In The Money, Podcasts, Trade Ideas December 9, 2020

In The Money with Fidelity Investments: SPY, VIX, SIRI, TSLA

by Dan

Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:

 

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My Notes:

Macro: SPX, NDX, and RTY all closed yesterday at all-time highs, up 14%, 40%, and 15% respectively. There is little fear in the market, with the VIX back at the levels it was at prior to the start of the market crash in mid-February. Investors are pricing flawless roll-out of C19 vaccines and a return to pre-pandemic levels of corporate earnings sooner than might be likely, The S&P 500 trades 22x forward earnings estimates, above its 5-year average of about 17.5 and the 10-year average of 15,5. Oh, by the way, the virus is raging, the vaccines can’t come soon enough, but they are not going to be coming in any sort of numbers in the near term that will change the damage to lives and livelihoods this winter, which might make investors a little less optimistic… it may soon be time to position for a 5-15% pullback. VIX has been stubborn at pre-pandemic resistance near 20:

VIX 1yr

 

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Trade Idea #1; Portfolio Hedge – SPY

Bearish Trade Idea: SPY ($370) Buy Feb 370 – 320 Put Spread for $10

-Buy to open 1 Feb 370 put for $13

-Sell to open 1 Feb 320 put at $3

Break-even on Feb expiration:

Profits of up to 40 between 360 and 320

Losses of up to 10 between 360 and 370 with max loss of 10 above 370

Rationale: this hedge risks 2.7% of the SPY price, breaks-even down 2.7%, and has possible gains of nearly 11% if the etf is down 13.5% in the next 2 months.

SPY 1yr

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Trade Idea #2: LONG SIRI, Howard Stern just re-signed for 5 years, the company is making a huge push into podcasting, car sales doing very well, their App is a slightly hidden gem in my opinion… play for a breakout in Q1 above the 3-year downtrend:

Bullish Trade Idea: SIRI ($6.66) Buy March 7 call for 35 cents

Break-even on March expiration:

Profits above 7.35

Losses of up to 35 cents between 7 and 7.35 with max loss of 35 cents below 7

Risks ~5% of the stock price for a break-even up 10% in more than 3 months

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Lookback:

Last week when TSLA was trading $560 I detailed a zero-cost collar for long holders of the stock that allowed for further upside to a point, and downside to a point selling 1 out of the money call vs 100 shares long vs buying 1 out of the money put of the same expiration, here was the hedge idea:

vs 100 shares TSLA long at $560 Buy Jan 500 – 660 collar for Even Money

Now with the stock up $100 in a week, up 17% and no shortage of news surrounding the stock from their $5 billion secondary offering announced yesterday to the daily anticipation around its addition to the S&P 500 on the open of trading Dec 21 it makes sense to consider rolling up this hedge…