This Week in Barrons: December 27, 2020
COVID Lesson #14: “So, what did you get?” As you get older, you realize that the best presents are the ones you cannot wrap and put under a tree. Those are the intangible ones that made us who we are, and fit nicely anywhere – anytime.
COVID Lesson #15: “Get an NDA signed ASAP.” People hesitate to share their ideas because they’re worried that it will be stolen. Studies have shown that those same people are afraid of success – not failure. An unspoken idea is: safe, can’t be stolen, but it also can’t be tested, criticized, improved or used in the real world. There will always be doubts, but if you wait for those doubts to go away – so will the window for the opportunity.
COVID Lesson #16: “Did this solve your problem?”… is not the same as: “Did you work hard?” Quality is in the eyes of the customer – so you need to begin with: “Who’s the customer?” For example, asking: “Was it a good wedding?” may mean: “Did the bride feel special?” or it may mean: “Did you have fun?”. Only after we answer: (a) Who’s the customer? and (b) What problem are we solving? – can we begin to become more efficient about our offering and target market.
The Market: The death of the IPO…
COVID Lesson #17: How do I make any real money in this market? Well, I guess that means you can’t take the volatility of the true growth market = crypto-currencies … or per HL: you need to gain a better understanding of the SPAC process. Investors are beginning to handicap SPACs for large moves. After the Virgin Galactic and DraftKings SPACs, I figured SPACs would be a ‘thing’, but certainly NOT a phenomenon. People of all ages and backgrounds are handicapping SPACs: their markets, products, and management teams. The market will turn at some point due to increased SPAC supply, but currently it’s a SPAC world and we’re just living in it. OR you can always grow a pair, and get to know crypto-currencies. #HedgeHog.app
COVID Lesson #18: The SEC just approved a new way for companies to go public – the “Primary Direct Floor Listing” (PDFL). It allows companies to raise money IPO-style, AND get the right price (direct listing-style) for their equity. Companies can gain cash to grow their business and graduate from private to public – without paying huge fees to investment banks for mis-priced IPO’s. DoorDash ($102) and Airbnb ($68) recently IPO’d. The investment banks only missed their target pricing by 86% and 113% respectively. Investment banks (egregious fees) and institutional investors (special treatment) cringe at the thought of PDFLs. Just as crypto will eliminate cross-border transaction fees, I will rejoice when PDFL’s end the traditional IPO.
InfoBits:
- Small businesses lost big on the 1st PPP: The 1st Payroll Protection Program was intended to help SMBs (small and medium-sized businesses), but it was big business who really benefited. Over half of the $525B in PPP loans went to less than 5% of the businesses. Since COVID, over 100,000 SMBs have closed, and 90% of the big guys have been remained profitable. #FreeMoney
- Moderna doesn’t mind coming in 2nd: The FDA approved the company’s COVID vaccine for emergency use, and this weekend the initial 6m doses are being shipped to over 3,000 locations across the U.S.
- Mommy, I want an Apple car: Apple likes the EV market and wants to be part of it by 2024. Unfortunately, the average car has 30,000 parts, and is a little tougher to assemble than adding an 8th camera to an iPhone 14. The only hang-up about the Apple car is that: it won’t have Windows.
- If you join a gym in January… there’s a 4% chance you’ll quit by the end of January, a 14% chance you’ll hang it up by the end of February, and an 80% chance you’ll never make it to Memorial Day. Fitness just ain’t our thing.
- Fire Eye was hacked on December 8th: It seems other country’s hackers are better than our hackers, and they even stole our hacker’s tools. We’re continuing to pay the price of having an educational system that sucks.
- COVID killed bars and restaurants... but some small businesses (that managed to pivot) are doing well. For example, Etsy (ETSY) and Shopify (SHOP) provide platforms for entrepreneurs to expand their audiences. Etsy’s stock is up 400% this year and Shopify’s is up 300%.
- New COVID cases have risen over 500% since Labor Day… because Americans are tired of staying home. Our impatience is literally killing us.
- The UK has reached a Post-Brexit agreement with the EU. It only took them 5 years to divorce. After all: ‘Breaking-up is hard to do.’
- Strip Clubs = 1 // NBA = 0: In the NBA bubble at Walt Disney World, the NBA had ZERO COVID cases for over 3 months. Thus far, the new NBA season (NOT at Walt Disney World) lasted only 1 DAY before three Rockets tested positive. The outbreak comes after the Rocket’s James Harden was spotted at a strip club. #BoysWillBeBoys
- In 2021, SUPPLY IS COMING… and per HL: “It will be up to you to figure out when that oversupply will lead to a market downdraft. SPAC’s, IPO’s, and Direct Listings will continue because stocks only go up.”
o Robin Hood has allowed people to unbundle the indexes,
o Trends in Healthcare and Fintech will certainly continue,
o Education via Massive Open Online Courses will gain public attention, and
o Governments will continue to gang up on the FAANG’s.
Crypto-Bytes:
- Bitcoin breaks $26,000 – what bigger present do you need? Merry Bitmas.
Last Week:
Monday: Today, I could see us falling 500 points on profit taking, or finding that ‘the vaccines will work on this new strain of COVID’ and up we go for another 400. I’m sitting in January covered-calls in: CTIC, NGD, PAAS, DM, HYLN, and IPOC. The market is getting nervous, as the VIX certainly woke up. But after being down -430 on the DOW – they’ve walked us back to even on virtually no volume. Isn’t FOMO grand. People are still buying dips – despite our economic horror show. I shouldn’t complain, because both IPOC and DM have lit it up for me.
