June 1, 2023
DraftKings (DKNG) Weekly Call Buys
As I’ve written in the past, I don’t recommend buying calls expiring in the coming weeks, as the odds for success are small. Instead, I recommend buying calls with 3-9 months until expiration.
That being said, I do always perk up a bit when momentum call buyers target one of our stocks, and today we are seeing this activity in DraftKings (DKNG). Here are some of those trades (stock trading at 24.5):
June 9th expiration call buys:
2,000 June 24 calls
3,000 June 24.5 calls
3,500 June 25 calls
3,300 June 25.5 calls
2,500 June 27 calls
What makes this call buying so interesting is that the market makers who are forced to sell these calls, then have to buy the stock in order to hedge their short call risk. This causes an upward bias to the stock in the short term. And today, DKNG stock is trading higher by 6%.
Stepping back, I think DKNG stock continues to look great, and even though the call buying noted above is targeting a move higher in the short term, I really like our January 25 call position which could potentially work on a short and longer-term time frame.
May 31, 2023
Market Update/Large Put Sales
The story remains mostly the same the last couple of days.
Big tech has been carrying the load, while the rest of the market is in its sixth month of choppy action. Also, breakouts outside of NVDA/META/AMZN continue to fail.
To be frank, this is not my favorite environment, as range-bound markets are tough on call/put buyers, and playing breakouts has not worked in recent weeks/months (UBER/DKNG/BSX). Though to be fair, all three of those stocks still look mostly fine.
Moving on …
As noted above, mega-cap technology has done a ton of the heavy lifting of late, and yesterday and today a trader/traders aggressively sold puts, looking for those stocks to not fall dramatically in the months and years to come. Here are those trades, as well as a breakdown of each:
Seller of 100,000 Nasdaq (QQQ) December 325 Puts for $11.99 – Stock at 351 (Trader willing to buy 10 million shares of the QQQs at 325 … collects $119 million in premium if QQQs close above 325 on December expiration)
Seller of 10,000 Nvidia (NVDA) December 330 Puts (exp. 2025) for $64 – Stock at 388 (Trader willing to buy 1 million shares of NVDA at 330 … collects $64 million in premium if NVDA closes above 330 on December of 2025)
Seller of 18,000 Meta (META) December 210 Puts (exp. 2025) for $28.50 – Stock at 263 (Trader willing to buy 1.8 million shares of META at 210 … collects $51 million in premium if META closes above 210 on December of 2025)
Seller of 11,000 Tesla (TSLA) December 160 Puts (exp. 2025) for $34 – Stock at 202 (Trader willing to buy 1.1 million shares of TSLA at 160 … collects $37.4 million in premium if TSLA closes above 160 on December of 2025).
My read on the put sales above is that these trades were made by a hedge fund or institution that doesn’t necessarily want to buy these four stocks at current levels, and instead is willing to buy those stocks should they fall 10-20% in the future.
Finally, if you are interested in getting involved with NVDA, which is the HOT stock of the last week, here are a couple more bullish trades made yesterday and today that you may have interest in:
Yesterday - Buyer of 4,000 Nvidia (NVDA) September 350 Calls for $85.30 – Stock at 408
Today - Buyer of 5,000 Nvidia (NVDA) September 350 Calls for $63.80 – Stock at 382
Today - Buyer of 25,000 Nvidia (NVDA) July 500/550 Bull Call Spread for $2.40 – Stock at 392.5.
May 30, 2023
Weekly Update
Despite a couple concerning days to start the week, the bulls took control on Thursday and Friday as tech titan Nvidia’s (NVDA) earnings blowout triggered a “risk-on” bull run. By week’s end the indexes were mostly mixed as the S&P 500 gained 0.32%, the Dow lost 1%, and the Nasdaq rallied 2.51%.
Stocks on Watch
Last week was fairly bullish for option activity, though of note, many of the trades were likely executed by the same trader, as the trades below were all rolling out of June positions and into calls targeting a move higher later this year. Let’s dive in:
Buyer of 96,000 Amazon (AMZN) September 95 Calls for $25.20 – Stock at 116 (rolled from June calls)
Buyer of 25,000 Microsoft (MSFT) September 300 Calls for $32 – Stock at 318 (rolled from June calls)
Buyer of 35,000 Hilton (HLT) October 120 Call for $22.39 – Stock at 136 (rolled from June 125)
Buyer of 11,000 Square (SQ) September 50 Calls for $14.55 – Stock at 61 (rolled from June calls)
Buyer of 23,000 Shopify (SHOP) September 55 Calls for $11.58 – Stock at 62 (rolled from June calls)
Buyer of 22,000 Disney (DIS) August 80 Calls for $13.40 – Stock at 91 (rolled from June 80 calls)
Buyer of 76,000 Las Vegas Sands (LVS) September 45 Calls for $16.70 – Stock at 60 (rolled from June calls)
Buyer of 17,000 American Express (AXP) October 135 Calls for $25.90 – Stock at 155 (rolled from June 125 calls)
Buyer of 22,000 Wynn Resorts (WYNN) September 90 Calls for $23.65 – Stock at 109 (rolled from June 90 calls).
The biggest premium trade of the bunch was the AMZN September call buy of $242 million in premium, though the MSFT call buy of $80 million was impressive as well.
Regardless, my read on these trades is the call buyer is using in-the-money calls to get bullish exposure, though I don’t think these trades are truly overwhelmingly bullish as several of his/her original June call buys turned out to be losers or non-events (though some winners as well).
Volatility
After the VIX rose above 20 on Tuesday the “fear index” closed at 17 to end the week. This late-week selloff wasn’t terribly surprising as the indexes rallied on Thursday and Friday, the debt ceiling situation was seemingly headed in the right direction, and a long holiday weekend weighs on the price of options and the VIX.
Option Order Flow was fairly bullish this past week as my Options Barometer came in at:
Monday – 6
Tuesday – 6
Wednesday – 6
Thursday - 6
Friday – 6
Events for the Week to Come
With the debt ceiling situation seemingly headed to a resolution, traders will again turn their attention to economic data (and inflation) this week, with the headliner being the May Jobs Report on Friday. Of note, Fed Fund Futures are now pricing in a 55% chance the Fed will again raise interest rates at the June meeting. Those odds have risen sharply in the last two weeks.
On the earnings front, the following companies will report this week:
What Traders are Saying
Artificial Intelligence (AI) is the talk of the market, following a blowout earnings report from Nvidia (NVDA) on Wednesday night that sent NVDA stock, and really any stock with exposure to AI, FLYING higher. Before I dive into some ideas surrounding AI, here are a couple of upgrades of NVDA following that earnings report.
Morgan Stanley: “The surge in AI spending is paying off much earlier than expected ... We simply have no historical precedent for the magnitude of this step function particularly in absolute dollar terms given $4 bn of data center upside in the July quarter.
“It’s important to note that NVIDIA’s track record early in an upward revision cycle is typically very conservative … in the context of the company’s historic patterns it certainly bodes well … the July quarter does not appear to be a one-time spike.”
Wedbush: “For any investor calling this an AI bubble we would point them to this NVDA quarter and especially guidance which cements our bullish thesis around AI and speaks to the 4th Industrial Revolution now on the doorstep.”
We are potentially in the first innings of an AI revolution or for those that are doubters, potentially a bubble is growing that is ready to burst. With that in mind, if you want to get exposure to the AI sector, though potentially not via NVDA which is up 167% year-to-date, one might look to add exposure via ETFs. Here are two that I found that have AI exposure, and the stocks with the largest weighting in those ETFs:
BlackRock – Robotics and Artificial Intelligence ETF (IRBO)
NVDA, META, SPOT, HUBS, AMD, CRM
Wisdom Tree – Wisdom Tree Artificial Intelligence and Innovation Funds (WTAI)
NVDA, AMD, TSM, CDNS, META, MU, MSFT.
And finally, a bit of humor regarding AI from Bank of America: “I mean, if you’re going to lose your job and be replaced by AI in the next few years, might as well own some AI as a hedge, no?”
Open Positions
Long positions: BAC, BSX, CLF, DKNG, FTI, IWM, UBER
Bearish Positions: SPY
Bank of America (BAC) – BAC gained 1% last week, which is a positive. That being said, I’m not yet ready to sell a new call as the premiums aren’t that attractive. Finally, we will collect the $0.22 dividend in the coming weeks.
Boston Scientific (BSX) November 55 Call – Med-tech stocks came under some pressure last week as money raced into AI and speculative tech. Big picture this rotation was a couple days of action, and I’m not concerned about our call expiring in November.
Cleveland-Cliffs (CLF) – CLF fell 3% last week as commodity stocks continue to mostly chop around. Much like BAC, I’m not yet ready to sell a new call … though am certainly looking for the right opportunity.
DraftKings (DKNG) January 25 Call – Somewhat disappointingly our recent DKNG call buy did not participate in the rally last week. That being said, it’s been two days so I’m not concerned about our call expiring in January.
TechnipFMC (FTI) June 14 Covered Call – On Monday of last week we sold the June 14 call for $0.80, which lowers our cost basis on our covered call to 11.79. This trade continues to work very well.
Russell 2000 (IWM) August 177 Call – The IWM was unchanged last week as money raced into other sectors and stocks. It will be interesting to see if the IWM, Dow and S&P 500, which did not participate in the Nasdaq rally, get in gear this week.
S&P 500 ETF (SPY) September 400 Put – The S&P 500 continues to bounce up against the 4,200 level that has been resistance for months. Perhaps the debt ceiling situation calming down will finally be the trigger for the index to break out, and for us to bail on our hedge … maybe.
Uber (UBER) December 40/50 Bull Call Spread – UBER was steady last week, which is totally fine given the recent big stock move. Option activity remains very bullish.
