February 14, 2024
Ford (F) Position Update
Our Ford (F) position is in great shape with three days until expiration and the stock trading $0.60 above our covered calls’ short strike price.
And in fact, because F stock will go ex-dividend today, I would expect the trader who bought the February 12 calls that we sold will exercise his right to buy the stock from us so that he/she will receive the dividend.
What this means for our position, and it is not a guarantee the call will be exercised (mathematically it should be), will be that come tomorrow we will be left without an F stock or option position, and we will walk away from our trade with a quick 3.35% yield.
This trade worked perfectly.
February 12, 2024
Position Update – Marvell (MRVL)
Coming off wild call buying in Palantir (PLTR) last week, another one of our stocks Marvell (MRVL) is attracting very strong call buying today. Here are those trades:
Buyer of 20,000 Marvell (MRVL) February 75 Calls for $0.40 – Stock at 71
Buyer of 8,000 Marvell (MRVL) May 75 Calls for $6 – Stock at 71.5
Buyer of 5,000 Marvell (MRVL) March 75 Calls for $4 – Stock at 71.5
The call buying in MRVL has been strong for a month, which is why we got involved. And today’s bullish option activity just adds to what is a very interesting set-up.
Of note, MRVL is not expected to report earnings until late February/early March, so it will be interesting to see why this trader/traders are buying the 20,000 February calls that expire this week.
February 12, 2024
Weekly Update
Before I dive into today’s Week in Review, I did want to note that next week’s update will be sent on Tuesday, February 20 because of Presidents’ Day.
Despite some under-the-surface concerns, it was another strong week for the market as the S&P 500 gained 1.5%, the Dow was mostly unchanged and the Nasdaq added 1%.
This week should be somewhat quiet, though there is a “big” inflation data release on Tuesday and earnings season continues to roll on.
Stocks on Watch
While I always have my eye on risk and potential downside, it’s hard not to be bullish when big options players were buying huge call positions in market leaders last week, including:
Buyer of 65,000 Amazon (AMZN) March 195 Calls for $0.55 – Stock at 173
Buyer of 85,000 Amazon (AMZN) May 215 Calls for $0.81 – Stock at 170
Buyer of 38,000 Meta (META) June 950 Calls (exp. 2026) for $19.50 – Stock at 469
Buyer of 50,000 Taiwan Semiconductor (TSM) May 120 Calls for $16.50 – Stock at 131 (rolled from May 100 calls)
Buyer of 40,000 Microsoft (MSFT) May 380 Calls for $43.10 – Stock at 411 (rolled from March calls).
I certainly have my eye on all of these stocks for potential new buys as they all look terrific, and these call buys are huge.
Also, I’m watching IBM (IBM) as well, as the stock soared on earnings two weeks ago, hasn’t given up an inch of those gains, and continues to attract call buying, including this trade from Friday:
Buyer of 2,000 IBM (IBM) April 200 Calls for $1.75 – Stock at 187.
IBM isn’t the fastest ship in the sea, though maybe that is what we should be looking for in terms of new positions as the hottest of stocks might be due to cool off (maybe).
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 13, which continues to be a very depressed level. And while the complacency as seen in the “fear index” is low, this isn’t terribly surprising as the market is at all-time highs and there aren’t too many “known” market-moving events in the near future. Though as always, it’s typically the “unknown” market-moving events that shake up the indexes.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Monday – 5
Tuesday – 5
Wednesday – 5
Thursday - 6
Friday – 7
Events for the Week to Come
Economic data releases heat up a bit this week with traders most focused on inflation data via the Consumer Price Index (CPI) on Tuesday and Producer Price Index (PPI) on Friday.
And on the earnings front, there is no slowing down as traders will be looking to Arista Networks (ANET) on Monday, Airbnb (ABNB), Datadog (DDOG) and Shopify (SHOP) on Tuesday, Applied Materials (AMAT) and DraftKings (DKNG) on Thursday, and many more:
What Traders are Saying
A hot topic in the options trading community for the past several years, and which is gaining more and more attention in the overall investing world, is something called “gamma hedging.” This options-related phenomenon is likely taking place in Palantir (PLTR), which we own a position in. Here is what I mean …
Back in the day when I was an options market maker on the floor of the Chicago Board of Options Exchange (CBOE), when a broker came into my crowd and bought calls, I would sell him those calls and then immediately buy stock to hedge off that call sale.
