On today's Flow Show, Steve Strazza and I discuss this morning's frustrating start to Q4, and whether or not it means anything.
A 20%+ rise in $VIX is not something that should be ignored. But is the market overreacting to today's down tape and is this just related to repositioning in a new month and quarter?
Regardless, we've got a stock on our radar today that is caught up a bit in the news cycle, has a lot of traders caught in short positions, and could be ripe for an epic squeeze if the stock can get out from under a declining Anchored VWAP.
Here's a chart of ZIM Integrated Shipping Services:
17% of the outstanding shares for $ZIM are held in short positions. The only way these shorts can stop the bleeding in their accounts is to cover their position by buying stock. And if everyone heads to the exits at the same time, that could propel the stock significantly hired. We've seen it happen before.
So we're playing for that possibility, while mindful of the fact that we may run into some near-term resistance by an overhead AVWAP. Watch the video above to see it and how that factors into our thinking.
Here's the Play:
I like buying a $ZIM Nov/April 30-strike Call Calendar Spread for an approximately $1.25 net debit. This means I'll be short the November 30 calls while simultaneously long the April 30 calls. This debit I pay today is the most I can lose if I'm completely wrong.
We're doing the calendar spread to take the sting out of the cost of the April 30 calls, especially if this stock takes longer than I'd like to get going.
If $ZIM trades to $30 or above before November expiration, I'll just close the entire spread down and book whatever profit is available to me. The closer we are to the November expiration date (11/15), the larger my profit is likely to be.
Ideally, $ZIM starts trading up, but doesn't quite get to $30 before November expiration, those short calls expire worthless, and I'm left holding the long April 30 calls with the potential for unlimited upside.
Meanwhile, if $ZIM comes back into the box and trades below $20, then I'm likely too early or wrong and I'll look to close the entire position down for whatever I can get.
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.
Sean McLaughlin | Chief Options Strategist, All Star Charts
