Firstly, I want to wish a very happy Thanksgiving to everyone who is celebrating the holiday! Due to this being a shorter week, there is not quite as much going on in the market.
The Big Picture
We have now entered into the final six weeks of trading for 2021. Historically, we see a sell-off in the last week of November and the first week of December, and then we experience a rally, what is known as the “Santa Claus Rally”, to end the year. The reason for this sell-off in the last week of November and early December is “tax harvesting”, where investors sell their losses to use the realized loss as a tax deduction. Although this trend has unfolded in the past, that does not necessarily mean we will see this trend repeat for certain. We have an excessive amount of call buying, and that is pushing VIX higher, even on the days that the S&P 500 is hitting new highs.
Existing home sales, one of the leading indicators to gauge the health of an economy, have come in stronger than expected. The Core PCE numbers being released on Wednesday will likely be a non-event, as the market is already pricing in hotter than expected inflation. On the macro side, we are seeing a slowdown in shipping costs, which could act as a deflationary force.
Option Trades for the Week
I have had a few good trades so far with ABNB $185/$195 bear call which closed this week, and JPM $165/$167.50 bull calls which closed this morning.
I saw some weakness in big tech today, which usually signals small cap strength, so I wrote a TNA buy-write and a bullish call spread $98/$102 with an expiry at the end of the week. Both trades are in the red right now, but I will give them some time (until Friday).
Below are some potential trades for going into next week:
ATVI – seems to have found a bottom after a three day sell-off. A bullish $61/$56 put spread could work.
MRNA – has bullish option volume and the next potential gap fill could be played both as a debit or credit spread.
NVDA – the 9 moving average could act as a support. IV is elevated and ideal for bullish credit spreads. $310/$300 could be a play.
ZM – I would wait up to three days after earnings for the dust to settle. If we find a bottom, options could be a very powerful tool for next week.
MA – $320 is a level. $320/$312.50 could be a good spread. IV is elevated. I would not play a debit spread here.
SNOW – 50 MA could act as a support. There could be a great trade set up for next week.
Tweet of the Week
The St. Louis Fed tweeted earlier this week that while the cost of food has increased, a plate of a soy-based dinner (are you dreaming of a Beyond Meat turkey?) is much more cost-effective and has a higher nutritional value! While I am vegetarian myself, I find it odd that the St. Louis Fed is now giving health advice!
One Last Thing
Over the last few days, I published two articles on my personal blog on Medium. One is on why the 4% rule for retirement is dead, and the other article is on “one derivative thinking” and finding stocks in the value chain of the metaverse. Feel free to check them out here