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Markets WREKT on more signaled rate hikes.

February 13th, 2022
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Market Update for the Week Ahead

Welcome back to The Juice everyone, where we glance at the Crypto and Stock markets via alternative methods, such as Options Flow and Social Sentiment. Last week was more of the same of what appears to be universal certainties now...death, taxes, and 7 rate hikes in the 2022 calendar year now.  

 

Market Overview

The Consumer Price Index (CPI) print came in hot while portfolios keep cooling off. Somewhere in the distance we can hear most traders yelling something that resembles “growth stocks on discount” for the 485th time in the last year. The recent times have been an echo-chamber for acknowledging how many stocks are trading:

  • At the lowest point in the last 12 months
  • At “pre-pandemic” levels
  • Below the 50 SMA/EMA
  • Below the 200 day moving average

When does this bloodbath end? Here’s a look at Friday’s price action in some popular stocks among retail traders.

 

We are in peculiar times where Peloton (PTON) is up over 60% in the last two weeks on rumors of a buy-out. Peloton is burning through cash and has since laid off a good chunk of their staff, demand for their product is down, earnings were poor, yet buyout rumors keeping them afloat. What a world we live in. Of course, this resembles a similar story we’ve been seeing with many small caps stocks that are getting hammered, at some point they become extremely valuable and will compound BIGLY over the next several years, if the market ever recovers that is. Only time will tell, but until then we HODL.

Moving in tandem with this CPI print is Bitcoin (BTC), which seems to have *finally* stabilized (among with many other crypto currencies) at the $42k level. This is up nearly 40% in just 3 weeks, clearly a “store of value” type of coin. Very stable, very cool. Let’s peep the sentiment chart.

CryptoBROS have been taken to the woodshed and need some positive news to hold onto. Shiba and DOGE just aren’t doing it for everyone so we need to get back on the HYPE train ASAP. In general, the entire NFT and crypto space has been going through it’s periodic lull, which is pretty consistent price action the last few years. Without further delay, let’s dive into the options market and what we are seeing going into next week.

 

Markets - What is Option's positioning saying?

Although Friday’s disaster of a market may have seemed bad, option volume (in terms of premium traded) was relatively light. Here’s how it looked.

Tesla came in at around $2.2 billion in premium traded where it typically does around 4-6 billion. AMD and NVDA were also relatively high on this list as they tumbled down 14% and 10%, respectively, over the last two trading days.

 

This leads us to take a look at the top sector ETFs matrix scan to see what was hot.

  • Energy was the most active with a neutral stance in terms of puts and calls traded.
  • SMH, a semi-conductor ETF was clearly bearish with PUT orders hitting the tape throughout the day. This falls inline with AMD and NVDA being down big over the last couple of days.
  • The financials sector, which was hot going into the end of 2021 has since cooled off and hasn’t found it’s short-term floor just yet.

 

Unusual Options Activity

With all this market chop and uncertainty with literally everything I wanted to check where some big players might be positioning themselves for potential upside over the next 6 months. I went over the the Options Matrix and did a custom scan with the following criteria:

  • Premium of the trade greater than $100k
  • Trade size greater than 500 contracts
  • Expiration date past April 1st, 2022

Here’s what we found:

 

Coupang CPNG

Came across this potential play on Coupang where a player purchased May calls at the $37.50 strike, nearly 50% out of the money, while selling $42.50 strike calls for the same expiration. They opened what’s called a “bull debit spread” that cost them $90k in premium and now they expect the share price to rise by May 20, 2022. Each leg of the play was for roughly 6,000 contracts which would be executed at 60,000 shares.

 

Uber (UBER)

Check out this monster play on UBER. First we had a directional bet of calls being bought on the ask side, over 15,000 contracts expiring in May, 2022. The $3.5 million dollar bet expects some upside on Uber shares in the near-to-mid-term.

Following this move another play was opened with a very similar contract amount being traded (potentially the same player?). On this next trade the player sold to open $27.50 strike puts with Sept, 2022 expiration while simultaneously purchasing the $45 strike calls for the same expiration.

What’s happening here? The player expects a pretty solid bottom by selling puts to collect premium, then using that premium to purchase the calls. When all was said and done they spent $300k on premium expecting a bullish move to the upside on UBER shares.

Here’s the kicker, if UBER makes a sharp move up they can expect to make huge gains on the puts sold as well as the calls bought, essentially double-dipping on this pretty risky play. How much can one expect to lose on a play like this, you might ask? The player is on the hook for the $300k spent on premium purchasing the calls and will also need to pay uncle Tony should UBER drop below $27.50. They are currently liable for roughly 150k shares of the company. This is a huge play, but VIG’s got all the data and this is what we are here for

 

Summary

That marks the end of today’s edition of VIG’s The Juice. Don’t forget we’re giving away over $1,000 USD in payouts for this week’s upcoming Daily Fantasy Stocks games. These are “literally free money” if you finish in an “in the money” slot. Absolutely no risk and free to enter. Most games are over 90% full so check out the VIG app and submit your watchlist! Let’s go!

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