Tuesday: The futures are green across the board, which isn't shocking if you witnessed the ‘kick save’ that the PPT did yesterday. They say we’re green because of the $900B relief package. Doing a little math: the U.S. has 330m people – giving everyone $600 only totals $200B. Where’s the other $700B going? I found another SPAC that may want to blast off – Fiii (FIII). If it gets over $12.90, I'll take some.
Wednesday: Trump rejected the 5,000-page, pork laden stimulus bill. Over 800,000 new citizens filed for first time unemployment last week, and naturally the market rejoiced. It’s 1999 again = been there - done that. Take a peek at FCEL over $12.75, and Fiii (FIII) over $13.70 – both work for me.
Marijuana…
- New Jersey will soon begin licensing… marijuana growers, manufacturers, distributors, and retailers. The state’s 13 medical dispensaries will be able to begin selling to the general population within the next 3 to 6 months.
- Canopy Growth is parting ways with its investment arm… Canopy Rivers. It was focused on investing in cannabis companies.
- Acreage Holdings has appointed a new CEO… Peter Caldini. Peter has extensive experience in the VC and pharmaceutical sectors.
- Aurora Cannabis laid off 200 more employees… and cut production to 75% of capacity.
- Oklahoma leads our nation in MJ cultivation licenses. California is widely touted as the largest legal cannabis market, but this year Oklahoma surpassed Cali in issuing commercial growing permits. #GoSooners
Next Week: The Gamma Squeeze is ON
- Tesla joins the S&Ps:
o After Monday, when we experienced ‘shock and awe’ with Tesla being added to the S&Ps – the week ended massively unchanged. The small caps, financials, MSFT and Apple were higher, FB and TSLA were lower.
- Tesla’s volatility is dead:
o Microsoft, Apple, Google, Amazon, Facebook, and Netflix were flat to higher on the week, but the important part is that the S&P has tamed TSLA’s volatility.
o The addition of the ‘Tesla wild child’ to the S&Ps – removed the volatility from TSLA, and not vice versa. The ‘statistical arbitrage’ associated with the S&Ps, will hijack most of Tesla’s volatility. As proof, Tesla (since joining the S&Ps) has experienced its lowest volatility of the year.
- The new COVID relief bill places limitations on the FED:
o The bill rescinds $429B in uncommitted funds, and 5 of the FED’s programs, including their Main Street Lending Program, will cease operations on December 31, 2021.
o Also, the FED will no longer be allowed to just buy ETFs without receiving Congressional approval.
o So, the new COVID bill, DOES put some ‘handcuffs’ on what the FED can and can’t do going forward.
o But then again, we do have Ms. Janet Yellen coming in on January 20th to run the Treasury Dept.
- Volatility conundrum (Prices & Risk are both rising):
o The VIX (a 30-day volatility index) contracted a bit this week.
o The VVIX (volatility of the volatility index) spiked to 122, but pulled back to 115. I’m surprised that it’s remained above the 110 level – especially since we’re coming into another ‘holiday week’ of trading.
o The SKEW (the ‘end-of-day’, 30-day differential of the implied volatility of the out-of-the-money Puts vs the out-of-the-money Calls) is showing one of its highest readings in a DECADE. It’s telling us to be careful because the professionals are buying a lot of ‘out-of-the-money’ Puts.
- SPX Expected Move
o Last week: $54.76 was the SPX expected move for a 3.5-day week.
o Next week: $58 is the SPX expected move over 4 days.
o The volatility will be driven by the politics going on in Washington, D.C.
- Searching for Gamma Squeezes:
1. A Gamma squeeze is a phenomenon caused by a lot of people buying at-the-money Calls – causing the ‘market makers’ to buy stock in order to level out the risk associated with them ‘selling’ you those at-the-money calls.
2. If / when this turns into a ‘feeding frenzy’ (as it has with Tesla), the price action (with enough liquidity) with turn into a self-reinforcing prophecy.
3. The essential part of a Gamma squeeze is that massive liquidity must be associated with the very high Call / Put buying ratio.
4. You can easily run a ‘scan’ to find Gamma Squeezes (see scan below) – giving you results such as: ATVI, AZO, CRWD, CYBR, HL, LEN, ORCL, and SHOP.
5. The way to play a Gamma squeeze is to simply purchase an inexpensive, out of the money Call Spread (1 std. deviation out) in the January monthly timeframe.
Tips:
For this week, look at ATVI, AZO, CLDR, CRWD, CSIQ, CYBR, EDIT, FEYE, HL, LEN, ORCL, PTON, SDS, SHOP, WDAY, and ZNGA for gamma squeezes + liquidity. To play them, buy a January, 1-standard deviation, out-of-the-money, inexpensive call spread – and ‘make it rain’.
HODL’s: (Hold On for Dear Life) / (All %’s = YTD)
- CTIC ($3.45),
o Just keep selling Jan. $3 and $4 covered calls for income
- DM ($19.20 / in @ 14.24),
o Sell Jan. $17.50 / $20 covered calls for income
- ETHE ($16.20 / in @ $13.44 up 21%),
- FIII ($14.05 / in @ $12.42 up 13%),
- GBTC ($27.35 / in @ $9.41 = up 191%),
- HYLN ($17.10 / in @ $0.32 = 5244%).
o Sell Jan. $16 / $17.50 covered calls for income
- IPOC ($15.73/ in @ $12.51),
o Sell Jan. $12.50 / $15 covered calls for income
- Pan American Silver (PAAS = $32.98 / in @ $13.07 = up 152%),
o Sell Jan. $36 covered calls
Crypto:
- Bitcoin (BTC = $26,600),
- Ethereum (ETH = $640),
- Bitcoin Cash (BCH = $330)
Thoughts:
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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