Can’t Stop, Won’t Stop … GameStop?

Hi Shoppers,


Did you see that yesterday?


We have another GameStop/Reddit/meme stock situation on our hands.


Kind of …


Only now it is Rocket Companies (Ticker: RKT), the parent company of Quicken Loans.


It closed yesterday up $17.30 — or 71% at $41.60.


While the average daily stock volume for RKT is around twelve million shares … on Tuesday the stock traded 373 million shares!!



The insanity doesn’t stop there, though …


Not by a long shot.


Crazy Numbers


  • The 10-day historical volatility, which measures the movement of the stock itself, jumped from 75.08 on Monday to 275.84 yesterday …

  • The 20-day HV went from 56.49 on Monday to 200.41 yesterday.

  • The implied volatility of the options was 91.69 on Monday … Yesterday it was 267.10!



The options volume supports these major moves:


  • On Monday, RKT was No. 14 for the most options traded, with 367,000 contracts and an average daily volume of 127,000 contracts.

  • Yesterday, RKT came in second place, just under SPY — trading a whopping 1.53 million contracts!



The stock halted trading three times on Tuesday with an M reason code M which means Volatility Trading Pause:



Slightly Different …


Now, RKT is separating itself from GameStop-like stocks by announcing a share buyback and issuing a special dividend of $1.11 a share.


They are saying, “We are a real money-making company, damn it!


Can you say Game On??


Will certainly be fun to watch.


Thanks for Reading … See You Next Tuesday!

Licia Leslie

Out of Chips

Hi Shoppers,


If you have a teenage son, like I do, odds are these days that he’s a gamer.


When boys are younger, it’s so much easier to manage the amount of time they spend gaming.


Now, I’m about ready to put a padlock on the door of his computer room because I can no longer stay awake past 11 p.m. to shoo him off the game and into bed.


I guess it has provided some relief from the Covid lockdown and he is able to spend playing with a group of friends …


And must admit I was pretty impressed when he built his own computer a few years ago.


We even had a nice conversation recently about graphic processing units (GPUs) as I was researching a trade idea for Advanced Micro Devices (Ticker: AMD).


GPUs are graphics cards that are currently in short supply. Grant, my son, pointed this one out on Ebay as we chatted …



He said it regularly sells for $1,500-$1,900 — but it’s impossible to find right now.


I also found in my research that once these graphic cards are available for sale there are automated bots that buy them up just to resell them at these higher prices.


This chip shortage has also affected car manufacturers, who have slowed down or stopped production.


Forbes recently declared that “semiconductors are now the most important resource in the world” and compared the shortage to the 1970s energy crisis.


Given that the average electric vehicle has 3,000 chips that might not be hyperbole.


One thing that isn’t in short supply are great options plays …


My AMD Play

As I “shopped” for trade ideas, I found this doji on the AMD stock chart:



That doji is signaling the end of the downtrend in AMD that began on Jan. 12 when the stock traded a high of $98.97.


I like buying the Mar19 85/90 call spread paying $1.75-$1.80.



I will take my loss if the spread trades down to $1.10. I think this spread can trade up to $3.00-$3.50.


By the way, Grant says to get ready for Nvidia’s release of their “awesome” new graphic card in September — he would know!


Thanks for Reading … See You Next Tuesday!


Licia Leslie

Delta Delta Delta

Hi Shoppers,


My son is just beginning the college application process …


So that means I am also beginning the college process.


Ugh!


It seems so daunting.


Grades, test scores, extracurriculars, volunteer work, accomplishments, yada, yada, yada


OH! Then there is the essay … what to write about?


And choosing the right school … “they” say you should apply to seven to eight. But is each a safety, target or a reach school?


How about visiting the schools in person … or virtually — really!?


You’re going to get a feeling for a college virtually? Please! (Well, maybe University of Phoenix, but that’s different.)


There has been a massive industry built around this whole process.


And after I have — I mean my son has done everything he’s “supposed” to do, I can’t even imagine the anxiety of what it will be like waiting to hear from these institutions.


We will be standing by with bated breath, hoping he’s accepted by them when I think they would be lucky to have him as part of their community. (And I swear, I am not one of those bragging mothers!)


