Hey There Income Hunter,
First, thank you to everyone who joined my Win The Week live event on Thursday night.
We are breaking new ground in options, with massive gains rolling in and more on the horizon.
You see, I found a way to know when the banks and hedge fund option market makers option books are “caught offside” – which opens the door for retail traders like you.
For instance, yesterday I identified a great opportunity in Beyond Meat (Ticker: BYND).
It was worth about $4 on a $23 dollar stock.
So, what has changed to allow for these money-making moments?
Ch-ch-changes
Option market dynamics have changed a lot over the past year.
We’ve seen …
- Exploding volumes
- Greater concentration of market makers
- Less liquidity
- Zero days to expiry (0DTE) options have taken off
Those changes also mean that the bank and hedge fund market makers are much more prone to make mistakes.
Mistakes which can be found by analyzing changes in the open interest.
Way BYND
Let’s take a look at the call and put open interest in BYND from yesterday.
The table below is taken from LiveVol’s options analytics. It calculates the delta notional of bought calls and puts on the last trading day for the Feb. 24 expiry.
As you can see, the call open interest dwarfed the put open.
This part is very important …
You see, banks and hedge funds are on the other side of most option trades, and they delta hedge their position by selling/buying stock.
In this case, they are short the calls/long stock and short puts/short stock going into expiration.
For BYND, which was completely dominated on the call side, this means the banks and funds were forced to sell their long stock hedges either Friday or Monday.
Well, let’s check out the BYND chart on Friday after a gap opening on a pre-market announcement of positive earnings.
Selloff City
Imbalance in the Force
Now take a look at how meaningful an imbalance of option positioning can be for monthly expirations.
Here is a snapshot of the put/call open interest imbalance heading into the June 17, 2022 expiry.
The banks and funds were “offside” on puts. Once the short puts expired, short stock buying triggered a massive short-covering rally:
Offside puts on the left. Short covering rally on the right.
These are forced mistakes that stem from making billions of dollars a quarter as market makers. Their hedged trading book gets so big that unwieldy it fuels massive moves in the market.
Bring It Home
The timing is right because 2023 will provide massive swings – more swings than ever, in fact – and I’ll lay out the blueprint every step of the way …
Plus, when you become a member now, you’ll get six months of free access to Power Income Trader, my trade-the-Fed macro-view service.
It’s the total package!
Live and Trade With Passion My Friend,
Griff