Happy Halloween Shoppers!
It is amazing how fast the time goes.
I know that is so cliche, but when you have kids, you can actually track it.
You only have so many Halloweens that your kid will dress up and trick or treat with you.
There aren’t very many.
We were still in the city during those grade school days when our whole family would dress up.
Every family got in on the action.
There were several blocks closed off in the neighborhood where no cars were allowed.
Everyone was in costume: kids, parents, grandparents, pets.
Half the fun was figuring out our costumes.
No matter what the weather was — rain, snow, or sleet (and we experienced all those) we were out there.
Some of my best memories of Grant’s childhood were trick-or-treating in the city.
Then of course, the kids get a bit older and don’t want anything to do with you.
That’s around middle school age.
They are still in costume trick-or-treating but no parents are allowed.
Now it is a high school costume party with the most ridiculous costumes.
The more shocking the better.
I won’t even get into that.
Enjoy them while you can … those were some fun times!
Read on, if you dare, to see my new trade idea …
A Treat of a Trade
One of the greatest advantages of being an Option Pit Pro Member is our chat room.
We have some of the best traders (led by Mark Sebastian and Andrew Giovinazzi) sharing ideas, observations and general market discussion.
On Friday, one of our members, who is actually clear across the globe in Cyprus, pointed out a stock that was new to most of us, Greenidge Generation (Ticker: GREE), which had some very unusual activity.
For one, the stock was up 33% and the options were trading like crazy, with massive volumes and the call skew was insane.
Call (or put) skew is the comparison of in-the-money, at-the-money and out -of-the-money options implied volatilities.
In this case, the further out the money the calls were, the higher the implied volatility.
So, of course, several people chimed in on how to create a trade around that and make some money …
Which is awesome because there were all kinds of great ideas shared and all had the potential to be profitable.
First of all, let’s look at the GREE stock chart:
It was just listed on Sept. 15 of this year and opened up at $57.
GREE has since traded down to a low of $19.50 just last Wednesday.
Looking at Friday’s candle, closing up almost seven dollars at $27.19, looks bullish to me.
I think GREE is going to trade higher from here.
Let’s look at the options. Note the call skew and the volumes:
The 25 calls, which are slightly in the money, have an implied vol of 160.57, while the next strike — the 30s — have an IV of 176.89.
And the further out-of-the-money you go, the higher the implied volatilities.
That is some steep call skew!
That is telling us the liquidity providers do not want to be short those out-of-the-money call options.
The high volumes are telling us that people want those options and are paying up for them.
So, how can we play this?
One way is my favorite spread: the vertical spread.
- If GREE opens and trades higher on Monday, I will be a buyer of the Nov. 19 30 calls with an implied vol of 160.57 and a seller of the Nov19 50 calls with an IV of 212.38.
- I will pay up to $2.20 for this 20-point spread with 20 days until expiration.
- If this spread trades down to $1.50, I will take my losses and I will begin to take profits in the $4 range.
- I think this stock could run.
- I took my losses on my SPDR S7P 500 (Ticker: SPY) Nov. 05 453/446 put spread down 41%. There is no stopping this market.
- In Taiwan Semiconductor (Ticker: TSM) I did the same. The stock traded up over two bucks on Thursday,changing the look of the chart.
I took my loss on the Nov19 114/109 put spread down 28%. Of course, TSM traded down almost three dollars on Friday, bringing my put spread back to even, but hey — it happens. And you have to get used to it. Onto the next trade. The key is more larger winners and smaller losers.
- In Haliburton (Ticker: HAL), I still have my Nov. 19 26-strike puts and they are up 35%, as of Friday. I am looking for one more leg down on these. If that doesn’t happen on Monday, I will take my profit.
Have a Happy Halloween! I can’t wait to see the kids come to our door.
Thanks for Reading … See You Next Tuesday!