2-Sided Trades:
When Gene Simmons (of KISS) and Elon Musk (of TSLA) are on the same wavelength – the world can’t be that far behind. Within the last 2 weeks we have witnessed a transformational moment in finance. One unintended consequence of the pandemic was the official coming-out party for the retail investor. Another has been the monumental shift that’s occurring in economic awareness. We’re seeing how great minds, leaders, and businesses can make enormous changes to existing and successful models in order to become even more successful when challenged.
Per HL, “There is no divine right to make a profit.” After all, it’s the losses that cause you to remember, and motivate you to learn how markets, risk and reward all work in practice. Technology has given us an infinite amount of free, high-quality information. And believe it or not, the vast majority of investors who participated in the GameStop journey did NOT get kicked in the head with an iron boot. The ones who were unprepared (and this includes short-sellers, hedge funds and/or brokers) will learn from their GME experience and be better for it the next time around.
This was NEVER about being able to notice what stocks are surrounded by the most short interest. That information has been readily available for years. It was all about the execution of that idea/information that created the value. COVID has relit the fuse, sharpened everyone’s focus, re-introduced marketplaces to efficiency and validation, and has inspired a new financial commitment and vision. Whether I made any money on my $500 Ethereum trade on Super Bowl Sunday is irrelevant. It’s the execution of the trade that is so important. Next year (or the year after), that same $500 Ether trade on Super Bowl Sunday is going to be paired with a point-spread bet on the Super Bowl itself along with an ‘out-of-the-money’ Call or Put option expiring the next day. ALL of that will be one, single pairs trade – seamlessly executed. Say Goodbye to giving 10% to your bookie for connecting you on some ‘floor-level Lakers seats’, and Hello to multi-sided markets on virtually everything. We’re not there yet – but we’re so close I can taste it. So: Who’s side am I on? I’m on YOUR side.
The Market:
As a retail investor, you have huge advantages over the professionals. Professionals are constantly judged by their: (a) 30-Day returns versus a benchmark, (b) Quarterly performance, (c) Upside and downside capture, (e) Rankings versus their peers, (f) Over and underweights relative to the index, and a million other metrics. Your holdings and performance are not under anyone else’s magnifying glass. However, one of the retail investor advantages is NOT firepower. I’ve heard about the whole “banding together”argument. Honestly, it sounds better online than it works in real life. Retailers bail at the slightest sniff of fear. They really don’t care about others as much as themselves. The incentives will never be there. It’s the prisoner scenario: Who’s going to break first in this interrogation? But what the individual investor can do – is to concentrate on all of the underlying trends out there right now:
- Biotech continues to make all-time highs, w/ gene-editing stocks going crazy.
- Recovery stocks continue to outperform financials, oil & gas, and leisure.
- Inflation plays like homebuilders are waking up and hitting all-time-highs.
- Cannabis stocks have more than doubled since November, and any dip below their 20-day moving average is buyable.
- Clean energy is still alive. It’s consolidating, but give it a few weeks of sideways action to set-up again.
- Bitcoin (BTC) is talking $50k, and Ethereum (ETH) is nudging up against $2k.
- Semis and Social stocks are streaking, and SOCL hasn’t declined for 10 days.
- And Crude Oil even cruised to its highest close in a year.
For the retail investor that does their homework, there are a million ways to out-perform the indices as it’s truly a stock-pickers market.
InfoBits:
- Alex Rodriguez (A-Rod) filed for a $500M SPAC… under the name Slam Corp. It’s focused on the sports, media, entertainment, health and wellness, and consumer technology sectors.
- “I ain’t afraid of no ghosts”… says DoorDash as it begins to expand its robotic footprint – developing more ghost kitchens.
- Oatly had the worst Super Bowl ad… but it’s working on an IPO that values the Swedish maker of vegan foods and drinks at over $10B.
- GameStop’s CEO George Sherman… was worth $1.14B at GEMs peak. Now his shares are worth $1B less.
- Twitter is mulling a subscription product… as a way to ease its dependence on advertising.
