Archives for February 2021
Full Time Profits, February 5th, 2021 – QCOM, IWM, TLT
Markets have been running hot for the entire week after the rug pull into 3700. Honestly, I thought we’d be in a bit more of a range trade, yet the demand for liquidity continues to be exceptionally strong.
There is a narrative underlying price action that I believe is getting too far ahead of itself.
These are all tied together: rates, banks, oil, ag commodities, smallcaps.
All running on the same conveyor belt since Jan 6th when the Georgia special election changed the narrative of US Federal spending combined with monetary policy. It’s an obvious trade now, and it’s getting way ahead of itself. The Russell 2000 has been stretched, but it’s been stretched for months as too many investors were caught leaning the wrong way on that.
But to a more important point is how drastic the selloff in bonds have been. Remember… stand on your head. Bonds down, yields up. The US Treasury 10 year is currently yielding 1.17%, well off the lows from last summer when it looked like we’d never get out of the deflationary vortex.
To put that in context, We saw 2% last year before everything went sideways back in March.
Right now we have a lot of money leaning one way into the reflation trade. Corn futures are the most stretched they’ve been since 2011. Stocks like US Steel and Freeport (FCX) have been on massive runs, and crude oil took out $55/bbl this week.
It’s a crowded trade and due for a rug pull, and we will start positioning for that to happen soon. I’m writing this to you right at the close on Friday, so don’t be worried about if you missed the trade– odds are they have another few days of stretch to get into good prices!
Trade #1: QCOM
QCOM got hit on earnings, and has been a great mover in the semiconductor space. I want to see a test of the support level from the last earnings event.
Trade Setup
Expected Price: 140.15
Sell to Open QCOM 19Mar21 130/125 Put Spread
Tier 1: Enter at 1.04, Exit at 0.36
Tier 2: Enter at 1.456, Exit at 0.74
Tier 3: Enter at 1.872, Exit at 0.99
Stop Out If Close Under 129.11
Trade #2: IWM
IWM is running due to a few things, but one of the largest drivers has been regional banks — see KRE and KBE for the price action. When rates go up, banks can lend at higher rates and it makes them more profitable. You’ve also got biotech, which surprisingly plays a large part into this as well, and many of those names have been running–justifiably so. See BEAM, RARE, and NVAX for examples.
Yet I think we’re close to some reversion. Past 5 days have been strong yet if rates start to turn lower you’ll get a nice reversion trade.
Note the expiration, we’ll be looking at end of month expriation.
Trade Setup
Expected Price: 221.46
Sell to Open IWM 26Feb21 232/235 Call Spread
Tier 1: Enter at 0.47, Exit at 0.03
Tier 2: Enter at 0.658, Exit at 0.18
Tier 3: Enter at 0.846, Exit at 0.23
Stop Out If Close Over 232.11
Trade #3: TLT
TLT tracks long term bonds, and we are coming into some long term extreme levels to the downside. Again, I think on an institutional level you’ve got way too many participants leaning into the reflation trade and it’s due for a break. TLT is -5% under it’s 200 MA, and while we tend to see a lower low after a strong move lower, this is a good place to initiate some risk.
Trade Setup
Expected Price: 148.03
Sell to Open TLT 19Mar21 142/140 Put Spread
Tier 1: Enter at 0.32, Exit at 0.03
Tier 2: Enter at 0.448, Exit at 0.12
Tier 3: Enter at 0.576, Exit at 0.17
Stop Out If Close Under 141.89
CLOV Put Sale
SNOW Call Calendar
VZ Put Sale
Full Time Profits, February 1st, 2021 – AAPL, CMI, V
The markets have been experiencing some liquidity and dislocation issues. It circles back to the stock of the week– Gamestop– and how that can lead to selloffs in quality stocks.
Say you’re a hedge fund stuck short in a name that is absolutely ripping to the upside. To cover your losses, you will need to raise cash, and that can be done by selling stocks that you’re long.
And that’s how, out of nowhere, you can get a strong move to the downside in the Nasdaq, and it feels like funds are selling anything that isn’t nailed down.
We can see the lack of liquidity reflected in the VIX, which spiked up to 37. To put that in context, of all pullbacks in the S&P that are within 5% of all time highs, this is the highest VIX reading by a statistically significant margin.
So what can we do here? I think the best bet is to anticipate the unwind in some of these high quality names this week.
N.B. – we have a setup in CMI that requires a bit more explanation due to earnings risk, so make sure you read it before considering putting risk on.
Trade #1: AAPL
AAPL got a little ahead of itself with that most recent rally, and the mechanics surround “sell good things to finance the bad” are taking place here. i want to play it into that trendline support along with the support levels from earlier in January.
Trade Setup
Expected Price: 126.76
Sell to Open AAPL 19Mar21 110/107.5 Put Spread
Tier 1: Enter at 0.51, Exit at 0.17
Tier 2: Enter at 0.714, Exit at 0.35
Tier 3: Enter at 0.918, Exit at 0.46
Stop Out If Close Under 190.95
Trade #2: CMI
This is a special case due to earnings, so I want to step through how I’ll be looking at it.
CMI reports earnings this week, and it’s seen a pullback just with the overall market.
I think there are a few key levels to work with. First is the trendline and previous resistance level in the high 220s, and then you have the test of the breakout range at 215, then the support just above 200.
I will look at this trade ONLY after earnings comes out, and the trade may look very different depending on how the price moves. If the stock rips to the upside, then it’s clearly going to be a “no trade.”
What I want to anticipate is the stock to dip. If the stock sells off into any of these levels, I will be focusing on finding the March put spread that has a value of around 0.70– and that may vary depending on changes in option premiums due to earnings, and how fast the stock can move.
So if, for example, the stock has nasty earnings and breaks under 200 premarket, then I will avoid and wait for a new setup to develop. But if it has just a normal post-earnings selloff into the low 200’s, I’ll be looking to take advantage of it.
The trade setup below will give you the structure I’m looking at, but I will not play it until after earnings.
Trade Setup
Expected Price: 226.45
Sell to Open CMI 19Mar21 185/180 Put Spread
Tier 1: Enter at 0.7, Exit at 0.04
Tier 2: Enter at 0.98, Exit at 0.17
Tier 3: Enter at 1.26, Exit at 0.21
Stop Out If Close Under 190.95
Trade #3: V
Looking for a pull back to support and a test of that island bottom put in last quarter after earnings.
Trade Setup
Expected Price: 190.95
Sell to Open V 19Mar21 165/160 Put Spread
Tier 1: Enter at 0.7, Exit at 0.04
Tier 2: Enter at 0.98, Exit at 0.17
Tier 3: Enter at 1.26, Exit at 0.21
Stop Out If Close Under 190.95