This post is a selection of insights from our reports to subscribers this week, showcasing how we build the contextual framework to find daily trade ideas. This is a repeatable process aimed at finding high-risk-reward trades. Note that the onus is on the subscriber to pick and choose which trades fit their overall risk.
In this week’s blog post, as part of the insights and trade ideas shared with subscribers, we delved into VIX as the best alternative to hedge against setbacks in equities, an earnings play on NVDA given the parabolic nature of its price action, and also ways to get long exposure in BTC and ETH.
For a deeper dive into how I structure my trade ideas and to learn my thorough process, watch out for our next Free Options Trading Webinar.
Long Calls on $VIX
With SPX looking very stretched on the upside and VIX showing little appetite to go down when the SPX rallies, we put some more premium into VIX upside, as we also anticipated the flows to come that way. We entered call positions ahead of the hot US CPI this week, which made sense pre vol spike.
The chart below shows that VIX was near 1-month highs ahead of the US CPI, despite a 200+ point rally in the SPX. This showed just how much better VIX calls performed versus SPX puts. Whilst SPX puts may work in a pullback, we continue to think large institutional hedgers will continue to use VIX calls as a better alternative and with Feb24 VIX expiry out of the way, more hedging in March & April is expected.
Since the CPI, these VIX calls are performing well. The ferocity of the move was likely due to some people being forced to cover or delta hedge those options as we saw the largest VIX call options volume in 5 years. However, the vol sellers didn’t wait long to take their opportunity to smash it back down and the VIX expiry print on Wednesday morning was back on a 14 handle (as if nothing happened!).
Historically, it’s also worth noting that VIX spikes tend to be short-lived. Nothing surprising here. This VIX calls is a position that still makes a lot of sense from a hedging perspective. VIX seasonality also suggest a strong period for the VIX in coming weeks.
For a deeper dive into how I structure my trade ideas and to learn my thorough process, watch out for our next Free Options Trading Webinar.
NVDA Put Condors
NVDA continues to go parabolic and has broken above 700 to peak around the 730 mark. With earnings coming up next week (Feb 21st), we may see some profit taking as the stock is very overbought. We thought Put condors offered and efficient way to be short the stock.
In fact, we think that next week’s NVDA earning carry risk for the broader market and so fresh vol sellers may be jumping in prematurely before the coast is clear. So, if one agrees with these thesis and that tech is crowded and NVDA earnings carry downside risk, we think the NDX or QQQ put spread also look a decent options as well given the pop in skew we saw this week.
For a deeper dive into how I structure my trade ideas and to learn my thorough process, watch out for our next Free Options Trading Webinar.
Long Crypto Exposure
The next leg higher in crypto is on, as digital assets explode higher and crypto stocks also had enormous rallies. We think staying long calls, call spreads and ratios makes sense depending on your risk appetite.
Those who have no hedges in place, may look to use the expensive call skew to enter bearish risk reversals or put spread collars for protection, but I would caution against selling too much upside in a market that is going parabolic!
On the ETH front, the ETH calls we have been long for months have done well (almost 4x) so we are happy to reduce the position in that front, especially as our ETH delta is exploding. We’ve also taken off perp hedges to play a move up to 3000 now that dealer gamma has collapsed.
For a deeper dive into how I structure my trade ideas and to learn my thorough process, watch out for our next Free Options Trading Webinar.
Remember, not only do I share these trade ideas, but the ones I end up adding to my portfolio, are then tracked via a 20-30m weekly webcast that gives in-depth guidance. In it, you get to learn how to break down options trades by their Greeks and restructure trades in an optimal way to meet desired investment goals in real time. This is part of our Macro Options Overlay.
And that’s a wrap for this week!
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Thank you for making it this far!
As always, if you have any questions, comments, and/or found this helpful, feel free to reach out and let us know at info@options-insight.com
Cheers!
Imran Lakha
Options Insight
