Robinhooding Robinhood

Hey Traders,

If I had to pick a word of the week this week … it would be this:


And the reason is two-fold.

First off, my Robinhood Trader program has been crushing it these last few weeks … I’m talking to the tune of 10 winners over the last 12 trades!

Talk about a hot streak …

And my next Robinhood Trader Watch List comes out this Sunday – get your name on the list to receive it!

But there’s another Robinhood that’s been making headlines …

I’m talking of course about the newly-IPO’d online broker …

Here’s a look back at its wild week, and a few trade ideas …

Back In The HOOD

Last week, we talked about Robinhood’s (Ticker: HOOD) rather disappointing first days on the market …

The shares debuted on the lower end of their expected range at just $38, and proceeded to skid over 8% during their first day of trading.

This week, the brokerage trend-setter seemed to find a second wind … and it seems it was largely fuelled by the crowd that really helped put HOOD on the map: Reddit retail traders.

After a strong showing on Tuesday, the shares blasted higher into Wednesday, gapping up and hitting as high as $85 during the first hours of trading.

Chart courtesy StockCharts

In the days since, it seems HOOD has headed back down to earth, but is still trading well above where it IPO’d, and was trading during the first half of the week.

Perhaps even more notable (in my opinion, at least): HOOD options began trading!

Let’s take a look at what’s been going on in HOOD’s pits, and the trades I’m watching.

In The Pits

Looking at HOOD’s top open interest positions, I’m seeing quite a range. 

The August-expiration term accounts for the top six open interest positions — and 55% of all open interest — while trader sentiment seems to run the gamut in terms of bullish and bearish.

The top open interest option right now is the August 20-strike put, with 13,084 contracts open …

And the second highest open interest position right now is the August 70-strike call, with 12,448 contracts open — it is likely many of these are held by retail traders looking to optimize their leverage.

There seems to be quite a divide, don’t you think?

Order flow has been healthy during the first day of options trading, with approximately 850,000 contracts crossing the line over the first three days. What’s interesting to me is that the average order size is only three contracts – which is quite a bit smaller than what we typically see. But that seems to fit with the HOOD ethos.

HOOD reports earnings on Wednesday, August 18, so between pre-earnings elevated IV, and the fact that the company recently IPO’d and the options market for HOOD is essentially brand-new, I would expect traders are paying quite a steep premium right now.

However … for us, that may not be such a bad thing, and it opens up some interesting trading possibilities.

Looking into HOOD’s pits, I’m noticing that out-of-the-money options are ridiculously expensive right now, especially on the upside. It seems like people are really waiting for HOOD to go bananas.

Option skew (the difference in volatility between options) can be affected by demand in the market – making some options proportionately more expensive in terms of implied volatility (IV) than what is typical.

That being said, HOOD call skew is really insane right now, and that is part of where I’m seeing some really interesting trading opportunities.

I already made one trade as part of my Robinhood Trader program …

Trading Robinhood in Robinhood … Robinhood inception!

(If you’d like to receive the next trade, you can get your name on the list here.)

Now, like I was saying, upside skew is particularly high right now in HOOD’s pits.

And I can use this as an opportunity for my own trading.

For example, on Thursday during my Turbo Trade session (which Robinhood annual members get access to … just saying!) I looked at a February 45-70 call spread.

By buying the February 45-strike call and selling the February 70-strike call, I’m able to end up long on a 25-point call spread that was currently $10 in-the-money and only pay $7!

That’s crazy – that shouldn’t be possible … but it is.

I actually ended up taking a similar call spread trade … but the details of that one are reserved for members only …

But here – I’ll give you something else.

I also looked at a collar trade — which is where I would purchase shares of the stock, buy protective puts, and sell call options against my shares. I could have bought HOOD shares (which were trading around $55), bought the Feb. 40-strike puts, and sold the 80-strike calls, while taking in a $3.00 credit!

There’s plenty of trades like that out there right now …

Of course, these trades aren’t without their fair share of risk. We’re talking about the potential Meme Stock of Meme Stocks, so you never know where it could head.

But if you’re smart about managing your risk and exposure, there are definitely some prime opportunities to make a pretty penny off of some smart trades!

You just need to know where to look …

Or become a Robinhood Trader, and let me tell you! 😉

Your Only Option,

Mark Sebastian

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