolio trade with $8k alloated directionally long and $2k allocated short. Total value at the ed of the trade is $24k (200% x $8k). By being in a 300% yielding trade we can both hedge and close the entire trade successfully well before expiration.