2021 has been a year of crazy trading, to say the least.
Meme stocks … “Reopening” plays … Crypto … ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) reverse-split …
Honestly, I’m taking advantage of everything I can. “Make hay while the sun shines” and all that.
That’s one of the reasons I’ve been hammering this UVXY reverse-split lately.
This is something that doesn’t happen often, so when it does, I don’t want to leave any money sitting on the table.
So far so good. Options on the post-reverse-split UVXY listed Thursday, and I made a 64% overnight gain by Friday …
And I’m not stopping there.
Here’s how I’m approaching some of the latest “unusual” trading events.
First, let’s drill down on that UVXY overnight winner.
I think it’s a great example about how this equity, which practically bleeds value, is creating absolutely brilliant options plays right now.
UVXY underwent a 10-to-1 reverse split on Wednesday. In other words, the shares went from around $4 to $40.
And they closed at $36.16 on Friday, so we’ve already seen a nice value dump.
So on Thursday morning, I snapped up some June 4 37-strike puts for $2.20 (some of my Volatility Edge members probably got in around $1.80 or $2.00, but I always wait five minutes after alerting to actually enter my trade).
Friday morning, UVXY opened at $34.75 … And I turned right around and sold my puts at $3.60!
That’s a 64% overnight win for me, and a 100% win for anyone who got in at my recommended $1.80 price.
I’m going to be making (at least) three more trades on this name, and I’ll be announcing my plays to my Volatility Edge members at a live event on Tuesday.
If you want to attend, join here. You’ll receive my next three UVXY trades, plus plenty of other Volatility Edge perks.
Do It For The Meme
Now, meme stocks are another story.
Rather than falling like a rock, these names are blowing up … Again.
Which means that for these tickers, I’m biding my time until they do start plummeting again.
For example, let’s drill down on AMC Entertainment (Ticker: AMC).
Short interest on this name has been elevated for a while now (that’s why everyone on Reddit and their mother is targeting this stock for a short squeeze).
This week, like many of the other meme stocks, AMC started to move higher.
This is when I noticed that overall short interest was getting really high … And short trading volume was really picking up.
Daily short volume traded. Data courtesy Fintel.io
Which makes for some interesting opportunities.
Stock courtesy of StockCharts
As you can see, over the last few days AMC has pretty much exploded, going from about $12 to over $36 on Friday morning (before all the “paper hands” traders sold off before the weekend).
Option volume has also exploded, with AMC forecasted to hit 10 million contracts this past week alone — that’s almost 8% of all single stock options (although over 50% of that volume was concentrated in weeklies that expired Friday).
Now, if I had made a move earlier in the week, calls or a call spread would have been the way to go. For example, a June 40-strike call on Monday would have been $0.45. By Friday, that same option was worth $7.
(Of course, given that AMC was trading around $12 on Monday, a June 40-strike call may have seemed a bit ambitious …)
But if you can read the writing on the wall, and time your trade right, buying calls or opening a call spread is a great way to ride the stock higher, without incurring the same risk as buying shares.
But the big thing is … Don’t get caught holding the bag at the end.
I think short interest is going to drop. Probably in the near future.
And when it does … I think all of the energy is going to be sucked out of this stock, and we’re going to see it come back to earth in a big way.
And that’s the point that I’d want to hand the metaphorical “bag” to the long AMC traders …
As I pivot to puts.
So once I see short interest declining, and implied volatility (IV) beginning to drop, is when I would make my move and snap up some cheap puts.
Of course, AMC isn’t the only meme stock that blew up this week …
O.G. meme Gamestock (Ticker: GME) also had a gangbusters week:
Chart courtesy StockCharts
And BlackBerry (Ticker: BB), which I played a put spread on back in February, also joined in on the fun.
These are some really unusual times we’re in, with retail traders piling on in hopes of forcing a short squeeze – I’ve never seen anything quite like it myself.
So I think between the Meme Revolution Part II, and the rare UVXY reverse-split, there will definitely be some one-of-a-kind trading opportunities popping up next week.
I’ll be watching AMC, among other meme stocks, lying in wait for IV to come down so I can potentially snap up some puts.
And of course, I’m definitely hopping on UVXY again first thing next week.
Remember, if you’re a Volatility Edge member, you can learn all about my UVXY trades on Tuesday. If you haven’t joined yet, sign up here for access to Tuesday’s live event and trades!
See you there.
Your Only Option,