Update: June 10th, 2021
Closing the trades.
Become a Great Options Trader
By Steven Place
By Steven Place
By Steven Place
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.
Closing out the trade.
By Steven Place
Biotech is the first momentum sector that unduct last week’s lows. We’re coming into some support around 150, with the rising 200 day moving average coming into play right around previous pivot levels from Setember-November of last year.
The sector isn’t properly oversold yet, but I think it’s “close enough” given how high implied volatility is sitting right now:
Sure, this is “low” by March 2020 standards, but from my experience with trading this name, anything above 25 tends to be a pretty good “fear” indicator. Not saying it’s *the* bottom, just that we are close.
Here’s the trade setup:
Fairly straightforward bet here. We think that the downside risk is less than what the options market is pricing in. 140 is a pretty good level to work with as it is below the 200 DMA as well as the range highs from last summer’s trading range.
I’m probably early on this– in fact my first fill was 0.40, so you’re getting a better initial fill than me. As IBB sells off, we will continue to scale into the same spreads, just at higher prices. If the spread goes for 0.15 I’m all out.
Given the current volatility, and the fact that we are using April options, it’s very possible that we see something where you can enter, exit for profits, and reenter if you want to trade aggressively like that.
At current fills of 0.55, and an exit of 0.15, that’s a potential profit of 0.40 per spread. With a margin of about 2.45 that puts return on capital at around 16%, which is a good RoC to start the trade at.
By Steven Place
This showed up on my screener today.
First, a look at the daily chart:
CAT has been running on the “global growth” theme that has been prevalent from the past few months. Lumber futures crack 1000, copper futures above 4, and CAT is definitely a proxy for those kinds of moves.
Let’s zoom out to a weekly chart, with some Bollinger bands.
The stock is sitting with 2 weeks in a row above the WEEKLY Bollinger band. This is not something that happens very often… but over the past 12 months it sounds about right. That’s just the kind of market we’ve been in– panicked buy-ins as the US stimulus news starts to get priced in.
We have seen the stock run above it’s upper weekly BB before, but not with the kind of range expansion we’re currently seeing.
Here’s a look at the stock against its 50 week moving average:
Stock is up 50% from its 50 week moving average. Last time this happened was the massive move in late 2017, which is where a ton of other assets were running.
Also, if you wanted to compare the move from that rally, here’s what it looks like:
We are well past the energy we saw from the most recent parabolic move. Granted the end of the world was happening in March 2020 so we can be a little forgiving in that respect, yet I think we’re at a good sell area.
Here’s the trade setup:
Pretty straightforward bet– we expect the further upside to be overpriced in the options market.
Because this market is so strong, we will scale in, adding to the trade if CAT has one more push. And if the stock holds above 240.11, then I’m going to take the loss and move on.
By Steven Place
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.