Open Trades

Bubble? What bubble?

SPCE has round-tripped its most recent parabolic rally. Momentum traders who are still holding out are puking, and anyone who bought the dip early are taking some serious heat. I want to fade this move, anticipating that the downside risk is a little bit overpriced.

Nothing has changed with respect to the stock. Earnings... well, they lost money but everyone new that. This is more just a proxy-momentum-breakdown that is occuring with many other names as well.

Here's the trade setup I like:

Very simple premise here. Currently the stock is crashing and coming back to the topside of its earnings trading range. I'm very OK with owning SPCE at a basis of 17.80.

Here's what it looks like on the chart:

Always the possibility I'm early, so look to add on the name if it trades into the 22s.

If you want to manage your margin a little better, you can buy the 15 put and convert it to a bull put spread.

MARA is being taken to the woodshed with many other momentum stocks today. This is a crypto proxy play, so this plus RIOT and SOS and MVIS are all getting taken out.

With this move, investor fears are (justifiably) elevated, and implied are still running hot at around 200%. I think that this is a fade.

The technicals still look "fine." Odds are the stock won't see a gap fill to 40 anytime soon, and will just chop investors up to death.

Which is good--- that's what we want, we want to see bounces and selloffs and chop, all while our trade setup decays and we pull out a nice profit.

The Setup

Pretty straightforward idea here, we are selling puts that have a nice cushion to the downside and offer some solid risk premium. I think today's nasty selloff may see a few more days of downside, so it's possible I'm early on this trade.

That's why I want to scale in-- I will add to this trade if MARA comes into the gap from Feb 5th-- that's in the mid 22's, and I'll look for just a bit more of an overshoot to the downside to add.

If things get nasty, then I can always roll the put sales down and out to April options.

If you want to keep your margin requirements down, then look at buying the 15 put against, making the trade a March 18/15 bull put spread.

From the Desk of Captain Obvious:

RIOT is up.

It's doubled in price over the course of about 10 trading days, due to its exposure in the crytpo space... the run to 50k in BTC is helping as well.

I want to put on a bearish trade, looking for... not a full round trip of the most recent rally, but a good giveback of the gains. This will most likely be coincident with a rug pull in BTC, and most likely a risk-off trade across the total trading environment.

I've been hesitant to get super bear-ed up into the front side of these rallies, but I think there is a good opportunity here if structuring your risk right.

Let's first talk about what probably won't work: buying puts in March. Here's why:

 

Highlighted in yellow are the implied vols for the March options board. 240% is entirely too rich, and what will most likely happen here is what we have seen when these parabolic names start to give back their gains...

The IV gets crushed.

We saw this recently in TLRY:

On Feb 10th during the parabolic spike, the March 30 puts were 4.45x4.65 with an implied vol of around 300%.

Right now, those same puts are trading 6.20x6.35 with an IV of 205%.

That means, on a stock that went from 77 dollars premarket and got cut by 50% in 2 days... the put value increased only by 2 bucks. Not much there.

So that's the dynamic I'm looking for-- a hard stop run in the stock, but the March IV comes down while longer dated options stay bid.

Here's the trade setup:

I paid 4.30 for the spread, and you can get a better fill if you leg into the trade.

This is a very elegant setup because it takes advantage of the current term structure in the RIOT options board.

And if we see a pullback, the implied vol in March will start to drop, and the Jun options will stay around the same IV, because longer dated options are not as sensitive to short term changes in IV.

Opex breakevens show 20 and 65, but those will probably tighten up over time.

If RIOT has some monster move higher and I completely miss the top on this, you will be shocked at how well this spread will hold up. When I did put calendars in TSLA's parabolic move, I was about 2 days earlier and the stock ripped higher... but we didn't see any change in the value of the calendar due to some options voodoo.

So I expect that this trade shouldn't have a ton of heat initially and we don't have to stress about the near term price action in the stock.

Now le'ts say the stock completely crashes and comes into 40... what I will then do is close out the long Jun puts and just hold onto the March puts naked... this will require margin, and you can buy a March put to cut down that margin.

Also, if the stock stays elevated for another month, I can just roll the short puts to April for a credit and continue to reduce the basis in the trade.