Frankly, I am beginning to get a bad taste in my mouth from these bastions of “higher learning.”


Not only will we be paying them a fortune, but aren’t these institutions supposed to be the place young adults go to broaden their minds and learn to think for themselves?


From what I read in the so-called news, this doesn’t seem to be the case anymore when they are not allowing speakers of all opinions onto campuses.


Isn’t that what we used to call debate? Don’t we usually get a better outcome taking a little bit from each side? (Hello, Congress!?!)


And the whole student loan fiasco … I can’t even go there!


Anyway, what I really wanted to tell you about is one of the Greeks we use in trading.


I guess I wasn’t in a “rush” to get there …


Get it? College, learning, Greek life … well, maybe.


Aaaanyway …


Delta Delta Delta


You may be familiar with the term “delta” related to options …


This is the option’s “moneyness,” meaning where the option’s strike price is in relation to the underlying price.


In-the-Money

In the money, for calls, means the strike price is above the underlying price and the deltas are above 50. 


In-the-money puts have strike prices below the underlying price and the deltas are -51 to -100.


A delta of 100 means the option is stock-like, it is deep in the money and it will move one-to-one with the stock, with calls moving in the same direction and puts moving in the opposite direction.


Out-of-the-Money

On the opposite end, a lower delta, say 0-5, is so far out of the money (or so far away from the stock price), that it will not move with the stock, unless the stock has made a huge move in the direction of that strike.


Out-of-the-money options have deltas lower than 50.


At-the-Money

An at-the-money option has a delta of 50, the call being +50 and the put being -50.


Pure & Simple


Now, remember our synthetics


We can create the stock using calls and puts of the same strike. (Each call and put delta of the same strike totals 100.)


Call deltas are positive, moving in the same direction as the stock … Put deltas are negative, moving in the opposite direction of the stock.


The delta tells us how the price of that option “should” move with the movement of the stock.


If the call delta is 35, the put delta is -65.


If stock moves up $1, the call “should” move up $.35 and the put “should” move down $.65.


Enter Vol


I use the word  “should” because that is the exercise in its purest form — but it doesn’t account for old friend volatility.


Yes, volatility is that one factor that is not a constant in the pricing of options — it is always moving.


The volatility of the underlying is priced into the options prices, and as an underlying’s volatility increases, so will the extra premium priced into the options.


In general, the volatility of a stock tends to go down on the upside (when a stock is trading higher) and goes up when a stock trades lower.


In this new world of “you only live once” (YOLO) trading, though, we are seeing volatility go up as these stocks skyrocket, as it should.


That’s why it pays to remember … delta is very useful for hedging.


Say you buy 100 40 delta calls, making you 4000 deltas long. This means if the stock moves a dollar lower, you will lose $4,000.


How do you hedge this position? You can sell 4000 shares of stock, sell 4000 deltas of another call or buy 4000 deltas of puts.


This is the magic of options and there is so much more! 


More Greeks, too!


Stick with me and I’ll teach you …


Meanwhile, I have a whole year of college applications ahead =/


Thanks for Reading … See You Next Tuesday!


Licia Leslie

Charging Up on This Stock

Hi Shoppers,


Let me show you what I am seeing in the American Express (Ticker: AXP) candlestick chart:



What is this information telling us?


Well, look how well that doji on Jan. 27 worked out. 


Stock traded from $114 up to a high yesterday (Feb. 23) of $138.31.


Now, the new doji is signaling an end to this uptrend.


I will wait for the confirmation of an opening today lower than yesterday’s opening, which is the lower end of the green body of the candlestick.


If that happens, I am going to buy the Mar05 135/130 put spread and pay $1.30. That gives me 10 days until expiration


I like the short time frame because if AXP is trading lower, it will happen right away and I do not want to pay a lot of money.


I will take my losses if the spread trades down to $.85-$.90.



It Happened AGAIN!

  • On Monday, I recommended a call spread in the SPDR Gold Shares ETF (Ticker: GLD) after seeing the double bottom and the doji in the futures chart … And I was right again! GLD gapped open up $1.50, moving in the direction I predicted — but moving too fast — so the spread was out of my price range and I didn’t want to chase it. We will get another opportunity!