If I sold 10 calls, I might buy 500 shares to hedge. If I sold 2,000 calls, I might buy 10,000 shares … it really depended on which calls I was selling. This was simple hedging.
Now, as we got closer to expiration, if those 2,000 calls I sold were likely to finish in-the-money I would have to buy more and more stock as it became more and more likely that I would be short stock on expiration via the exercise of those 2,000 calls. That is called gamma hedging.
So how are we seeing this in PLTR?
The call buying in PLTR is off the charts in terms of size. And every time a trader buys 1,000 calls, or 2,000 calls, or any number of calls, the market maker who sold those calls has to buy stock, which pushes the stock higher.
As the stock moves higher the likelihood of those calls that were sold increases, and the market maker then has to buy more and more stock. It almost becomes a self-fulfilling prophecy pushing the stock higher.
I bring this up to highlight that as we continue to see WILD call buying, the likelihood of PLTR stock moving higher will continue to improve … though as always with any stock, there is not a 100% guarantee.
Open Positions
Celsius (CELH) July 60 Call – CELH had a great week as the stock gained 11%. Of note, the CELH weekly call buys we were tracking, but not involved with, were a failure on Pepsi’s earnings. That trader’s failure doesn’t matter to our position, which is in good shape after such a strong week for CELH stock.
Ford (F) February 12 Covered Call – F closed last week $0.70 above the short strike price that we are short. Should F close this Friday above 12, we will walk away with a super quick yield of 3.35%.
Li Auto (LI) June 40 Call – LI continued its slow ascent, which is good. Though to be fair, we need the stock to rip higher for our calls to really gain traction again.
Marvell (MRVL) August 70 Calls – MRVL had a somewhat wild week as the stock looked great on Thursday, and then gave back some of those gains Friday on a report that NVDA may be looking to “compete” with MRVL on some of their chip business.
Of note, option activity remains wildly bullish in MRVL, including these trades last week:
Wednesday - Buyer of 7,000 Marvell (MRVL) March 75 Calls for $1.83 – Stock at 67
Monday - Buyer of 5,000 Marvell (MRVL) April 75 Calls for $2.65 – Stock at 66 (rolled from April 80 calls likely to get better bullish exposure).
Nutanix (NTNX) April 37.5/65 Bull Call Spread – NTNX closed at yet another new high and our trade is in outstanding shape at a potential profit of approximately 360%.
Palantir (PLTR) April 19 Call – PLTR gained 39% last week following an earnings report that highlighted the company’s AI successes. Our position is now at a potential profit of approximately 90%, though with how fast PLTR stock is moving, that profit is moving quickly both lower and higher.
Equal Weight ETF (RSP) June 158 Calls – The RSP closed at a new high on Friday as the indexes continue their run at new highs. Our position is in good shape.
Snap (SNAP) August 17 Calls – SNAP was our monster loser last week as the stock got nailed on earnings AGAIN. I will likely be selling on any stock bounce, though of note, plenty of traders were buying the dip after earnings, including these trades:
Wednesday - Buyer of 5,000 Snap (SNAP) April 14 Calls for $0.41 – Stock at 12
Buyer of 6,000 Snap (SNAP) May 12 Calls (exp. 2025) for $3.15 – Stock at 11.4
Thursday - Buyer of 10,000 Snap (SNAP) June 16 Calls for $0.47 – Stock at 11.15.
TJX (TJX) April 92.5 Calls – TJX gained another 2.3% last week as the stock continues to make its slow ascent towards $100.
Into this stock strength we locked in a modest profit of 13% ahead of earnings later this month.
Financials ETF (XLF) March 33 Put – Our XLF puts are essentially a “back pocket” hedge against a steep market decline at this point.
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