Hans Albrecht spent more than a decade taking the other side.
He made markets in options for over ten years, which means he sat there all day quoting both a buy price and a sell price, ready to take the opposite side of whatever a trader wanted to do.
He will tell you the quiet, forgotten stocks were never the problem. If he misjudged one of those a little, the trade was small and it did not matter.
The names that could hurt you were the popular ones, where every trader wanted the same side of the bet and the screens lit up like a pinball machine.
Today the most popular name on the planet started listing options, and retail traders are doing exactly what Hans watched them do for a decade.
So he is doing what he always did.
He is taking the other side.
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The name, of course, is SpaceX.
Options on it opened this morning and turned into a feeding frenzy. Contracts were changing hands at a rate of about 10,000 per minute, a record for a first day, and the stock is on pace to trade 2 million option contracts, instantly one of the most active names in the entire market.
Shares climbed as high as $225 today, roughly 67% above the $135 price the stock was offered at last week.
Here is the tell that should jump out at you.
More than half of all that option volume is jammed into contracts that expire this Thursday, just two days away.
People are buying short-dated lottery tickets as fast as they can click.
One trader paid $4.9 million for a block of calls struck 56% above where the stock even trades. That is not investing. It is a casino with a ticker symbol.
So why is this the exact moment a pro waits for?
It comes down to one thing most traders ignore.
The stock has only traded for three days.
There is no track record, no history of how it actually moves, so nobody truly knows what these options are worth.
That uncertainty is what pumps the prices up. It shows up in something called implied volatility, which is just the market's guess at how much the stock will swing from here.
The higher that guess, the more expensive the options, and right now the guess is enormous.
Look at how that guess changes over time, because this is the whole story.
The options expiring in two days are pricing about 192%. Now, that’s an annualized number. Translated, it means the options market is expecting it to move 12% daily!
The July options are pricing 122%. Then it slides as you go further out: 112% in August, 106% in September, 95% by December, and all the way down toward 76% two years from now.
That staircase is the market admitting something out loud.
It fully expects all this volatility to come crashing down as people learn how SpaceX actually trades.
The near-term premium is wildly overpriced, and overpriced premium is something a pro sells rather than buys.
So here is what Hans did.
He bought the stock at $211.81, then sold someone else the July $195 call and collected $38.39 for it.
Selling that call means he pocketed the premium up front and agreed to hand over his shares at $195 if the buyer ever wants them. After taking in that $38.39, his real cost to own the stock dropped to $173.40.
The strike he picked is the key. At $195, it sits well below the current stock price, which makes it a deep in-the-money call.
He chose that on purpose, because the deeper in the money you sell, the more premium you collect and the bigger the cushion you build under yourself.
Now here is the engine of the trade. That $38.39 he collected is really two parts.
About $17 of it is intrinsic value, which just tracks the stock because the option is already in the money. The other $21 or so is extrinsic value, pure time-and-fear premium that exists only because volatility is so high.
Hans is short that second piece, and he wants it to melt.
It will melt, as the volatility settles down and the clock ticks.
Hans is not trying to hold this to expiration or get his shares called away.
He simply wants that bloated fear premium to deflate so he can buy the call back cheaper than he sold it and keep the difference.
He is targeting $8 to $10. In his own words, he has "short Vega exposure to a drop in option pricing, as well as nice upside if it goes up, and on the way down a big cushion to where I don't mind owning this puppy."
Vega just measures how much an option's price moves when volatility changes, and Hans is built to win as that volatility falls.
Compare that to what most newbs are doing— buying calls.
If you buy a call on SpaceX right now and you are even right that the stock climbs, you can still lose, because once that 122% volatility deflates, the air comes out of your option faster than the stock can earn it back.
Retail is paying for the FOMO premium, while Hans is getting paid for it, with a cushion all the way down to $173 if the stock falls.
That is the difference between gambling on a new IPO and trading one.
Most option traders are paying a fortune for the privilege of guessing, while Hans is sitting on the other side of the table doing what he has always done.
Licia and I are doing something similar that we’ll reveal tomorrow for free … join us here.
Your only option,
Mark Sebastian