  • Yesterday, I sold the long BP Mar16 23 calls I paid $1.05 for on February 17 at $1.70 for a nice 61% profit.


BP could trade higher, but I am seeing a hanging man candlestick from yesterday, take the money and run!


Click here if you would like to view my Trading Record since Oct. 2020. Not too shabby for trading small contracts with short hold times!


Stick with me and you’ll be able to pay your credit card … IN FULL!


Thanks for Reading … See You Next Tuesday!


Licia Leslie

A Golden Opportunity

Hi Shoppers,


So we missed my last recommendation in the SPDR Gold Shares ETF (Ticker: GLD) …


I was right about the direction — but it happened too quickly!


On the morning of Feb. 8, a Monday, I recommended a long call vertical in GLD.


I had spotted a hammer candlestick, indicating GLD was going to reverse its downtrend and begin to trade higher.


Well, I was right … so right, in fact, that GLD opened up over $2 that day — causing the call vertical to be trading out of our reach. =(


GLD continued to trade higher over the next couple of days — eventually over $3 higher.


I did not chase the call spread, though.


Why?


Because of this rule of thumb …


Definitely give yourself a few cents leeway when trading in and out of your positions. Don’t miss a trade by a penny or two.


But also


Do not chase a trade.


I was originally looking to buy the call spread for $1.35, so I may have paid up to $1.40 — but no more than that.


That spread ended up opening around $2 …  nearly 50% higher than what I was willing to pay and actually trading in the territory I would have considered taking my profit.


I bring this up because I want to show you what I am seeing in the gold charts now … more opportunity — some might even say it’s golden.


Another Chance

Let me show you what I am seeing now in the GLD chart …



I drew the yellow support line on the yearly chart using two things:


  • A possible double bottom, indicated by the two arrows on the right, which may signify a trend reversal.

  • The previous resistance price, which, once traded through and revisited, becomes support shown by the two arrows on the left.


Now take a look at the Gold March Futures chart:


Friday’s trading produced a doji — a pattern that can be indicative of a change in the current downward trend.


The doji is also supported by the large size volume that traded on Friday … which shows just how significant the candlestick is because of all the players participating.


To confirm the change in trend, we will want to see today’s candlestick open higher than the doji body, which would be greater than $1,772.70.


Looking at the GLD options, I like buying the Mar05 expiration cycle (giving me two weeks),  because I think this move will be happening right away and I don’t want to pay for the extra time premium that is priced into the further out options.


This also allows me to buy an option closer to at the money. The Mar05 167.50 calls are $.50 out of the money and trading around $1.90.


In the Mar12 cycle, the 168.50 calls are trading around $1.98, giving me an extra week, but cost $.08 more and are $1.50 out of the money.



I like buying the Mar05 167.50 calls with an implied volatility of 15.82 and, to spend less money overall, I will sell the Mar05 172.50 calls with an implied volatility of 16.28, therefore paying $1.40 for the $5.00 spread.


Buying a lower implied volatility and selling a higher implied volatility is a good strategy …


Remember, volatility is the one factor in pricing an option that is unknown. It is premium added to the option price determined by demand and the historical volatility of the underlying.


The more demand for an option and the higher the historical volatility of the underlying, the higher the premium (expense) of the options.


I would take my loss on this spread if it trades down to $.80-$.85.


Let’s Review

  • In Revlon (Ticker: REV), I bought the Mar19 12.50/17.50 call spread paid $1.40 and said I would take my loss if it trades down to $.80. The REV chart is beginning to look a bit precarious. Usually after a large directional candlestick, you will get a flag or pennant formation. That means several days of trading at those upper or lower prices.  The REV flag may have traded too low, therefore I am raising my stop loss up to $1.00.

  • British Petroleum (Ticker:  BP), I bought the Mar19 23 calls paid $1.05. The stock is down $.30 and the calls are trading $.95, I still like this position, so I’m keeping it.

