Is This Meme Stock About to Go Bust?

Hey Traders,


Since meme stocks started blowing up, I have put on winner after winner in our Robinhood Trader program (AMC, NOK, BB) …


Same in our Trading Legion mentoring service, where we put together a sweet RKT trade yesterday during our OP Markets Show.


I keep waiting for the bottom to drop out on some of these names but, NOK aside, we haven’t seen that yet.


However!


Could that be changing?


Check out this MONSTER trade in BB on Tuesday …


A customer bought at least 100,000 of the BB March 12th expiry 5 puts for, get this


Two cents.



This trade was 100% opening, as the open interest on this strike before yesterday was only 338 contracts.


So why would someone spend $200,000 to buy 100,000 2-cent puts?


Are they expecting the stock to tank?


In a perfect world (for this trader), maybe …


But they are more likely looking for a swift move downward.


This inexpensive bet does NOT need a lot of movement down to become profitable.


Check out the profit/loss curve …



What this tells us is that without any other help, the trader needs BB to drop to below $8 by Monday for the trade to win.


But … what if during the drop implied volatility explodes again?


If BB drops to $8 and the implied volatility of the options goes up 50%, guess how much money this trader makes:



Almost 1.2 million dollars …


That would be six-times his or her money on risk.


If the stock keeps going, they can make even more money.


This is the type of longshot trade that either is …


  • A trader making a crazy, calculated bet based on risk (essentially having a budget to go play at the Vegas slot machines)

  • OR … it’s a trader who knows something others don’t


My gut says it is the latter …


Still, though.


There are probably better ways to play this than the Mar12 5 puts.


The 8 puts only cost 7 cents, for goodness sake.


That is a MUCH better play than the 5 puts…


But sometimes these guys have their minds made up where they think a stock is going — and they choose to maximize their leverage.


The 5 puts are certainly doing that.


This is definitely one to keep an eye on ..


And set up a trade in Robinhood Trader based on this flow (and some other paper that printed).


Your Only Option,


Mark Sebastian

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