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imgWeekly fresh-squeezedmarket analysisand commentary.

From 'Red' to 'Redder'...

December 5th, 2021
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Welcome to The Juice, where we give an overview of different stocks categories and sectors through the options markets.

What big plays are we seeing? Where are the hedges? Continue reading to find out.

 

Market Overview - Broad Market

Last weekend’s edition of The Juice highlighted the increase in volatility that was seen the week prior and the uptick in VIX calls that traded in parallel to the markets. We noted how volatility might not be ready to subside and could also see some follow through, which it did. This week was no different with the VIX spiking another 25% matching the highest level since January earlier this year.

  • S&P 500 ETF (SPY): -0.86%
  • Dow Jones: -0.18%
  • Nasdaq: -1.74%
  • Russell 2000 (IWM): -2.08%
  • Barclays VIX ETN (VXX): +8.75%

Here’s a glimpse of how some popular names traded on Friday alone:

Following up with some of the biggest losers from Friday, Docusign (DOCU) was at the top with a few of the crypto miners, MARA, RIOT, and SI (a bank for crypto) making the top of the list as well.  

 

 

A quick glance over at the vig.io news section and the most notable headline was that Cathie Wood’s ARKK, ARKW, and ARKF ETFs bought the (very large) dip with almost 746k shares on Friday. Seeing a stock you own being down 40% is never an easy thing to digest, but Cathie Wood re-iterated her bullish stance on the company and thus the reasoning behind her expensive purchase.

For those of you that are still on the fence on the role options play with gamma squeezes, short-squeezes, and everything that fits that category. This is a brilliant example of how raw buying power was unable to move the needle on a -40% day like on Friday. Think about it, $31 million worth of shares were purchased across the ark ETFs and the stock was still down by this much.

On the other hand and also a very different scenario are gamma squeezes where the purchase of call options are an exponential driving force for the share price. A big player might only buy 100k worth of call options, but under the right circumstances this can cause large swings in share price due to the role market-makers (liquidity providers) play in today’s markets.

Similar things are seen with short-squeezes, and very much like a gamma-squeeze these are liquidity-driven events. That means they are more reliant on Gamma Exposure and shares float (shares available for trade) rather than a brute force purchase of shares.

Let’s look at Friday’s blood-red trading day and how what the options market was saying for the day: 

The story of how the markets performed on Friday was well-articulated by the sentiment behind options trades. Bearish flow rolled through most names outside of big tech and the trends that are currently hot such as metaverse names, and semi-conductors/processing power. With the VIX spiking like it did it seems players are protecting capital and hedging their bets. The VIX was actually the 12th most heavily traded name in terms of options premium.

Speaking of the VIX… here’s a look at the VIXinator calls scan from Friday:

Some of the largest VIX contracts being traded were for late December or into 2022. This is already a BIG follow through in volatility from what we saw last week, but be prepared for it to continue. December is typically a strong month for U.S stocks so perhaps the market will do the opposite that is expected which is push us back into bear territory going into the holidays.

 

Valuations Have Contracted 

After the last two weeks nearly all stocks have taken a beating. Many of their valuations have contracted and are at lows not seen since the end of 2020. At some point the market will bottom and reward those who bought the dip with a glorious ripper to the upside. However, with this spike in volatility options are a lot more expensive than they were just two weeks ago. Now is the perfect time to utilize the absolute power of the VIG stock screener to find your next play.

Here’s how to set it up.

1-Head over to the left hand tab and click the radar icon.

2-There’s already pre-built functions to screen from various curated fundamentals, but on the very right hand side you can actually create a completely custom set of criteria.

3-To filter by each of the criteria click on the mid-section bar and filter by each type of value.

From this particular scan I’m able to quickly go over large-cap stocks (10B market cap +) and view the metrics that I want. In this case I’m looking at the company’s price/earnings (P/E) and price/sales (P/S). For options buyers and sellers we can also keep note of the ATM 30-day IV and see what we are buying or selling into -is it a higher IV environment or lower?

Keep note that many of Twitter’s favorite stocks like Robinhood (HOOD), Upstart (UPST), DraftKings (DKNG), and even PayPal (PYPL) are down 50-60% from the peak earlier this summer. Of course, the market may still continue it’s free-fall, but the crunch in valuation that we’ve undergone in just the last several weeks is quite large. From a risk to reward standpoint now may just be a good time to pick up some of your favorite stocks on discount.

 

But is it all Doom and Gloom? 

It doesn’t have to be. Going back to the options matrix let’s dig into what the scans are telling us. Let’s use one of my favorites, the Roaring Kitty Calls. 

Here are some names that came in hot on the call side in Friday’s action. Many of these names, such as AMC, BABA, NIO, and DKNG fall into the same performance category as mentioned above and are down over 50% from several months ago. Players might be positioning themselves, through purchasing call options, looking for a bounce going into next week and to finish 2021.

 

What to Watch - Upcoming Week

These are volatile times with many uncertainties, mainly in CPI/inflation and the taboo term of “taper”, so don’t expect the bull-market to resume at the flip of a switch. Some of these events need to play out and provide the market with some structure and a clear path of where it wants to go. Until then keep an eye out on what the options market is telling us, specifically in the large index ETFs, mega-cap stocks, and also in the roster of small caps and high beta names.

 

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. 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 6 of the contests and we are continuing to build out player rankings behind the scenes plus a ton more coming in January. Enter for free to any of our numerous contests this week and show your stock and crypto pick 'em skills! 

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