BY ANDREW GIOVINAZZI

August 12, 2023 

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Robinhood Markets Inc (Ticker: HOOD) was one of the hottest names in Memeland in 2021. As the stimmy dollars dried up, investors went back to their lives, and HOOD got hit by the 1-2 punch of fewer volumes and the Crypto implosion.

The stock has done very little since mostly hovering around $9. And hovering is a good indicator of a trade opportunity.

Does Volatility matter in a $9 stock? Sure it does! 

Let’s break down the Zones for HOOD and see what arrows are flyin’…

I Think HOOD is a Perennial Takeover Candidate

In general, I think HOOD makes a good put-write for just yield. The problem right now is that the IV is so low, a Sep15 put sale yields only 2% for 2 months. It’s just not that interesting, but it’s my minimum yield on a put write which is 1% per month, or 12% per annum.

Note that HOOD was more in Zone 4, the top quartile a year ago, but it’s now dropped to the bottom of the vol chart into Zone 1. In Zone 1, I want to buy as much time as possible.

What I would shoot for is some long-term calls with a put write to pay for the call premium. The problem, as Licia said, is the stock looks horrible. The solution is to buy a long-term out-of-the-money call, say the HOOD Jan24 12 calls and buy a short-term HOOD Oct20 10 put.

If HOOD drops close the 10 put and pay for the 12 calls. At the new lower level, start writing $9 puts.

The only reason for a long delta play here really is Charles Schwab Crop (Ticker: SCHW) or another retail broker will end up buying HOOD for the customers. The industry is always consolidating, and it wouldn’t surprise me if this happens over the next year.

To Your Trading Success,

AG