What’s goin’ on everyone?
There is a renaissance afoot among retail investors!
While we haven’t seen a Reddit-induced squeeze to match that of the epic Gamestop squeeze of early 2021, we have seen more and more individual traders learning about the shenanigans going on on Wall Street.
Even the former host of The Daily Show, Jon Stewart, has dedicated a number of episodes of his new podcast series to investigating the incestuous nature of the relationship between Wall Street and our elected officials.
IF you want to hear how F’d up things are, listen to Jon break it down in this fantastic podcast with a former Commissioner in the U.S. Security and Exchange Commission (the SEC), Rob Jackson.
Let’s face it, the stock market system is broken.
The cheerleaders for Wall Street on CNBC may say that this is a free market, but don’t be fooled.
You do not have to be completely helpless when it comes to knowing the kind of nefarious activities these big institutions are engaging in.
We now have tools to see what’s going on in the so-called “dark pools,” where much of this activity takes place.
The latest signal we’re paying attention to RIGHT NOW has to do with a HUGE amount of clandestine trading volume in a stock that is now facing a bearish setup as a result of supply issues now being caused by Russia’s attack on Ukraine.
TSLA’s production capacity may be in trouble due to growing shortages in key materials
RagingBull has the best gurus in the business, and WE MEAN IT!
Want an example?
OK, just look at this call that our CEO Jeff Bishop made all the way back in November 2021, when the stock was trading just below its all-time highs.
I mean, to suggest that TSLA, one of the world’s most-loved stocks, would fall another 33% to the bottom of a multi-year channel, was gutsy.
Fast forward to today, and this next chart shows that TSLA satisfied that target at the end of January, and has since rolled over below this channel, in a development that does not bode well, technically.
What I am about to discuss with you was sent to members via email on Friday.
In that email alert, I warned that much of the materials needed to make TSLA’s EVs come from two countries: China and Russia.
In fact with this recent conflict in Ukraine, TSLA has had to raise their prices to make up for an already slim margin.
Now, you might recall that Musk, along with his brother, already sold a ton of shares late last year.
Perhaps they saw these issues coming?
Right now, traders are wondering if TSLA can rally to resistance near the 50-DMA at $950, or maybe it will dump to the 50% retracement around $620.
Being that the stock is right in between those two, I’m looking at a trade into the end of this week that will benefit if TSLA swings wildly within that range.
To be more specific, I presented this “strangle” trade idea to members on Friday for this week’s trading:
TSLA TRADE IDEA (STRANGLE)
18 MARCH 22 CONTRACT
Buy the $950 CALL @ 2.10
Buy the $700 PUT @ 2.00
ALL IN = 4.10
EXIT = AT OR ABOVE 15.00
With this trade, I am estimating that the stock is going to run up $100 from here, or down $150 from here, in one week.
If you’re not familiar with this options strategy, I’ve created some educational content for you below.
If, however, you are a “strangle” master, there’s no need to continue reading.
Why would a trader use a “long strangle” options trade?
It is important to highlight the strangle trade I am using in this particular case is a long strangle. I’ll explain the difference between a long strangle and a short strangle in a moment.
A trader uses this strategy to capitalize on large price moves in the underlying asset, in either direction.
In other words, the favored forecast is for a large price move in the stock to occur, in either direction.
With a long strangle, a trader buys one call with a higher strike price and also buys one put with a lower strike, both of which have the same expiration date.
This trade is established for a net debit and profits if the underlying stock rises above the upper break-even point or falls below the lower break-even point.
This compares to a short strangle, which is constructed by selling one call and selling one put of the same expiration date, thereby creating a net credit and profits if the underlying stock stays between the upper and lower break-even points.
What is the profit potential of a long strangle?
The potential profit picture for this trade is unlimited on the upside because, in theory, there is no limit to how far a stock’s price can rise.
On the downside, yes profit potential is limited because the lowest a stock can fall is limited to zero. However, there is still substantial room to profit if the stock falls sharply.
What is the loss potential of a long strangle?
The maximum a trader can lose on this trade is limited to the total cost of the strangle plus commissions.
Maximum loss occurs when, at expiration, the underlying stock price closes between the breakeven points of the trade, causing both options to expire worthless.
How are the 2 breakeven points calculated?
Top breakeven point = higher strike price plus total premium paid:
Bottom breakeven point = lower strike price minus the total premium paid:
How does time affect a long strangle?
Since this is a net-long options strategy, the trade will have to fight the effects of time decay.
And since the strangle consists of two long positions, these trades tend to lose money more rapidly if volatility does not pick up as was originally anticipated.
With this in mind, it’s important to make sure you give yourself enough time for this trade to work out.
How does volatility affect a long strangle?
As mentioned earlier, this trade is meant for situations when volatility is expected to rise substantially. So, it goes without sayin’ the trader wants things to get crazy (big price swings beyond the breakeven points are desired) in terms of price movement when this trade is implemented.
What about the risk of early assignment, you ask?
Well, since the trader owns the options in this strategy (the trader bought both calls and puts to open the trade), they decide when they want to exercise the options. Therefore, there is no risk of early assignment.