In my prior post, I summarized the biggest opening drop of a New Year in history with this chart back in January.
Well, things are still pretty damned grim for the bears. Even though the morning started off looking like we’d get a break, with the ES down 9 at the time, both crude oil and the small caps have hoisted everyone back into the green.
One notable exception is a stock I highlighted a few days ago for those considering buying put options – – Amazon (alongside this was Baidu). Both of these have stayed obediently beneath their resistance zones, and AMZN in particular is having a nice little tumble, even on a green-everywhere-else day like this one.
In any case, the market continues to be very disappointing for the bears (and I’m not even sure if I should be using the plural anymore; I’m probably the only one left) until all the excitement about forthcoming central bank intervention is past us. I remain annoyed.
I have a couple of short ideas which are interesting options opportunities as well (by way of a long put positions). There are a couple of reasons I mention options, which I normally don’t do: (1) both of these stocks have lofty triple-digit price values, which gives them a lot of “juice” in raw dollar terms to the downside (2) the price for volatility is relatively low these days.
In other words, I wouldn’t dare put up a post suggesting put options on a day like, say, February 11th, when the VIX was in the 30s (it’s about half that value now).
Anyway, here they are – Baidu and Amazon; I’ve tinted the gaps for each.
Fly like a butterfly, sting like a bee…
The pre-earnings option analysis for CMG is interesting. We see lots of volume churn in this week’s options in bullish strikes, but little to show for it in fresh, sustained open interest.
In Chicago we have a saying – the tape doesn’t lie.
Check out the open interest for the February 2016 option contracts on AAPL prior to earnings today. This snapshot was taken at approximately 11:28AM ET on January 26 (the morning before the earnings release) and AAPL was trading right around $100 at the time. Open interest suggests many permabulls were loading up in the days leading up to Tuesday’s earnings release.
Then, check out the disparity in put option contract volume today. Who knew?
Where will AAPL head on Wednesday? The market maker move was anticipated at roughly +/- $6 above or below that nice round $100 level. What will AAPL do on Wednesday? Who knows.
Another 3x Bearish ETF Appears In Our Top-10
Happy New Year, Fellow Slopers.
I just saw a 3x bearish ETF (TZA) pop-up among the ten highest-ranking names on Portfolio Armor‘s daily ranking of optionable stocks and exchange-traded products by potential return net of hedging cost. Usually, it’s just stocks in that top-10, but the last time an ETP appeared there it was another bearish ETF, YANG. I posted about that here in November (“A Hedged Bet Against China“), and since then, YANG has gone on a decent run. Maybe something similar will happen with TZA? Just in case it goes pear-shaped, though, I’ve posted a hedge for it below. First, a quick look at how YANG has done since our November post on it.
Background On How We Calculate Our Ranking (more…)
Every trading day, Portfolio Armor ranks all of the hedgeable stocks, ETFs, and other exchange-traded products in the U.S. by its estimate of their potential return over the next six months, based on an analysis of price history and option market sentiment. Then it subtracts hedging costs, and ranks them all by potential return net of hedging costs, or net potential return. It’s a method of security selection we backtested 25,412 times over an 11-year time period during which it generated solid returns, on average.
On Thursday, the highest-ranked ETF, and the 7th-ranked security overall, was the Direxion Daily FTSE China Bear 3X Shares ETF (YANG), a triple-levered bet against China, with a potential return of 13.6% over the next six months.
As of Thursday’s close, you had a shot of capturing that potential return, while limiting your downside risk to 13.6% – and getting paid to hedge – by using the optimal collar below: (more…)