November 9, 2022
Crypto Armageddon? And Put Buying in Coinbase (COIN)
Let me start here … much like I’m not a political expert, I am not a crypto expert. However, the story in crypto the last 36 hours is fascinating. Here is my CliffsNotes version, and again I’m not an expert.
Basically, the two largest crypto players (Binance and FTX) went to war two days ago. Then …
In the blink of an eye, Binance destroyed FTX via rumors, and questions surrounding shakily collateralized lending practices. Then …
FTX became insolvent almost overnight. Then ...
Yesterday, it was reported Binance had agreed to buy FTX for pennies. Then …
This morning a story came out that Binance is highly unlikely to go through with its proposed rescue of FTX, following a look at FTX’s books.
This drama has severely shaken up the crypto world (oh, and the CEO of FTX saw his net worth drop from $15.6 billion to $1 billion, or a 94% loss, in the biggest one-day collapse ever among billionaires tracked by Bloomberg).
Again, I’m not entirely sure that the details above are 100% correct, as this story is seemingly changing every hour.
So why do I bring this up?
Not surprisingly Coinbase (COIN), which is one of the other large players in the crypto world is getting slammed as well, as the stock was down 11% yesterday, and is lower by another 18% today.
And into this decline, traders are looking for much more pain for COIN, led by this bearish trade:
Buyer of 6,500 Coinbase (COIN) January 22.5 Puts for $1.65 – Stock at 46
I’m not going to get involved with this COIN put buy, as I truly don’t have a grasp on the full story. However, should this recent meltdown turn into a full-fledged Crypto Armageddon, the puts noted above could turn out to be a monster winner.
November 8, 2022
Occidental Petroleum (OXY) Earnings, and Mid-Term Preview
Occidental Petroleum (OXY) will report earnings before the open tomorrow. Headed into the event, Cabot Options Trader and Cabot Options Trader Pro subscribers’ positions are in great shape, as the stock is trading at 2022 highs.
I am going to hold my position/positions through the event as the stock looks great, and option activity has been strong, including these trades from yesterday:
Buyer of 10,000 Occidental Petroleum (OXY) March 80 Calls for $7.15 – Stock at 75 (rolled up from March 75 calls)
Buyer of 2,500 Occidental Petroleum (OXY) December 80 Calls for $3.35 – Stock at 76
And while I am going to hold my position through the event, if you would prefer to reduce your risk, you must Sell to Close your position before the close of the trading day today.
OXY - With the stock trading at 75, the options market is pricing in a move of $4 this week, or 71 to the downside and 79 to the upside.
Open interest is skewed bullish on a ratio of 1.2:1 call vs. put.
Skew is pricing in typical downside fear, as well as upside interest.
Finally, I am far from a political expert, and wouldn’t begin to guess how the mid-terms will go … However, I did want to note that the options market is pricing in a move of 1.5% for the S&P 500 between now, and the close of trade Wednesday, assumingly largely based on the outcome of the election results.
November 7, 2022
Weekly Update
Last week’s “big” market-moving events (Federal Reserve and Jobs Report) brought further selling as the S&P 500 fell 3.25%, the Dow lost 2.25%, and the Nasdaq dropped 5.88%.
This week traders will turn their attention to the midterm elections, the latest CPI number on Thursday, as well as the third week of earnings season.
Stocks on Watch
Even though the market got hit last week, there are more and more bullish ideas popping to the top of my radar, largely led by earnings winners, such as:
HOG
CAT
COP
SLB
GILD
And while I’m intrigued by all of those stocks, a simpler way to get bullish exposure in the strongest indexes would be to buy Russell 2000 (IWM) calls or Dow Jones Industrial (DIA) calls. I’ve been “flirting” with buying both of those ETFs.
Here are a couple more bullish/bearish plays from last week that are intriguing:
While not “sexy,” T-Mobile (TMUS) has quietly been a stock star for the last year as peers T/VZ have grossly underperformed. And following yet another earnings beat for T-Mobile, a trader opened this longer-term call buy:
Tuesday - Buyer of 1,500 T-Mobile (TMUS) June 160 Calls (exp. 2024) for $24.65 – Stock at 152.5 (rolled from January calls).
I’ve debated getting involved with TMUS, though I would likely buy a cheaper call, expiring sooner than 2024.
