Welcome to this week’s newsletter. We are entering into a new volatility regime of VIX being above 20. I personally do not think that VIX will stay above 20 for long, but it is important to respect where the volatility is at currently and to then trade accordingly. I explained four different volatility regimes in the room last week, and I plan to review them again this week. This morning, I took a bet on mispriced volatility and sold some TSLA puts which worked out in my favor. I am also shorting VIX weeklys going into next week.
The Big Picture
Spending on goods is still the significant share of nominal consumption and this will continue to thus serve as an accelerator of inflation. We will be apt to see inflation slow down only when we see the majority of nominal consumption being focused on services rather than spending on goods.
Oil took a beating this Friday. Seasonality wise, we should see a rally in energy prices and that is why I am keeping the energy sector on my radar this week.
Option Trades for the Week
I am looking into earnings for this week in order to reach my weekly goal. Salesforce.com Inc. and Snowflake Inc. will be my primary bets this earnings season.
SNOW: 2:1 bullish straddle prior to earnings. Has beat earnings the last two quarters. Expected move is 7.5%.
CRM: 2:1 bullish straddle prior to earnings. Three consecutive earnings beats. Expected move is 5%.
HPE: 2:1 bearish straddle. Expected move is 5%.
MRNA: As I mentioned last week, the option volume and skew is bullish. Could be in play on both debit or credit spreads.
Short VIX weeklys for next week.
FB debit spread $350/$380 February 2022.
Tweet of the Week
Bill Ackman, a legendary activist investor (and, to be honest, one of my heroes) who went on CNBC in early 2020 and claimed that “Hell is coming” while he was long credit default swaps and made billions, took to Twitter on the weekend to ensure his followers that Hell is not coming this time!
looked at some of the preliminary data on the new COVID variant and it seems to me that the market overreacted on Friday, and that is why I am shorting VIX for some reversion to the mean.
One Last Thing
To celebrate Cyber Monday, I have made my first book available for free on Amazon. If you or any of your friends have not yet checked out this publication, please take a few moments and do so HERE. If you choose to get a copy of the book and read it, I would very much appreciate you also posting an honest review. Thank you in advance!