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Apple Riding the Gamma Waves

December 12th, 2021

Welcome to The Juice, where we give an overview of different stocks categories and sectors through the options markets.

If you are just recently joining us, then thanks for being a part of this. Today we’ll be going through last week’s market movements and what to keep an eye on in the coming week. Let’s go.


Market Overview - Broad Market

Last weekend’s edition of The Juice highlighted the increase in volatility that had been pretty sticky and consistent for the last few weeks. But towards the back half of last week, the Indexes took control and volatility started to wash out. Overall it was a +3% week for the major indexes and here is what it looked like at the close on Friday:

  • S&P 500 ETF (SPY): +0.95%
  • Dow Jones: +0.59%
  • Nasdaq: +1.08%
  • Russell 2000 (IWM): -0.28%
  • Barclays VIX ETN (VXX): -6.19%

Friday’s option flow was a different story from what we usually see. Tesla option volume, which usually trumps activity in any other name (including ETFs) by a large amount, was extremely light. Looking at it from a week-over-week point of view, we usually see 5-7 BILLION in option flow and premium coming through Tesla on the daily. On Friday, we saw only ~2 billion in premium traded through TSLA, a light volume day indeed coming off the back of yet another volatile week.

The usual suspects did come through ranks 3-10 and included big tech such as Apple (AAPL), Amazon (AMZN), and Nvidia (NVDA). Notably, NVDA’s premium was also somewhat light given the recent run to the upside has slowed down.  

Option Flows through popular sector ETFs did print something new: 

Monstrous amounts of option flow traded through EEM, an emerging market ETF. We saw this several weeks ago as well and the possible cause might be players getting antsy to “buy the dip” in many China names that have been battered. For a refresher, EEM’s largest holdings include Taiwan Semiconductor, Tencent Holdings, Samsung, Alibaba, and JD (dot) com. As you can see it’s very heavily exposed to China and any new regulations will have an effect on the ETF. This includes things like the recent news of DIDI beginning the process of de-listing in the U.S markets. For perspective, the EEM ETF is down roughly 13% YTD.


Markets - Apple (AAPL) All-Time Highs

Apple reached all-time-highs last week. During a week that was mostly a sea of red, Apple continued trekking along higher and higher. Call-buyers were riding momentum, so let's take a look at the Gamma Exposure (GEX): 

We see this very often with stocks that end up pushing new highs. The process looks somewhat like this:

#1. For a period of time leading into the GEX explosion we consistently see a large amount of call-volume build up day in and day out, which also increases potential buying pressure by market-makers (MMs).

#2. At some point and for whatever reason (could be bullish event, news, etc) the stock makes a move to the upside, causing all those calls traded to be slightly more in-the-money (ITM). As those calls become slightly more ITM, buying pressure by MMs also increases fractionally.

#3. The Gamma chasing then begins as one cycle feeds into the other. Calls become more in the money = more shares purchased (buying pressure) = more upside = calls become more in the money and the cycle continues.

Keep in mind the opposite of gamma chasing can also occur as positions are deleveraged resulting in a move to the downside.


Options Scans - On Fire Calls  

Let’s go through one of our favorite bull-scans, the On Fire Calls. Typically, this list is filled with individual stock names, however, on Friday it was predominantly ETFs. The popular ones being EEM (emerging markets as discussed above) along with EFA, an ETF that tracks large and mid-cap investments outside of the United States and Canada. Lastly, IYR was also coming up a good amount of option volume. IYR is a U.S real-estate ETF. 

Keep in mind it could be since Friday was a light volume day that many of the tickers we usually see here just didn’t have enough volume to make it to the top of the list. Nonetheless it’s notable that players may be getting exposure to investments outside the U.S.


Options Scans - Roaring Kitty Calls  

The RKC scan is another of my favorites because typically a lot of names loved by retail traders come up on this one. Here’s what Friday was telling us:

Peloton (PTON): Shares have been hammered down -77% from peak earlier this year. As long as the company stays solvent, which they most likely will, at some point value will be found as we dig deeper and deeper in share price. Is now that time??

Gamestop (GME): Gamestop reported earnings last week which had pretty mute response. GME shares are down to roughly the 6-month low. This is definitely a name to keep an eye on as Gamma Exposure (GEX) potentially builds over time.

Lululemon (LULU): reported earnings last week displaying solid growth and beating earnings, yet again. Players might be positioning themselves to ride some momentum to the upside. LULU is a name that has showed very strong resilience throughout the recent draw-down that ended up giving many small and mid-cap names a -30% to -60% haircut.


What to Watch - Upcoming Week

We have some very important economical events to look forward to next week. Wednesday is going to be a big day with retail sales, usually a strong market-mover, getting out-done by the FOMC meeting and interest rate decision. The sentiment on social media has been pretty balanced between both sides, the FED announcing more rate hikes in 2022 and 2023 versus sticking to the original plan of raising rates by mid-2022.

Nobody really knows what the FED will do, but this decision will either ease markets into an end-of-year rally or pump the VIX one more time. A lot of people are calling for a market crash, but I don’t think they realize that outside of the big names holding up indices many growth/mid-cap/small-cap stocks are already in a huge correction. How much lower can they possibly go?


Daily Fantasy Stock Games

Don’t forget to sign up for one of the many games that are still open this week to earn some extra spending money for the holiday season! There are still a few slots open for Monday’s game so get your stock picks ready. Here's the list of this week's contests!


We hope everyone has a great trading week! Make sure to check out our Fantasy Stock Games this week as we start Week 7 of the contests and we are continuing to build out player rankings behind the scenes plus a ton more coming in January & February. Enter for free to any of our numerous contests this week and show your stock and crypto pick 'em skills!