Hey – Liz Brazeal here.
I just got off a somewhat prickly phone call with Mark Sebastian, where he lovingly said “F you” because he didn’t like the questions I asked him.
Specifically, WHY is this crazy thing happening with Apple Inc. (AAPL) right now?
His answer – after “F you”-was “I don’t have a specific explanation for it. What you’re seeing is what we in business might call shenanigans.”
What’s happening is that weekly AAPL options volume is exploding – but only in the 150s.
It’s happened for two weeks in a row now. Last week, the 148- and 149-strike options expired with massive volume. Everything else – flatsville.
This week, it’s the 150s, 152s, and 155s.
That’s right, the 150s neighborhood is the only place there’s any volume in AAPL options right now. And Mark Sebastian – king of volatility over at Profit Takeover – has no idea why.
What he can do, though, is tell you exactly how to play it to double or triple your money. More than just a pretty face, our Mark.
We Still Don’t Know Why This Is Happening, But We Have A Gamma Squeeze Game Plan
(By the way – this wasn’t the most acrimonious call I’ve ever had with a trading expert. Years ago, when I was pregnant, a hedge fund manager I’ll call Marty Fartman yelled at me so loudly over the phone that I threw up my burrito. But that’s another story.)
If you’re a “flex” trader – someone who’s more interested in quick results than in in-depth processes — you are in luck today.
After our call, Mark sent over his flow data from August 25.
Notice the insane volume discrepancy around the 149 and 150s for that day, in particular.
In fact, 345K of the calls traded that day were on just three strikes. And five strikes represented 430K (almost half) of the 923K total contracts that traded that day.
A gamma squeeze is an even headier and more dangerous game of “chicken” than a short squeeze. Higher call volume triggers institutions to hedge against the short, which drives up stock prices, which in turn leads to even more call buying, and on and on.
Eventually, someone blinks, and the whole thing comes crashing down – usually, even farther and faster than it went up.
Gamma squeezes usually start off simmering in short-term, weekly options, which is what tipped Mark off that we may be right at the beginning of a cycle on AAPL.
This weird spike in call volume is, according to Mark, “creating a lot of stock trading,” which means at some point soon, the stock is going to either break out and tank, or pop.
Basically, having all this continued volume around the 150s creates inertia. If the resistance breaks in either direction – and Mark thinks it will soon – “the move will be astounding.”
How to Play The AAPL Breakout Three Ways
I actually had to push him a little bit on this, because he didn’t want to give me a specific recommendation at first. “Day trade Apple,” he said. “You’re going to see short pops. Ride it until it unwinds.”
Thanks, Mark, but I can’t put that in the portfolio.
I then pinned him down a little further. If he was a betting man, he’d say the coming breakout will be to the upside.
And – here’s where it gets much more interesting – it’s likely to be within a week.
Mark loves “if-then” scenarios, which is only one of the things that makes him a great trader.
So he’s got a freebie “if-then” recommendation for you.
Followed by a couple of real, “no matter what” recommendations that are going in the portfolio.
The Freebie If-Then
If AAPL stock has a $3 down day by the end of this week – a pullback – then BUY-to-OPEN AAPL Sept. 3 $149 Calls (AAPL210903C00149000). Pay no more than $1.25. Enter as a Good-til-Canceled (GTC) order. You will be a happy camper. |
But honestly, Mark’s money is on a coming Gamma Squeeze breakout.
So you’re going to want to buy calls in that $150 neighborhood regardless.
Just like always, we’re going to put on two separate plays here – “Nickel Slots” for people with a little bit less of a risk/reward appetite, and “Dollar Slots” for the more serious gamblers. You know who you are.
In both cases, we’re going to hedge our bets a little by providing for a breakout in either direction – the “Nickel Slots” play will be a long strangle (less risky, but lower returns) and the “Dollar Slots” will be a long straddle (more risky, but potentially higher returns.)
Tom Gentile – who’ll have a free recommendation for you in Trading Today soon — has a good overview of straddles, strangles, and how that all works, right here.
If AAPL pops, Mark expects the “Dollar Slots” play to double or triple your money easily. That’s the beauty of these types of options plays – you have limited risk but unlimited upside.
(Not bad for a play that we STILL have no idea where it came from.)
Here’s what to do:
NICKEL SLOTS
Action to Take: BUY-to-OPEN AAPL Sept. 3 $150 Call (AAPL210903C00150000). And BUY-to-OPEN AAPL Sept. 3 $147 Put (AAPL210903P00147000). Pay no more than $1.95 for the entire strangle. Enter as a Good-til-Canceled (GTC) order. |
DOLLAR SLOTS
Action to Take: BUY-to-OPEN AAPL Sept. 3 $147 Call (AAPL210903C00147000). And BUY-to-OPEN AAPL Sept. 3 $147 Put (AAPL210903P00147000). Pay no more than $3.35 for the entire straddle. Enter as a Good-til-Canceled (GTC) order. |
Keep in mind, these are fast-moving trades on weekly options. You’ll be in and out in just a few days. Make sure you track your plays closely and exit with dispatch.
Mark may or may not send you an exit reminder here in Trading Today.
He also may or may not behave himself at the Money Map Press Christmas party this year.
He’s basically a walking straddle.
But to make up for it, he’s working on a top-secret project that he’s almost ready to reveal.
If you want to be the first to find out, make sure you’re on this list.
And in the meantime, you can catch up with his entire free, open portfolio at Profit Takeover.
Have a great weekend, folks – as for me, I’ll be closing on a house, picking up the key, locking the door behind me, and frantically writing up Monday’s trade recommendation from Tom Gentile. Ah, the life.
Talk soon,
Liz