(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)
Macro Dragon Reflections: Checking back in on the MEME / WSB / Reddit Army stocks of GME, BB, BYND & AMC's +2850% Lift-Off!
A few takeaways (So far at least)
- AMC Ent. [AMC] $62.55 is clearly at the head of the pack, post a +116% price move last wk, the name has picked up another +139% over the first two trading day this wk. Taking its market cap from c. $13B to $31B, eclipsing GME. AMC also had the 2nd largest increase in IV (implied volatility) of +55%.
- With AMC’s IV at 448, its got a potential +2.3x if we were to see a repeat to the 1017 highs in early Feb. With that said, +2850% YTD is just an insane number. If you had $50,000 in AMC before the start of the year, that would now be worth $1,475,000… & that’s just the stock not the options.
- Blackberry [BB] $15.25 had the best explosion on its IV, at +162% to 286, from its previous Fri 28 May figure of 109. We had also flagged this on Mon, as BB likely have the best risk/reward set-up from this simple anecdotal set. It also by far, had the most days to cover in regards to short interest at +7.7 days… vs. paradoxically enough AMC at the lowest with 1.6x
- BB also had 2nd best price pop, getting +51% over the two trading days this wk, well above the +18% it clocked last wk. Feb vol got to 455, less than half the lvls of GME & AMC at the time. So potential to just reach recent vol Highs in Feb is c. 1.6x. (Worth noting BB, BYND & other names were the peripherals in the Jan/Feb squeeze with GME & AMC being really the focus of THE HIVE)
- GameStop [GME] $282.24 still very much in the game, with +27% pop in prices so far this wk & vol lifting by +29% to 215, vs. its IV close of 167. Vol is still well south of the 999 lvls that were set in early Feb (c. +4.6x move if that was to be replicated / surpassed)
- GME now has a mkt cap of +$21B, hard to believe this was a name in the sub billion dollar mkt cap. The name is up +1400% YTD & folks say crypto is volatile!
- Beyond Meat [BYND] $149.74 jumped by +11% o/n, yet that’s post a -7% move on Mon, breaking its tally so far this wk to +3% - clearly underperforming the other names, by also being only up +20% YTD. In fact, its unclear how much of the pop o/n was linked to THE HIVE or to the hack on meat producer JBS.
- And yes Cyber Security is a meta investment theme, KVP is not on top of the individual names – would love a primer – yet there is an ETF called Russia, wait North Korea… no wait… HACK. Seriously the etf is called HACK, has been around since last 2014 & currently has +$2.2B in assets
- BYND’s IV has ticked up a notch by +14%, which again is vastly lower than the other 3 names. KVP still thinks, if THE HIVE / Reddit Army / WSB Possee / Apes etc… were really significantly participating in a name like BYND or any other name… you’d see it in volatility exploding in the options…
- …so far, its still only half-time in the Beyond Meat court…
- Net-net… as risky & crazy as things are… the path of least resistance is still likely to the upside in the MEME names. Its also worth noting, intuitively one would expect that we should not see another Robinhood / broker freeze on any of these names given what occurred in Jan/Feb… or at the very least… the bar will be significantly higher… which means we could look to replicate, perhaps even pass some of the stratospheric heights made in early Feb. Before going to situations of -70% to -90% drops in volatility & pullbacks of -70% or more in the actual prices
- Charts below will give a context on price appreciation both in the first 3 months of the year & the most recent two months…
For the Jan / Feb squeeze (Based from 12 Jan ) GME was firmly in the driver’s seat….
For the current squeeze (Based from May 10) AMC has overtaken & no one else is even close…
...making one wonder who is the contender going to be, GME again or BB, BYND or brand new name?
How to Stick Your Head Into A Wood Chipper…
- So folks likely would like to see how to potentially think about playing momentum squeeze / FOMO / HYPE scenarios like this… we’ll do Macro Dragon think piece around that. Yet lets cover what few folks fail to talk about, how to NOT lose your shirt, blow up your account… etc…
- So we will start it with the problem formulation of: If one really want to maximize the probability of losses & taking outrageous risks on memes stocks, how would one go about doing so?
- Selling naked call options (i.e. not owning the underly security) is one of the ultimate sins in trading & risk-management. The point being, there is potential infinite losses here.
- Example: There is Wood Chipper company (ticker OUCH) trading at $100 per share, that has a monopoly on all the Wood Chipping business – its CEO & Chairperson is a Furio Giunta. One sells 10,000 of the 1m ATM call options for $10 per call, netting $100,000.
- Which for an account with $1,000,000 (basically 11yrs of pre-tax annual income of the average American) in capital looks amazing, i.e. going to make +10% a month, +120% a year… this trading game is ‘easy peasy’… move over Buffett… clear the way Soros… there is new Sherriff in town!
Happy days, one just has to sit tight for 30days & one’s break-even is $110, i.e. stock can move up by +10% before one starts to lose money, everything else being equal. And if we get above our break-even lvls of $110, one can just cover. Right?
- In most cases, yes (assuming you are sticking with big liquid names)… but in this case…
- …the day right after the calls are sold, OUCH gets a take-over bid for a +100% premium. Yet it re-rates to $250 because, new counter offers are also expected & this could be the mother of all take-over bidding wars …
- …and your short call position is now 110 – 230 = -120 on just strike to spot, a +12x loss on the original premium you made of $100,000 from selling the stock… or a drag of -$1,200,000 (loss of -120%) on what was $1,000,000 of capital. But…
- … the loss is actually going to be much higher, because volatility would have also exploded in the name as it re-rated from $100 to $250… & one is still not out!
Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.
This is The Way