Berkshire Hathaway stock $BRK/B has traded down for eleven of the past thirteen trading days. That's not something you see often.
Call me sentimental, but watching implied volatility in Berkshire options creep up to its highest levels of the year feels like a gift to naked put sellers. So I'm going to take advantage.
In today's Flow Show, me and Steve Strazza took a look at some potential directional bets, but we both agreed that the right trade for today is one that would benefit from some sideways trading action.
With the broader markets looking a bit indecisive here, making a strong directional bet (in either direction) feels like a high-risk proposition. But there's a big cap name currently stuck in a range that is offering us nice options premiums to bet on further sideways action. We'll likely have to hold through an earnings event to earn our profit, but with a defined risk and a large margin for error, I like our chances.
We're looking abroad for today's trade in a company involved in the manufacturing and sale of connectivity and sensor solutions.
The stock is breaking out of a multi-year base and it offers us a nearby risk management level to keep our stop tight which means the potential for nice gains versus a smaller risk of loss.
Traders have made a lot of noise about the recent correction in Apple. And yes, the selloff has been large (for Apple).
But with daily trading volumes beginning to wane, it feels to me that the run has begun to exhaust itself and bears will have one more last-ditch opportunity with earnings on the horizon.
Barring something unusual, I think there will be something to disappoint both bears and bulls alike, amounting to a whole lot of nothing. Which sets up the perfect time for a sideways bet.
In today's Flow Show, me and Steve Strazza came out swinging with an opportunity to add to an already winning options trade.
Back in late January, we entered into a bullish longer-term bet in Wells Fargo $WFC. You can read about it here. That original position still has until January 2025 to play out (another nine months).
But take a look at this high & tight flag forming on the eve on their next earning release scheduled for this Friday morning:
The energy sector is looking poised to break into uncharted territory, and we too are going to break some new ground by doing an options trade we've never done before in ASO.
Calling it a "trade" might even feel a little off, considering the timeframe of this one. It might be more accurate to call it an investment. Compared to most trades we do, this one has the potential to certainly feel like one.
Steve Strazza brought up charts of the energy, materials, and commodities sectors on today's Flow Show. These are "peer indexes," meaning they often trend together.
And the current trends suggest we need to add more bullish positions in these areas.
The one name that stood out the most was Freeport McMoRan $FCX:
We put on a bullish bet in biotechs a couple of weeks ago and it quickly rolled over on us. The market had other ideas.
Now here we are, a couple of weeks later, and the biotech ETF $XBI finds itself mired in a range with rising implied volatility signaling elevated options premiums:
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:
