Research Team Showdown: Best Trade Ideas This Week

Verizon Scams, Microsoft Earnings, DKNG Volatility & AMD Iron Condor – A Detailed Trade Review

Key Concepts:

• Short Put: Selling a put option, betting the stock price will stay above the strike price.
• Reverse Jonesing: A trading strategy based on the belief that a company is exploiting its customers, leading to a potential price decline.
• Calendar Spread: A strategy involving buying and selling options with different expiration dates.
• Diagonal Spread: Similar to a calendar spread, but also involves options with different strike prices.
• Delta Neutral: A strategy designed to be insensitive to small changes in the underlying asset's price.
• Iron Condor: A neutral options strategy involving selling an out-of-the-money call spread and an out-of-the-money put spread.
• Implied Volatility (IV): A measure of the market's expectation of future price fluctuations.
• IV Rank: A percentile ranking of the current implied volatility compared to its historical range.
• Earnings Trade: A strategy based on anticipated price movements around an earnings announcement.
• Naked Put: Selling a put option without owning the underlying stock.

I. Verizon Short Put – The “Scam” Trade

The team initiated a short put trade on Verizon (VZ) based on a narrative stemming from a recent car show experience. Gad, a Verizon customer, upgraded to an iPhone 17 Pro Max at a perceived discount of $800, which the team suspects involved hidden fees or unfavorable terms. This led to the belief that Verizon is “sticking it to the public” even after a recent outage, justifying a bearish outlook.

Trade Details: A short put was executed at the money, aiming to profit if Verizon’s stock price remains stable or increases. This strategy is framed as “reverse jonesing,” capitalizing on perceived corporate misconduct.

II. Microsoft Earnings Play – A Bullish Calendar Spread

Tony presented a bullish calendar spread trade on Microsoft (MSFT) anticipating volatility contraction after the company’s earnings release in one week.

Methodology: The strategy involves selling a short-term option (March 20) and buying a longer-term option (April). The rationale is that after earnings, volatility will decrease, allowing the trader to profit from the time decay of the short-term option.

Technical Details: Gad clarified the trade as being slightly long delta, anticipating a move higher in the stock price. The implied volatility for both options was around 30, meeting the criteria for the trade. The maximum risk is limited to the initial debit paid, approximately $3.33.

III. DraftKings Earnings – A Naked Put with Caution

Kai proposed a naked put trade on DraftKings (DKNG) ahead of its earnings announcement. The stock has been under significant pressure, and the trade aims to capitalize on a potential bullish reaction to the earnings report.

Trade Details: A 25 strike put was sold, with the expectation that the stock price will remain above this level. The team acknowledged Kai’s previous successful trades in DKNG, but also noted a recent unfavorable position.

Risk Management: The team discussed the potential for a significant downside move, suggesting a one-times downside and two-times upside potential. They also highlighted the importance of monitoring the trade closely and potentially adding long delta positions to hedge against a negative outcome. The expiration is set for the next monthly cycle, providing eight days for the trade to play out. The expected overnight move is around $2.50, with a $3 expected move over the 8-day period.

IV. AMD Iron Condor – Volatility and Granularity

Julia presented an iron condor trade on Advanced Micro Devices (AMD), leveraging its consistently high volatility.

Strategy: The iron condor involves selling an out-of-the-money call spread and an out-of-the-money put spread, aiming to profit from limited price movement. The trade was constructed using the 190/260 short strikes, collecting a credit of almost $300 for 700 in buying power.

Rationale: Julia chose AMD over Hood (also considered) due to its better credit-to-buying power ratio and more granular strike prices, allowing for greater control. Both stocks had similar IV ranks (around 35-36).

Technical Analysis: The team agreed with the trade, noting that AMD was up slightly pre-market but that this wouldn’t necessitate adjusting the strikes. They highlighted the importance of AMD’s consistent volatility and the trade’s 20 delta target.

V. General Observations & Team Dynamics

Throughout the discussion, the team engaged in playful banter and shared personal anecdotes. There was a running joke about Nick’s perceived jealousy over Tony’s new phone and Gad’s questionable Verizon upgrade. Kai’s recovery from illness was also acknowledged. These interactions contribute to the informal and engaging atmosphere of the show.

Notable Quotes:

• “Because Verizon is doing so good at scamming their customers… we’re going to go with a short put right at the money.” – Illustrating the trade rationale based on perceived corporate misconduct.
• “You are your father’s son. I can confirm that right now.” – A playful comment directed at Gad regarding his perceived susceptibility to scams.
• “Just like everything, Shark. Just like everything. We ruined it all… shitification.” – A humorous observation about the decline in quality of events like car shows.
• “If you’re not getting better, you’re going backwards.” – Julia’s motivational statement emphasizing continuous improvement.

Conclusion:

This session showcased a diverse range of options trading strategies, from a narrative-driven short put on Verizon to more technical plays on Microsoft, DraftKings, and AMD. The team emphasized the importance of understanding the underlying rationale for each trade, managing risk effectively, and adapting to changing market conditions. The discussion highlighted the interplay between technical analysis, earnings expectations, and perceived market sentiment. The session also demonstrated the team’s ability to analyze trades critically and offer constructive feedback, while maintaining a lighthearted and engaging atmosphere.