This morning, Meta’s options priced in a crash to the upside.
I opened up the chain 9 days out and went $100 away from the stock in both directions, $100 higher and $100 lower. The calls $100 above the stock were trading around $2.57 to $2.70. The puts $100 below were trading for about a dollar.
(Calls)
(Puts)
Those calls are trading for 2 times what the puts are trading for. I know there’s all the talk about cost to carry, but there’s no cost to carry in an option that far out of the money.
That’s garbage!
The out-of-the-money calls were pricing a 50 vol. Go all the way up to the 860s and they were still trading for $2 at a 55 vol, on a stock that’s already gone up about $90 this week.
We are hitting stupid levels, people.
Meta is a $2 trillion company, and I think it may be the biggest market capitalization to ever see this much of a volatility inversion.
Mark my words, Meta is going to fall flat on its face this week.
Traders buy calls, and they buy calls, and they buy calls, and at some point professionals look at the price and go, “55 vol?
Up yours.
I ain’t paying no 55 vol.” The pros step back, and retail is left to carry it for as long as it can.
And retail doesn’t see the trap.
When you buy a call at a 54 vol and the stock moves toward your strike, that call slips down the volatility ladder, and you get screwed.
Meta is also what’s holding the NASDAQ up. If it comes off to any degree, the NASDAQ can almost double its hit.
So I sold 1 of the 840 calls, 9 days out, for $4.05.
Captain One Lot rides again.
I’m not saying this is free money, and I’m not saying it’s a bubble. I’m saying you’re in danger when traders will pay 55 vol for out-of-the-money calls on something that’s already up 100 bucks this week.
Side Note
I thought I finally had a profitable trade in Royal Caribbean. It bounced, and then they went out and bought half of Sandals, the all-inclusive resort chain, in a deal that values it at about $6 billion.
I lived in the Caribbean for 5 years. We used to island hop for fun, and every time we drove past one of those resorts, I’d say, “Oh my gosh, it’s Walmart in the sand.” This is the best trade I’m ever going to lose on.
Trading always runs hot and cold.
A trader I’ve trusted for years documented 71 trades between May 5 and September 9, and inside that record there are 16 different 90-day stretches. 15 of them finished up more than 50%, and the worst came in at 49.9%.
Tomorrow, Thursday, September 24, at 2pm Eastern, I’m opening his screen live.
Plus, I’m giving away $2,000 in cash goes to one person who’s on the livesteam.
To your success,
Don Kaufman