- Tesla’s $1.5B investment in Bitcoin looks great to TSLA: Tesla’s BTC gains are over $200m – making this quarter its second-most profitable quarter - ever.
- Denmark will build a $34B wind energy island… that will house 100’s of wind turbines in the North Sea – providing energy to surrounding countries.
- Big retailers are becoming mini malls... and shelf space is becoming crucial. That’s why Target and Walmart are becoming one-stop-shops for all your grocery, home décor, and fashion needs. And why Ulta, Levi’s and Disney have moved in.
- Signature Bank is on JPMorgan’s focus list… saying that the blockchain-friendly bank is “positioned nicely to ride the crypto wave.”
- Starlink, a “low latency, broadband” internet service… is being developed by SpaceX to provide high-speed internet to consumers around the world.
- Facebook is building an audio chat product similar to Clubhouse. The wrinkle is that Andreessen Horowitz is Clubhouse's biggest investor, and their cofounder, Marc Andreessen, is a Facebook board member.
- Twitter made it clear this week… that when it bans someone – it’s forever. Even if that ‘someone’ (hypothetically) were to run for office again.
- More Stimulus – Why? Because…
o 10.1m Americans are still unemployed – 2X pre-pandemic levels.
o The pace of the recovery has slowed – with more people dropping out of the labor force.
o +2.3m women have dropped from the labor force – with the women’s labor force participation rate at its lowest level since 1988.
- We saved the toughest economic part until the end…
o Each month it gets harder to gain back jobs, and even harder to bring back people who dropped out.
o Our GDP (economy) shrank 3.5% in 2020 – the largest shrinkage in 74 years.
o Our economy could come back with stimulus monies; however, employment will take at least 3 to 5 years to bounce back.
- Reddit’s worth a lot more now… as it raised $250m – doubling its valuation based upon #WallStreetBets and sudden renewed cultural relevance.
- The 2021 Super Bowl attracted only 96.4m viewers… making it the least watched Super Bowl since 2007.
- Love at first swipe... as Bumble (BMBL) saw its stock pop as much as 80% on its first day as a public company. Shares of the female-focused dating app closed up 64%, and Bumble's 31-year-old founder and CEO Whitney Wolfe Herd became the youngest woman to ever take a company public.
- Disney has accumulated almost 95m subscribers… (almost half of Netflix) in a much shorter amount of time.
- Microsoft tried to buy Pinterest… in a move to fuel its cloud expansion. This helped to push Pinterest’s co-founder Ben Silverman’s wealth over $5B.
Crypto-Bytes:
- Bitcoin is in the… news because Tesla invested $1.5B of its $19B cash reserves in it. Tesla said: “Bitcoin offers more flexibility to further diversify and maximize returns on our cash.”
- Ether futures have launched on the CME.
- Will others follow Tesla, Square, and MicroStrategy… by investing some of their dollar reserves into Bitcoin? JPMorgan thinks the strategy is risky and daring due to the crypto’s volatility, while CNBC’s Jim Cramer said it’s “almost irresponsible” to not have the asset on every corporation’s balance sheet.
- Decentralized finance is heating up… as Amazon’s AWS Marketplace is offering Origin Protocol’s decentralized e-commerce platform Dshop as part of its partner network.
- BNY Mellon, the world’s biggest custodian bank… will allow customers to custody crypto by the end of the year.
- Mastercard plans to support… digital currency transactions directly on its massive network, and allow merchants that opt in to participate directly in the crypto economy.
- Amazon is also preparing… a “digital currency” project in Mexico.
- Dogecoin developers… are pushing out their first network update in over 2 years – as the meme-coin barks at their heels.
- The 1st Bitcoin ETF has been approved in Canada: Will this open the U.S. door?
- The Bitcoin options market sees a 12% probability… of Bitcoin’s price topping $100k by the end of December 2021.
- Wall Street suits are pressuring employers to move into crypto ASAP.
- Kraken is launching a venture unit… designed to target early stage companies and protocols across the crypto and fintech ecosystem.
