Intel is a half-trillion-dollar company. That number is a lie, and I’ll show you why in about ten seconds.
Look at the volatility. Intel is running 107% implied vol out at 31 days. It reports this week, and the market is pricing Friday at 180.8%. Nearly double the back week against the month, because that’s where the whole move is stacked.
Apple, for comparison, sits around 30%. So market-cap adjust the two of them. Volatility adjust them. Intel is trading like something far bigger and far angrier than its market cap says. Pissed off and volatile.
You have to look at these things that way now. You cannot look at Intel as a half-trillion-dollar company. You look at it as a half-trillion-dollar company with a pissed-off amount of volatility. Different animal.
And it’s the whole group. AMD is running about 90% at 31 days, roughly double Google’s 40%, and it’s still two to three times bigger than most of the stuff you trade.
Push out to Friday and AMD’s at 109%, Google jumps to 81.8%. Half this complex reports this week, and the market is stacking vol into the back end because that’s where it thinks the risk lives. Apple’s the only quiet name in the bunch. Everything else is lit up.
Then there’s Micron. Up about 12% on the day, sitting in the 970s. Its vol runs 109% at 31 days, 120.8% for today, 127.3% for Friday.
It climbs the whole way out. That’s not one number you glance at. That’s a curve, and the curve is telling you where the market thinks the pain is.
So somebody in the room asks, should we short Micron here. Sure, you could short Micron. But understand what you’re stepping into. At 120% implied vol, somebody has edge over you.
I don’t give a crap who’s trading it. This guy, that guy, doesn’t matter. They’ve got speed, they’ve got the bid-offer spread, you don’t.
I used to argue about this with Tom Sosnoff years ago. At 120% vol, we made markets, we know. It’s mathematically impossible to really kill it in a 120 vol situation.
Can you make money in this market? Sure. I’m not saying you can’t. But keep coming back to that well again and again and again at 120% implied vol, and you will get burned. That’s not up for debate.
Retail loves it anyway. Moth to the flame. The hotter the vol, the more they want in, which is exactly backwards.
So price it before you trade it.
People don’t realize what crap is actually worth until they go out and price it. Pull up the spread you’re about to buy.
A thirty-point-wide spread in Micron runs you eleven bucks. You want to short it intraday on same-day options, the at-the-money market is 23 bid, 24 offer. That’s the toll to walk in the door. Nobody checks until the fill hits, and by then you already paid it.
Market cap tells you how big a company is. Volatility tells you what it’ll do to your account.
Only one of those shows up on the ticker.
To your success,
Don Kaufman
P.S. I just showed you what a spread actually costs once you pull it up and price it. Most people never run that math before they click. They don’t check the sizing, don’t clock the vol they’re paying for, don’t ask whether the edge is theirs or the market maker’s.
I wrote down the five checks I run before every single trade and put them in a short report. One of them is the sizing test that decides whether a bad trade is a scratch you shrug off or the one you don’t come back from. Five checks, sixty seconds, and it runs you nothing today. Normally $29.97, no credit card.
