Market Update for the Week Ahead
Welcome back to the Juice! We hope you all enjoyed the extended weekend away from trading. Let’s dive into the options market and what this recent bounce might be telling us.
What happened last week?
The markets rallied going into the holiday weekend which finally pushed plethora of stocks above their 5-day moving average. This is a reversal in trend compared to what we’ve been seeing for most of November and December and is actually the first time most names are above the 5-day MA in almost 3 weeks. As we’ve previously noted in the newsletter, outside of mega-cap stocks pushing the indices higher most of the market has actually been in bear territory. So crossing these moving averages to the upside is big news if we can see some follow-through.
Let’s dive into some of the individual OptionsMatrix Scans and what we found on Friday.
Markets - Option Flows
As (almost) always, Tesla was at the top of this week’s options race and most premium traded over the last 7 days. This was followed by the rest of big tech (AMZN, AAPL, NVDA) that usually make it to the top of the list just by their nature of being a mega-cap stock. Scrolling a bit lower on the list we saw a few newcomers making their way near the top. These were AVGO and IWM.
The Russell 2000, IWM, may finally be positioned to go on a run. Shares were down 12% over the last 3 months, but are up nearly 6% in just the last 3 trading days. We think this merits a deeper dive into small-cap stocks that may be picking up momentum and we’ll look into this a bit further down in the letter.
Heating Up Calls
The heating up calls scan listed a few household names and other meme stocks.
QQQ and TQQQ: We saw power-shares (QQQ) and leveraged power-shares (TQQQ) appear at the top of this list with 2022-expiring-calls coming in HOT. QQQ is known for being very tech-heavy where some of the largest holdings include names like AAPL, MSFT, AMZN, and FB… It essentially revolves around FAANG stocks. It could be some players are expecting this rally to continue in the short-term as historically the Santa Clause rally has been generous to the markets all the way through the end of the year.
AMC and BlackBerry (BB): These memers caught some bids on the calls side. After making the lowest of short-term lows a couple weeks ago, they’ve rebounded last week with some option flow coming in with bullish sentiment. This leaves many wondering, will these meme stocks take off again?
Russell Fire Calls
Browsing the small-cap scan we are seeing more option flow with expirations 4-6 weeks out as players aim to ride this momentum. The popular names include Amyris (AMRS), Crocs (CROX), MicroStrategy (MSTR), and Progenity (PROG) -all of which are fairly popular among the retail crowd. Specifically, PROG is a favorite as a “short-squeeze” candidate and is trading at new lows since October, so keep an eye on this one.
Roaring Kitty Calls
Moving along to one of my favorites, the VIG Roaring Kitty Calls, where option volume is 5x greater than the 10-day average of executed volume. Here’s what was found.
SNAP calls are popular here with both the short-term and mid-term expirations being the favorites. Note that these calls are running at an unusual amount of over 20,000% the 10-day average volume, which is HUGE.
Other popular names on the list are Rocket Companies (RKT), Alibaba (BABA), Palantir (PLTR), and FuboTV (FUBO). Palantir is another retail favorite that has been hit hard with the rest and has been a name coming up on these scans consistently for some time now. I was curious to what the Gamma Exposure (GEX) looked like so here it is.
It kind of explains the choppiness we’ve seen through this name and why the bottom was around $18, exactly where the largest red bar and selling pressure is. Expect a bit more chop as the stock bounces between that $20-24 range in “no man’s land”. Based on the GEX chart there could be an uptick in momentum and buying pressure once the share price is able to clear that $23 resistance. We are still a 20% move away from getting there, so wait patiently. The GEX environment is ever-changing and adapts to new information and buying pressures, but movements like this can be predicted when you see consistent flow roll through the name.
Custom Options Scans
We were in the mood for some options sleuthing so we went over the the VIG Matrix “Search” function. We wanted to see where players could be positioning themselves, specifically, for a move in 2022 and beyond instead of riding short-term momentum in options expiring in the next week or two. The scan had the following criteria:
Taking out the large volume of the ETFs like QQQ and SPX, a few other names popped up that were worth a deeper dive.
We looked at Ford calls only that were high “energy” and traded at the ask. We found 3 pretty large trades, over $100k in premium, expiring in 2022 and 2023.
A similar scan in Uber calls showed a trade for roughly $1 million in premium and another at close to $100k. It looks like both calls were executed at nearly the same time and were the same strike, expiration, and for the same price per contract. These plays expire in March 2022.
Looking ahead, expect a low-volume week as we go into the final trading days of the year. See you all in 2022! We hope everyone has a great trading week!
Make sure to check out our Fantasy Stock Games this week as we start another full week of Games built around the Christmas Holiday Season! Enter for free to any of our numerous contests this week and show your stock and crypto pick 'em skills!