The Trade to Make a Difference Next Week

Hey There Income Hunters,

We have a big week coming up, especially after yesterday’s hourly earnings number that was up double over consensus.

Workers are needed badly and employers are paying up.

This Thursday, I expect another strong consumer price index (CPI), possibly reaching 5%.

Treasury Secretary Janet Yellen will also be auctioning plenty of bonds:

      • $58 billion 3-year notes on Tuesday
      • $38 billion 10-year notes on Wednesday
      • $24 billion 30-year bonds on Thursday

That’s $120 billion of supply heading into CPI, and last month CPI was a shockingly strong number causing a smackdown of TLT…

Coincidently, the US 10-year yield and the iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) are almost exactly where they were in May heading into the auctions and CPI:

Let’s take a look at the ideal trade to capitalize on the volatility next week …

TLT Put Spreads Expiring Friday June 11

Last month, TLT dropped $5 the week of the auctions and CPI. The auction was mediocre, while the CPI was a shockingly high number of 4.2%.

Monday is the day to put on a 139.5/137.5 put spread …

The max loss is $54, compared to a top-end profit of $146, for a 270% return. The probabilities are we get to 137.5, and if we do just take the profits.

Last Time Around

Check out the TLT graph highlighting the week of May 7 below …

 

 

Now check out the TLT spreads I put on last month. This week, it’s dé·jà vu all over again.

I held two of the three spreads through expiry, and I captured the maximum $200 gross income.

The ability to let the spreads unwind naturally through expiry is a major benefit. Let me explain …

When the underlying stock settles above the higher strike of a call spread or below the lower strike of a put spread, this is how it unwinds:

Call Spread

      • The lower strike, which you’re long, you exercise and take delivery of the underlying.
      • The higher strike, which you’re short, is assigned to a long and you deliver the underlying.
      • In summary, you have zero position, did not pay any commissions through the process and have maximized your return on the trade.

Put Spread

      • The lower strike, which you’re short, is assigned to a long and you take delivery of the underlying.
      • The higher strike, which you’re long, you exercise and you deliver the underlying.
      • In summary, you have zero position, did not pay any commissions through the process and have maximized your return on the trade.
      • Bring It Home

As #IncomeHunters our job is to ascertain the probabilities of a trade opportunity working in our favor.

Recently, as the supply of US Treasuries has increased, the second week of the month has presented an excellent opportunity to reap good rewards by holding a bearish strategy in TLT.

The vertical option spread is a very efficient way to express that strategy.

We have a big week coming up — including a couple of live events (more on those to come)!

Until then …

Live and Trade With Passion My Friends,

Griff

A Great Trade (In)

Hey Shoppers,


I need to keep it short and sweet today because I’m driving my husband, Scott, to the airport so he can fly down to Charleston, S.C., to … pick up a car.


Scott is a total gearhead and knows his shitake (as Option Pit Director of Education Andrew Giovinazzi might would say). 


But it’s true — he bought our last car for 24% off the sticker price.


His secret is to buy the current year model right before the new year models come out.


The dealers want to get rid of the old inventory and are willing to negotiate more than usual.


Also, a #protip from Scott, act like you do not care and will walk away at any moment.


And never, ever say, “I like this.”


That’s why Scott doesn’t like me to go with him. I made the mistake once of saying, “Oh, I love this color!”


Now, if you’ve been in the market to buy a car recently, you have definitely noticed the shortage issue.


There are no cars to buy!


Every time Scott finds a car online he wants to look at, it’s sold by the time he gets to the dealership!


He  actually talked to a salesman on the phone about a particular car on the lot, and when he got there, the guy told him, “Oh, it just sold.”


Really!?


There is such a shortage, he is selling our current car for 78% of what he paid for it two years ago.


Not too shabby.


And speaking of cars and trades …


Continue here to make a trade in General Motors (Ticker: GM)


My Trade in GM


Look what I am seeing on the GM stock chart:



It’s a hanging man candlestick, meaning this could be the end of the recent uptrend that began on May 13 and has moved GM up 18%.


Remember, the hanging man signifies a change in sentiment at the top of an uptrend. It shows how the bulls may be tiring and the bears have the opportunity to take over.


If GM opens lower on Monday, I will buy the June 18 63-strike puts and pay up to $1.50.



As you can see, the further out-of-the-money puts do not offer much as a sale to bring my cost down.


Since I am only spending $1.50, I will buy these puts outright.


I will begin to take profits at the $2.50 level and higher. On the downside, or if the stock trades higher, I will take my losses at $1.


