[Options] There Could Be a Lot of Juice in This Squeeze

Sean McLaughlin
March 25, 2024

We're getting into Squeeze Season.

The stock market (as measured by the indexes) continues to trek higher, speculative fervor keeps building (as measured by what's happening in crypto), and these forces are combining to make it a dangerous environment to be caught short in.

And if you're short a name that already has a high short interest? Look out!

So naturally, today's trade is a play on punishing the stubborn shorts in a particular stock that look like they are on the verge of getting epically squeezed.

In today's Flow Show on Stock Market TV, me and Strazza get into why we love buying short-dated calls in Carvana $CVNA:

And here's the chart that we are leaning into:

Here's the Play:

I like buying $CVNA May 125 calls for approximately $4.50 per contract (or cheaper!). This premium I pay today is the most I can lose in a worst-case scenario.

But I'll look to minimize my losses if $CVNA loses the $75 level. Any close below $75 tells me I'm either early or wrong and I don't care which. I'll exit my calls for whatever premium I can salvage.

In the meantime, if we're right and $CVNA pops higher, I'll look to sell approximately one-third of my position if/when the value of my calls doubles. It might happen before our calls are even in-the-money (above our $125 strike price) depending on how soon and how swift the move is. This will take some of our original risk capital out of the trade.

I'll sell another third if/when $CVNA trades above $125 to lock in some profits.

I'm doing this because we only have until May with these calls, so we need to be aggressive in taking risks and profits off the table when we can. After selling two-thirds, I'll hold the remainder for a possible homerun.

If you have any questions on this trade, please send them here.

If you missed my most recent ASO video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7910.

 

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