  • My iShares Silver Trust (Ticker:  SLV) trade, long the Mar19 23.5/25 call spread paid $.50, I said I would sell at $1.00. It traded $.97 on Friday, I took those few cents to get the trade executed and I am out for a nice 94% gain.


Remember Shoppers, if you have any questions feel free to email me at support@optionpit.com.


Thanks for Reading … See You Next Tuesday!


Licia Leslie

Synthetic Options, Real Food

Hi Shoppers,

As a (growing!) trading education firm, a healthy portion of our clients here at Option Pit are fairly new to trading options.

So, I’ve two quick bites for you today that most everyone will find useful …

How to ALWAYS know your risk when trading options and …
Where to get the past patty melt on Chicago’s Northside

First, some quick history …

The Chicago Board Options Exchange (CBOE) was created by Chicago Board of Trade (CBOT) commodities futures traders in 1973.

Now, I’m a Chicago native and still live here … unlike Option Pit CEO Mark Sebastian, who last October decamped for the “better weather” of Austin, Texas. How’s that working out for you these days, Mark?

Anyway, an older gentleman named Cedric who hangs out at Meier’s Tavern, one of our favorite old-time drinking establishments in the northern suburbs, claims he founded the Cboe.

I have yet to pick his brain, but I do pop in occasionally in the hopes of running into him …

And to have a huge stein of DAB beer, as Meier’s is one of the only places that has the delicious German lager on tap.

They also have the best patty melts and tater tots, all served on styrofoam plates.

I swear the dust is still there from when the place opened in 1933!

Meier’s is a great, warm and friendly spot — truly a must-visit if you are in the neighborhood.

Back to Options …
So the Cboe opened on April 26, 1973, the 125th birthday of the CBOT, and only listed call options … puts wouldn’t arrive until four years later.

Can you imagine trading calls without puts!?

If you understand options synthetics, you know exactly what I mean. (More on those in a second.)

Options were created as insurance against stock positions.You can literally create long and short stock positions using calls and puts … they are an incredible way to make money off market swings while managing risk.

Synthetics
So I mentioned the options synthetics, which involves combining two of the three (calls, puts and stock) to synthetically create the third.

I’m going to run through them here, because having these committed to memory will help make you a better trader. Here we go …

Long call + short put = long stock
Short call + long put = short stock

Now, I’m going to stop for a second for a bit of history and a key point about volatility …

In the past, knowing those first two bullet points, along with the dividend and interest, allowed traders to spot mispriced options. It doesn’t happen anymore because everything is electronically quoted, but the market maker I clerked for back in 1986 was scooping a whole dollar on these essentially no-risk trades.

It was insane!

But that is why volatility (price fluctuation) is important now … everything is properly “theoretically” priced by the computers. Volatility is the key to finding strategic money making positions in options.

Back to the synthetics:

Long call + short stock = long put
Short call + long stock = short put
Long put + long stock = long call
Short put + short stock = short call

My advice to traders of all levels … memorize these six bullets!

As long as you know these synthetics, you will know your risk and can better manage your trades.

That’s it for now … think I might run down to Meier’s.

Thanks for Reading … See You Next Tuesday!

Licia Leslie

A Blizzard … of Oil

Hi Shoppers,


I owe you at least one trade idea.


Today I have TWO.


My first is a cheap call in British Petroleum (Ticker: BP).


I am in agreement with other members of the Option Pit team in terms of their outlook on gas and oil moving higher. (Check out Bill Griffo’s oil trade idea here, for instance.)


Not only is oil going higher long term thanks to the Biden administration, it is getting a short term boost due to the Blizzard of ‘21 and the havoc it is causing to the refineries and pipelines in Texas.


Looking at the BP chart you can see that it has broken out on Tuesday.



I like buying the BP Mar19 23 calls paying $1.06. A cheap shot on BP trading higher.


I would take my loss if the calls trade down to $.60.


Love My Lipstick

My second trade idea is kind of glomming onto Mark Sebastian’s Walgreens Boots Alliance (Ticker: WBA) trade idea, which you can read about here.  


One of the things I purchase at Walgreens is Revlon lipstick.


It’s the best!


I have paid up for Chanel and two times the lipstick literally broke off on me!


