Why Is China Torching Its Best Companies?

Yo Pit Crazies,

Bill Griffo has put forward some bold ideas over the past couple of weeks.

For instance, our head income trader said the Chinese want a gold-backed yuan to be the new global reserve currency.

At first, I thought, Maybe

But things are happening that make that more and more likely to be the case.

Like, why is the most valuable company in China losing value every day while the S&P 500 goes up daily?

Why does Beijing hate Bitcoin so much?

It doesn’t add up on the surface …

But it does if you listen to Griff’s ideas about currencies and the Chinese Communist Party’s (CCP) aspirations.

And I think there’s a way to trade it.

The Way

It’s all about control.

And the CCP does not want to give it up.

If a company gets too big — think Facebook (Ticker: FB) or Alphabet Inc. (Ticker: GOOGL) — it becomes harder for the government to control.

The CCP will have none of that, thank you.

Chinese leaders believe they can maintain control, seemingly over everything.

And maybe they can.

3 Things Stand Out to Me

      • DiDi Global Inc (Ticker: DIDI) is having data security issues right after a successful IPO? 
        • Maybe they don't want to share their data with the CCP? I wonder if we will find out?
        • Bottom line: the stock is down 50% from IPO top.
      • Alibaba Group (Ticker: BABA) is making new lows for the year every day. To me, that means money has figured the squeeze is on and is leaving the stock big time.  
        • China might even want foreign investors out of BABA.
        • Ultimately, the biggest internet behemoth in China should not be dropping like a rock when Amazon (Ticker: AMZN) is making new highs.
      • China's anti-crypto stance radiates control issues. Beijing wants to maintain a vice-like grip on currency. This plays into Griff’s thesis regarding China’s lust to become the global reserve currency. 

All of these things mean some short-term volatility for China related-names.

I added an iShares China Large-Cap ETF (Ticker: FXI) strangle yesterday in the Trading Legion. Watch this video where I lay out the pricing action. 

I also like buying, and owning, short-term puts in BABA, with $200 as a target.

Remember … Create the concept → price the options →  make the trade.

The Lesson: Sometimes things are exactly as they appear.

The Rundown

Power Moves Portfolio w/ Frank Gregory
Option Pit DC and Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

The live trade log is here, and I’ll have a full recap for you every Wednesday.

I added two Coinbase (Ticker: COIN) Aug. 20 250/270/290 call butterflies for $2.55.

I’m spending the COIN call spread money to see if COIN can make a move back to the $270 level.

This trade is 10% in-the-money as China is making it harder to trade Bitcoin.

Look for news on more adoption via COIN.

Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.

      • Still riding the Marathon Oil Corp (Ticker: MRO) calls, which are limping. But we did take in 40% gain so far and oil trimmed the loss yesterday.

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

      • Roomie Jason back at Apple (Ticker: AAPL) diagonal.
      • More buying in Sandstrom Gold (Ticker: SAND) shares on Wednesday.  Seeing signs of record sales and revenue. Yet prices were down on the day. Earnings out on the 16th

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.

      • AMC Entertainment (Ticker: AMC) is looking sick and Mark’s Gamma Radar is lighting up for puts.

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle trading vehicle. The goal is to teach students the best times to buy options.

      • Fastly Inc. (Ticker: FSLY) is about to cross over with — surprise! — the puts paying. That  could give us the FSLY July 16 62-strike calls for a credit. Looking to exit the puts on FSLY weakness today.

Volatility Edge/Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Light is still red, and the VIX is hovering at 16 with fallout from whatever the Fed says.

At this point, drops in VIX will likely come slower as it gets to the bottom of Zone 2 (13-18).

From a VIX point of view, things look very “stuck” for now,with just decay in the futures coming. I don't see a lot happening unless the news changes dramatically.

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

To Your Trading Success,

AG

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