Gotta run! If you see a car you like, snag it before someone else does!


Thanks for Reading … See You Next Tuesday!

Licia Leslie

Who Will Be The Next Big Meme?

Hey Traders,

Well, the meme crowd got me. I am officially recanting my “AMC won’t hit $50 by Friday” statement, because, well … we all saw what happened, right?

Chart courtesy of StockCharts

And as much as I thought we’d hit peak meme this week, a closer look into the options pits makes me think twice.

Look at the trading volume on AMC’s $145-strike call. Yes, a $145-strike call on AMC. 

Now, obviously, that one finished out-of-the-money this week, but the heavy call buying at increasingly high strikes really makes me wonder if we could be looking at another squeeze headed our way …

Meme stocks are back with a vengeance, and clearly there’s still plenty of interested retail traders ready to pile on the next trend.

These meme stock rallies are relatively unprecedented. When else do you see thousands of traders piling into stocks that are cheap, beaten down, or hated without a clear catalyst in sight?

Perhaps an even better question – how are you supposed to know which stock will become the next meme name to target? 

Well, I do have a kind of “secret weapon” when it comes to sniffing out what the retail crowd is up to. My Gamma Radar, which I use as part of my Robinhood Trader program, helps me track the “energy” of specific stocks. This proprietary scanner uses order flow intelligence to spot where retail trading is getting hot, versus where institutional investors are putting their Big Money to work.

With that in mind … I’ve spotted a few names I think we could see on the meme list in the weeks ahead …

Express Train To Meme-Town?

Retailer Express Inc. (Ticker: EXPR) had a solid week, hitting a high of $6.66 on Wednesday just before its earnings report was released on Thursday. However, in spite of better-than-expected earnings, a 15 million share offering promptly popped EXPR’s bubble, and the shares weren’t able to recover their Wednesday highs into the close on Friday.

Now, EXPR has had a rough go of it, with the general struggle of being a retail stock in the 21st century compounded by the COVID lockdowns. The shares were trading for less than $1 quite a few times in 2020, so retail trader interest seems to have already pushed the retail stock significantly higher since meme mania began.

Stock courtesy of StockCharts

Looking to the pits, option prices have been exploding. While this meme stock could see a surge higher in the near-term, I will be waiting for volatility to come down, and then looking for an attractive put-buying opportunity.

Indestructible Nokia

Another potential meme target could be Nokia (Ticker: NOK). This name is already memeing, but not quite to the same extent as AMC, GameStop (Ticker: GME), or even BlackBerry (Ticker: BB).

Now, the thing about Nokia is there’s actually some decent fundamentals underlying this name. 

Its last earnings report was strong, and the shares were already rallying even before this madness began. It’s definitely seen some upside over the last week, but not the same kind of crazy pop we’ve been seeing out of other names.

Stock courtesy of StockCharts

It hasn’t yet seen a full retail trader rally this time around, and call options are attractively priced. I think this name has long-term upside so a longer-term bullish play might be in my future, although if you think this stock will get hit by meme mania in the next few weeks, there’s definitely some potential short-term plays available for relatively little initial outlay.

The Game Is RIG

With oil rallying, I think oil stocks are getting ready to light up … But so far, I’m not seeing too much recent upside action out of a lot of these oil names, in spite of ballooning oil prices.

Stock courtesy of StockCharts

A $4 oil stock makes perfect sense for traders to hop in on, and low volatility expectations are currently keeping option prices muted, presenting several potential oil plays out there. I will talk more about what I’m seeing in oil next week.

On the other side of the spectrum, green energy name FuelCell Energy (Ticker: FCEL) might also be a name to watch. The shares closed on Friday just under $10, well off their 2020 high of $29. 

But we need to keep in mind, these shares were trading at around $2 near the end of 2020. 

Chart courtesy StockCharts

Headed into earnings next week, FCEL is on the lower end of its 52-week implied volatility (IV), and call buyers seem to be piling on. 

Given the right retail interest, the shares could see renewed interest and pop higher … 

The question is when, and for how long? I want to see institutional interest in addition to retail action to convince me FCEL has long-term upside and isn’t just another trend.

Like I said, meme mania is almost impossible to predict, but my order flow intelligence scanner can help me see where hot spots are building from both institutional and retail traders. This clues me in on which stocks might actually be able to maintain a push higher, versus which stocks are likely to sink just as quickly as they soared.

These are far from my only meme speculations (as my Robinhood Traders can attest to) but just a few of the names I’m keeping an eye on as meme mania continues.

Your Only Option,

Mark Sebastian