- Only 0.013% of the $12T S&P wealth… is indirectly invested in Bitcoin. Hey - this crypto, decentralization, blockchain movement just might have legs.
Last Week:
Monday: This is quite a world we're living in. The employment situation stinks, but we're at all-time highs. Friday’s unemployment fell – but how is that possible when we only created 49k jobs, and +700k people filed for first time unemployment claims? Answer: when your unemployment benefits run out, Uncle Sam no longer considers you unemployed. At that point you: (a) have no job, and (b) have no income at all, but (c) according to your government – you’re NOT unemployed. MVIS has developed a nice chart and I’ll be watching that one.
Friday: We are sitting in front of a 3-day market weekend – so I’m more than a little nervous about putting on any new positions. Having said that: PINS will probably go at some point, and ETN has technicals that are looking pretty nice. I’m liking PINS over $87.40 and ETN over $123.50.
Marijuana & Alcohol:
- Heineken is finally cutting 8,000 jobs… and trying to move “beyond beer” after the pandemic hammered sales. #Too-Little…Too-Late?
- Connecticut’s heavily regulated medical cannabis market… is expected to post a respectable 15% increase in sales this year. It’s getting closer to adult-use legalization and unlocking a $750m market.
- Cannabis businesses can’t find a way to escape. Barred from federal bankruptcy protection, MedMen (and others) have needed out-of-court deals to address expensive leases, litigation, and collection efforts.
- Senate majority leader Schumer’s marijuana reform push… faces stiff challengesfor comprehensive legislation to pass Congress.
Next Week: When the Bonds Break … the Cradle will Fall
Markets stagnate and volatility subsides: For the past month, markets smashed through expected moves like hot knives through butter, but this past week ground that to a halt. Although we trickled to the upside, markets were extremely well-behaved. Even the Russell (IWM) closed right on the upper edge of its expected move. The Russell Small-Cap Index is up 17.5% YTD, and truly ‘the story’ for 2021.
- With things trickling higher, the volatility index (VIX) contracted to its lowest point since COVID. This triggered large retail buying positions within the VIX to be accumulated. That means that the ‘retail world’ believes that volatility will increase in the coming days / weeks. Retailers are buying massive amounts of out-of-the-money Call options, which could cause volatility to rise in and of itself – can you say: “GameStop Part 2”.
- The professionals have also started buying calls which is driving the VVIX (the volatility of the volatility index) higher as well.
An inverted SKEW becomes the NORM for equities: Unfortunately, the same mechanisms that we use to price the Call side of the options markets – are currently not the same ones being used to price the Put side. Products like Amazon (AMZN) and Tesla (TSLA) are showing as much risk to the upside as they are the downside – while the entire market place is showing significantly more risk to the upside. This tells me to continue to control my risk (and reward) via Selling Covered Calls and / or Buying Debit Spreads.
Buy #1: If you like the chip sector and potentially Nvidia (NVDA) @ $600 / share, I would go out into March and Buy the $625 / $650 Call spread because the volatility SKEW is in your favor. That means that the volatility is higher in the $650 Call than in the $625 Call – allowing you to purchase a ‘less expensive / less risky’ Call Spread.
Hedge #1: If you need a downside hedge, Puts are less expensive right now (due to the inverted SKEW). You can buy the March, $328 / $318 ($10 wide) Put Spread in the QQQ’s for only $2.
The Bond SELLING continues. When will the Bonds break? Currently there is a massive amount of volume going thru the bond markets. Banks are taking large directional positions. The 10-year bond (TNX) rate is coming very close to pre-COVID levels. Pre-Covid, the 10-year rate was 1.6%, and we’re currently at 1.2% - up from 0.4% about 11 months ago.
- However, interest rates are rising extremely quickly. In the past 10 days, the 10-year note has increased 9% (from 1.09% to 1.2%). That is a huge move, and traders are viewing this as a dramatic steepening of the yield curve.
- At some point, rising interest rates will stop helping the financials.