A real flameout this year has been former leader Advanced Micro Devices (AMD), which was a star and has fallen on hard times in 2022. However, after a big earnings miss, the stock held its ground and attracted this call buy:
Wednesday - Buyer of 20,000 Advanced Micro Devices (AMD) March 55 Calls for $12.70 – Stock at 62 (rolled from November calls).
When a company badly misses earnings, especially in a bear market, and the stock doesn’t crater, that could signal the stock is “sold out” and perhaps the bottom is in.
On the bearish side of the coin, mega-cap tech was a mess last week, led by steep declines in AMZN and AAPL. The put buy below should have been the warning sign for me to short AAPL:
Wednesday – Buyer of 35,000 Apple (AAPL) April 135 Puts for $7.35 – Stock at 149.
And finally, the one stock that has attracted the most consistent put buying activity throughout the last month is Ford (F), including this trade below:
Friday - Buyer of 20,000 Ford (F) March 14 Puts for $1.77 – Stock at 13.5.
On the one hand, I feel like I should be shorting F, as the put buying has been overwhelmingly bearish. However, on the other hand, I find it hard to believe that buying puts in F, at 13.5, is going to turn out to be a lucrative trade, as the downside to the stock is somewhat limited.
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 24.55, or lower by 2% on the week.
Very interestingly, and perhaps a positive sign for the market, the S&P 500 fell 3.25% last week, yet the VIX bled lower for a third straight week. This lack of fear of a big move lower is encouraging.
Though to be fair, the Fed announcement and the October Jobs Report have passed, which were two of the biggest potential catalysts for market movement, which may explain the VIX decline.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 5.
Events for the Week to Come
This week traders will be focused on Tuesday’s midterm election results, inflation data via CPI on Thursday, as well as another big week of earnings, including:
What Traders are Saying
The story of last week was the long anticipated Federal Reserve announcement, and Chairman Jerome Powell’s accompanying comments, which most traders viewed as hawkish.
And while I believe that Powell firmly believes in what he said on Wednesday, let’s remember that last year he said the inflation situation was “transitory,” and then earlier this year he also said a 75-basis point interest rate hike was not being actively considered … right before the Fed hiked by 75 basis points four straight meetings! (via @RyanDetrick)
My point is, yes, I believe Powell and the Fed will continue to aggressively fight inflation. However, the world and the economy are moving fast these days, and for all he/we know, the Fed will switch course and begin cutting interest rates by 2023.
Open Positions
Long positions: XBI, GOOG, M, OXY, PYPL, SBUX, CCJ, PINS
Bearish Positions: SPY
Biotech ETF (XBI) January 84 Call – The XBI fell 4.5% along with all “risk-on” plays. Time is starting to be an issue as the biotech ETF has mostly chopped around for the past two months.
Alphabet (GOOGL) February 120 Calls – GOOGL lost 10% last week as mega-cap tech has become the last place traders want to be. I will likely exit the second half of our calls this week, unless I see a dramatic turn in the stock or option activity.
Macy’s (M) November 20 Call (exp. 11/11) – M fell 6% last week, though it looks pretty good. Our covered call trade is working perfectly.
Cameco (CCJ) November 27 Covered Call – CCJ lost 6% last week, though is still chopping around in the big picture. Our trade is working well.
Occidental Petroleum (OXY) December 65/80 Bull Call Spread – OXY rose 2% last week ahead of earnings tomorrow after the market close. I will break down my thoughts and the options market’s pricing for these earnings tomorrow.
PayPal (PYPL) March 80 Call – PYPL fell 13% last week, though interestingly held up reasonably well on Friday following earnings, as countless other growth stocks were absolutely destroyed. Let’s see how PYPL trades this week.
Pinterest (PINS) March 25 Call – PINS lost 10% last week along with its “risk-on” peers. Fortunately, our calls have plenty of time until expiration, so I am not getting too high or too low, as the market narratives swing day by day.
S&P 500 ETF (SPY) March 420/320 Bear Put Spread – The market’s pullback was a positive development for our bearish trade that is at a potential profit of approximately 135%.
Starbucks (SBUX) January 85/110 Bull Call Spread - SBUX gained 5.5% on the week, largely aided by the gain of 9% following earnings on Thursday afternoon. The stock looks fantastic, and our trade is in great shape.