Not cool!


Revlon is way better and I can pick it up at Walgreens.


Looking at the chart of Revlon (Ticker: REV), it also broke out on Tuesday.



I like buying the Mar19 12.50 calls with an implied volatility of 135 and selling the 17.50 calls with an implied vol of 153.



Paying $1.40 for the Mar19 12.50/17.50 call spread with the stock trading $13.17 puts the 12.50 calls $.67 in the money.


A great cheap shot at REV trading higher. I would take my loss if the spread trades below $.80.


Think about what you purchase at Walgreens — I think Mark may be onto something.


Thanks for Reading … See You Next Tuesday!


Licia Leslie

Feeling Sorry for Myself (But There’s A Gift for You!)

Hi, Shoppers,


Last year, we drove up to Boyne Mountain in Michigan, where the kids learned an expensive but valuable lesson when their things were stolen while they were in the hot tub.


Police were involved and everything.


Fun times!


This year, it’s just too damn cold. (An 8-degree high in Chicago today!)


Plus our friends ditched us for the beach!


But I can’t say I blame them.


Now …if you are heading to slopes (or the beach) and need a good read, I have something excellent for you!


This week, Option Pit Head Income Trader Bill Griffo released his new ebook Trading the Fed, which can help you build generational wealth in a short period of time (so your heirs can go shopping!).


Seriously, there are so many great insights in Trading in the Fed that you can start putting into action today. And there should be — Bill has 40 years of trading experience.


I mean, that’s much, much longer than I have even been alive … 😉


So, again, be sure to grab Bill’s FREE ebook here!


Stuck!

Anyway, back to our travel restrictions, my husband cannot leave Illinois without quarantining for 10-14 days afterward due to work policy.


They also ask him every morning if he left the state after departing work night before, so there’s that.


And Chicago has a map of the states we cannot go to without hassle — which includes almost every state:


Every orange state has >15 positive cases per 100,000 people which comes out to .015%.


I can’t help but think: Are those borders containing/separating the Covid-19 virus?


I know that is dumb, but … just sayin’. (Actually, can we fly to Hawaii and not quarantine? Hmmm … need to look into that.)


The good news is, that since Jan. 8 the number of Covid cases reported to the CDC has been falling:


I know I am whining and I realize there are a lot of people way more negatively affected by this virus … but I am cold and I want to go to the beach.


We do get to go out for margaritas tonight (good thing Option Pit DC Insider Frank Gregor left some for us!) … and actually sit inside the restaurant, not in a tent!


Woo hoo!!


Yesterday, Chicago raised the restaurants’ indoor dining from 25 to 50 people per room, but no more than 25% capacity.


All bars must serve food and stop serving alcohol by 11 p.m. because … Covid comes out more after 11?


I’m done.


Enjoy your weekend wherever you are! And be sure to download Griff’s ebook!


Thanks for Reading … See You Next Tuesday!

Licia Leslie

The Crypto Craze

Hi Shoppers,


In a very 2021 turn of events, my son, Grant, recently asked me if he could buy Dogecoin.


I saw that it was trading for $.06, so my first reaction was “Sure!”


It seemed like it would be a great way to get him interested in trading and the markets. A real #proudmom moment.


Then I dug a little deeper and found that Dogecoin was created as a joke currency using the Doge dog meme:



Woof.


Side note: I was also informed by Grant that anyone over a certain age (25?) is not allowed to even say the word meme because “it’s cringe.” (Eye roll here).


Anyway, despite its origin, Dogecoin is nothing to laugh at these days, and you’ll see why in a moment.


On its website, Dogecoin calls itself “the fun and friendly internet currency” and “an amazing vibrant community made up of friendly folks just like you”.


It has a Robinhood-like vibe, simple and easy to use, and seems to be geared to attract the younger crowd. (As you would expect a meme-based currency to be, I suppose.)


(For a truly extensive rundown of the Doge meme, check out this KnowYourMeme.com entry. It’s a true glimpse into the Internet’s psyche.) 


Dogecoin launched Dec. 6, 2013 and is trading at $.07 as of this writing — up 1,500% for 2021!


