Research Team Trades: Bullish Setups and Earnings Plays

Key Concepts

Short Push Trade: A strategy involving selling options with a short expiration date, aiming to profit from limited price movement.
Diagonal Spread: An options strategy involving buying and selling options with different strike prices and different expiration dates.
Iron Condor: A neutral options strategy involving selling an out-of-the-money call spread and an out-of-the-money put spread.
IV Rank (Implied Volatility Rank): A measure of an asset’s current implied volatility relative to its historical volatility. Higher IV Rank suggests higher volatility.
Delta: A measure of an option's sensitivity to a $1 change in the underlying asset's price.
Skew: The difference in implied volatility between options with different strike prices. Downside skew implies higher volatility for out-of-the-money puts.
Mag Seven: Refers to the seven largest technology companies (often including Amazon, Microsoft, Meta).
Time Decay (Theta): The decrease in the value of an option as it approaches its expiration date.

Market Discussion & Personal Updates

The session began with casual conversation, highlighting the importance of consistent communication with family. Gad mentioned his brother, “Shark,” experiencing health issues due to air pollution while traveling in India, prompting discussion about the challenges of visiting the country despite a love for its cuisine. Concerns were raised about Shark’s well-being, with a comment that “if Shark is having problems…I’m gonna have problems.” There was a shared desire to visit India together, with Shark potentially serving as a guide. A lighthearted exchange about physical fitness and a 40-yard dash followed.

Trade Ideas – Gad

Gad presented two trades:

Amazon (AMZN) – Short Push Trade: A short-term trade capitalizing on Amazon’s lack of participation in recent market upside. He noted the stock had bounced from around $200 but hadn’t shown significant gains. He and the team already had a small position.
Microsoft (MSFT) – Bullish Outlook: Gad expressed a bullish sentiment towards Microsoft, anticipating a potential rally after a recent scare.

Trade Ideas – Kai (Part 1)

Kai presented a diagonal spread trade on Rocket Labs (RKLB):

Strategy: A diagonal call spread using April expiration options, aiming for a roughly 40 delta on both calls. This involved selling a call spread with a longer time horizon (49 days) compared to a typical earnings trade.
Rationale: The longer expiration allows for potential rolling of the position if needed. He highlighted the high implied volatility (230%) suggesting the market anticipates significant price movement (potentially doubling or halving).
Risk Management: He emphasized the defined risk nature of the trade and the potential to manage it early, potentially taking profits at 20-30% gains.
Technical Details: The expected move was around $7, with implied volatility around 90.

Trade Ideas – Kai (Part 2)

Kai then presented a second trade, a more complex strategy on Intel (INTC):

Strategy: A wider put spread combined with a tighter call spread, creating a dynamic iron condor. The put spread was wider due to downside skew.
Rationale: He believed the trade offered a high probability of success (around 60%) with a $400 stock price. He suggested adjusting the spread width to manage buying power requirements.
Technical Details: The maximum loss was estimated around $2400, with a potential credit of $600. He noted the correlation to Nvidia and the broader semiconductor sector (SMH) was relatively low (around 6).

Trade Ideas – Julia

Julia presented an Iron Condor trade on Advanced Micro Devices (AMD):

Strategy: Selling an iron condor with strikes around 20 delta, aiming to profit from continued sideways price action.
Rationale: AMD has exhibited flat implied volatility over the past few months, making a time decay-focused strategy appealing. The low correlation to Nvidia and the broader sector offered diversification.
Technical Details: She aimed for a credit that would be profitable if the trend continued. She noted a previous successful strangle trade on AMD, highlighting the stock’s tendency for volatility expansion and contraction. She referenced a previous trade where she collected around $6 on a strangle, suggesting the iron condor could capture roughly half that amount.

Discussion & Analysis

Throughout the session, the traders discussed risk management, implied volatility, and the importance of understanding the underlying asset’s behavior. There was a recurring theme of adapting strategies based on market conditions and individual risk tolerance. The team emphasized the importance of managing trades proactively, rather than waiting for significant losses. The discussion also touched on the concept of “skew” in options pricing, and how it can influence trade construction. A key point was the idea that even seemingly bullish setups could be vulnerable, as highlighted by the comment, “This is going to be horrible for all of us.”

Notable Quotes

“If Shark is having problems…I’m gonna have problems.” – Expressing concern about a family member’s health and the potential impact on personal travel plans.
“Destined to fail now that you said you like it. That’s just the way it happens.” – A humorous observation about the tendency for trades to perform poorly after being praised.
“Every day is Christmas here.” – A lighthearted comment reflecting the excitement of trading.

Synthesis/Conclusion

The session showcased a diverse range of options trading strategies, from short-term push trades to more complex diagonal spreads and iron condors. The traders emphasized the importance of thorough research, risk management, and adapting to changing market conditions. The discussion highlighted the need to understand implied volatility, delta, and skew, and to proactively manage trades to maximize profits and minimize losses. The overall takeaway was a pragmatic approach to options trading, combining technical analysis with a healthy dose of skepticism and a willingness to adjust strategies as needed.