Market comments 20220816

Another fascinating day for BBBY. It went $6 to $29 in a matter of few days and today it closed at $20.65.

Reason: Because a well known investor, Ryan Cohen, bought a 1.12 million call options with $60 strike, 44,400 with $75 strike and 500,000 with $80 strike.

What does that mean?

When a well known investor buys call options well above the actual price then they must know something or they just want to manipulate the market.

A call option enables the option buyer to buy a stock at the strike price at expiration. So if someone spent money on buying call options with $60 strikes than they must believe that the stock will go above $60.

What's the probability of a stock going from $6 to $60?

Well, it depends on many factors and the main one being the time. Over a long enough time it can happen but the expiration of Cohen's options is January 20, 2023 so only 5 more months to go. That was a very low probability a week ago. But now, the probability is obviously much higher.

Could it be just a market manipulation?

Absolutely! Take a look at the $60 call option prices (expiry in Jan 2023). They were trading for $0.35. So my very strong estimate is that Cohen spent about $392,000. He published the news and millions started buying the stock, which pushed up the price significantly higher. The sudden movement also raised the volatility, which increases the option prices in general. So the value of the $60 call options went above $9!!!

So if he sold his call options at $5 each then he turned $392,000 into $5,600,000!

I don't know all the details and it's possible that the didn't sell his options, but I certainly would have cashed in today. What about you?

Change of topic: what trades did I make today?

#TGT (#Target). Earnings will take place tomorrow before market open so I sold a wide strangle with Aug expiration. It's purely an earnings play and I am banking on the volatility crush. If the price remains between $152.50 and $220 then I will pocket the full premium by the end of this week.

The stats

Trade Type: Short Strangle

Strike: $152.5 / 220

Expiry: 19 Aug

Delta: 2

IV Rank: 77.3

Premium: $0.62

Cap Req: $1806

Annualised Prof at Expiry: 418%

IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.