So it’s definitely riding the crypto craze.


It also, and I can’t believe I’m writing this, has a market cap of nearly $9.5 billion (almost qualifying to be a large cap) and $7.2 billion worth have traded in the last 24 hours.


And, fun fact, there are 128.3 billion Dogecoins in circulation.


Now that we’re down the crypto rabbit hole …


Crypto Q&A

I’ve put together a quick roundup of some of the questions I’ve received related to the crypto craze. Here we go …


Q. How many crypto currencies are there?

A. According to E-Crypto News, as of Jan. 20, there were 7,812 crypto currencies with over $324 billion in market capitalization.


Q. Does the government have the power to destroy crypto currencies?

A. Economist Saifedean Ammous, author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, says the only way a government can kill Bitcoin is to compete with it, and if the government tried to ban Bitcoin, it would only become more popular. He’s right … think guns and booze.


Q. How about Janet Yellen’s stance on crypto?

A. Our new Treasury Secretary says,“I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn’t occur through those channels.” Sounds like trouble is brewing!


Q. What about the rumors of Apple buying crypto currencies?

A. According to RBC Capital Markets, Apple already has the infrastructure with its Apple Wallet and Apple Pay to use crypto currency. Can’t wait to pay for my latte with Sushiswap!


Q: Why would Tesla buy $1.5 billion worth of Bitcoin?

A: According to Tesla’s SEC filing, it’s to “to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.”


They are accepting Bitcoin for payment for their cars, too.


Elon Musk has a history in the payment industry. Twenty years ago, he invested $22 million in X.com, which became PayPal. That worked out OK.


Now, it’s possible that Musk is using his influence to run up the Bitcoin price and then scalp it. Not sure he would do that, but I’d bet you Dogecoin that Jeff Bezos probably wouldn’t have any qualms about it.


Q. How many Bitcoins are there and how many total will there be?

A. There are currently 18,624,650 in existence, with 2,375,350 left to be mined, for a maximum total of 21 million Bitcoins that can ever exist. The last Bitcoin is predicted to be mined in the year 2140.


There are currently a little over 100 million ether (Etherium) in circulation and it doesn’t have a limit to the number that can come into existence.


As far as an explanation on the mining of the coins, not so simple. I will leave that research up to you!


I can give you this picture of the context of the first Bitcoin mined in 2009, though. Enjoy!



Q. How can I get in on the action?

A. Just pull the trigger. I think I’m going to allow Grant to buy $25 worth of Dogecoin. Or maybe $50. $100? $200!? Elon has been tweeting about Dogecoin for the last five days. Snoop Dog, too!


So it must be cool … just like memes.


OK, that’s enough for now. Next time I’ll be writing about the stocks surrounding the crypto currency craze.


Thanks for Reading … See You Next Tuesday!


Licia Leslie

Going (Long) for the Gold

Hi Shoppers,


I’ll keep today’s trading idea quick … in case anyone is nursing a Super Bowl hangover.


You’re welcome!


I found a great candlestick setup indicating a trend change …


And the idea is backed by our own Power Income guru (and Tampa resident) Bill Griffo.


The play is in SPDR Gold Trust (Ticker: GLD) …


I see a hammer candlestick with confirmation set up in the GLD chart. Check it out below.



A Little About Hammers
Remember, a hammer is formed at the bottom of a down trend and signals the possibility of a change in trend.


A hammer has a long lower shadow, trading lower during the interval … but comes back (buyers enter and prevail) with a small upper body (closing above the opening price) and little or no upper shadow.


We also received confirmation of GLD trading higher by Friday’s candlestick gapping and opening higher than Thursday’s hammer candle.


The Trade

Looking at the Feb19 calls, I like buying the 170 calls with an implied volatility of 14.32 and selling the 175 calls with a higher implied vol of 15.68.



That is buying the Feb19 170/175 call spread paying $1.35. I would take my losses if this spread trades down to $.85.


I also still like my Mar19 SLV 23.5/25 call spread which is up 48%. I will sell it at $1.00.


Enjoy your day!


Thanks for Reading … See You Next Tuesday!


Licia Leslie