Risk Reversal - In The Money

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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:

Risk Reversal - In The Money Player


Here are my notes from today’s show:

Macro: Finally a little downward volatility in stocks to see just how “diamond hands” investors are. Well as many market participants have become accustomed to over the last year, the shallow dip in the S&P 500 (SPX) was bought with those buyers targeting the 50-day moving average which has been reliable technical support in 2021:

The bounce in rates, or more like the reversal from Tuesday’s low in the 10-year U.S. Treasury Yield also helped, as many investors had come to the conclusion that the decline in interest rates had a lot to do with the growing risk of the delta variant being a significant headwind to second-half growth.


Trade Idea #1: MCD reports Q2 next week… I suspect results and guidance are good and cause the stock to break out to a new all-time high after a fairly long consolidation…

Bullish Trade Idea: MCD ($236) Buy Aug 240 -250 call spread for $2.25

Breakeven on Aug Expiration:

Profits of up to 7.75 between 242.25 and 250 with max gain of 7.75 above 250

Losses of up to 2.25 between 240 and 242.50 with a max loss of 2.25 below 240

Rationale: this trade idea risks 1% of the stock price has a little more than a month to play out which includes next week’s earnings and targeting a technical breakout.

Trade Idea #2: Peloton (PTON) the stock is up more than 50% from its May lows, and still down nearly 17% on the year… chart looks toppy, news might be as good as it gets for a while with the insurance deal just announced… play for a pullback towards $100.

Bearish Trade Idea: PTON ($126.50) Buy Aug 125 – 100 put spread for $6

-Buy 1 Aug 125 put for 7

-Sell 1 Aug 100 put at 1

Break-even on Aug expiration:

Profits of up to 19 between 119 and 100 with a max gain of 19 below 100

Losses of up to 6 between 119 and 125 with a max loss above 125

Rationale: this trade idea risks a little less than 5% of the stock price, has a break-even down 6% and a max gain of 15% if the stock is down 20% in a little more than a month.

Lookback: On June 9th I detailed a bearish view on Treasury Yields via the TLT ETF

TLT ($141.50) Buy Sept 142 – 155 calls spread for $3

Now with rates having made new 6 month lows, I think it makes sense to close this position. With the TLT at $148 this cal spread is worth about $6 or double, take the profit and move on…  the chart has filled in last week’s gap and 150 might serve as technical resistance for the near future.