- Watch the bonds (/ZB). If the bonds continue to sell off and slice through the $165 level – that could be the point that breaks the back of the equity markets.
- This is why the professionals are out there buying volatility – VIX Call Spreads.
SPX Expected Move (EM):
- Last week the expected move was $63, and we actually moved only about $50.
- Next week is a 4-day trading week with options expiration on Friday. The option market is saying that the SPX will be confined to a $57 expected move.
Tips:
Last week the Feds were out saying that they would continue to do a ‘minimum’ of $120B a month in bond buying. This week, Janet Yellen in her first virtual meeting with the G-7 said: “Now is the time to go big.” So, the Feds are still ‘all in’ on trying to keep the credit market flowing. They know that if the credit market seizes up, all heck breaks loose. This week we saw a little bit of that with this from the WSJ: “The Federal Reserve said it will test the ability of the largest U.S. banks to weather a hypothetical recession in which markets seize up and asset prices drop sharply, including a 55% decline in equity prices.” Now, the FEDs are testing a 55% market crash because they know that keeping this needle threaded ‘just right’ is extremely difficult. They know that they’re not in as much control as they think. Their actions have certainly kept the gears lubricated and the equity markets soaring, but the pandemic and the global economies are in dire trouble. They know, one day all of this will end badly.
This past Friday, the averages made new highs; however, for most of the week they were just hovering around the flat line. It felt like rather than allowing the markets to correct, the FED just kept them treading water and trying to use time to work off the froth. I still plan on leaning long, but understand how fragile this is. The FED is still driving the train – hoping that somehow this all will work itself out. Get yield while you can.
HODL’s: (Hold On for Dear Life)
- Bitcoin (BTC = $48,800 / in at $4,310)
- Bitcoin Cash (BCH = $700 / in at $170)
- Clover Health (CLOV = $12.08)
o Sold Feb. & Mar. $12.50 / $15 covered calls (CCs) for income
- CTI BioPharma (CTIC = $3.31)
o Sold Feb. & Mar. $3 / $4 CCs for income
- Desktop Metal (DM = $30.49)
o Sold Feb. $22.50 / $25 CCs for income
- Ethereum (ETH = $1,820 / in at $310)
- Grayscale Ethereum (ETHE = $20.51 / in @ $13.44)
- Grayscale Bitcoin Trust (GBTC = $48.91 / in @ $9.41)
- Hecla Mining (HL = $6.17)
o Sold Feb. & Mar. $6 and $7 CCs for income
- Hyliion (HYLN = $18.91 / in @ $0.32)
o Sold Feb. & Mar. $15 and $17 CCs for income
- Inovio Pharma (INO = $14.54)
o Sold Feb. & Mar. $13 & $14 CCs for income
- New Gold (NGD = $1.77)
o Sold Feb. & Mar. $2 CCs for income
- Opko Health (OPK = $5.61)
o Sold Feb. & Mar. $5 & $5.50 CCs for income
- Pan American Silver (PAAS = $33.33 / in @ $13.07)
o Sold Feb. $34 CCs for income
- **Silver Elephant Mining (SILEF = $0.36 / in @ $0.37)
- SOS Ltd. (SOS = $7.44)
o Sold Feb. & Mar. $2.50 / $5 CCs for income
- VivoPower (VVPR = $13.69)
o Sold Feb. & Mar. $15 CCs for income
Thoughts: Whether the politicians think so or not, the market is expecting a +$1.5T stimulus package to get passed. Stocks are in risk-on mode, rallying on the hope of a rebounding economy – all the while bond yields are rising on the fears of inflation. That’s also helping to prop up the price of SLV (the silver ETF) which has remained higher this week. SLV’s OTM calls are trading well over equidistant OTM puts, indicating that the market sees risk to the upside. If you are inclined to agree with the market’s opinion of the stimulus package and silver, you might consider a bullish trade in SLV. Shorting the $23.50 Put in the March expiration is a bullish strategy that has an 89% probability of making 50% of its max potential profit before expiring.
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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