I was on Schwab Network this morning for the Big Three.
Three trades, and two of them are bets against stocks that just went up.
The first one is a sector that has been the biggest beneficiary of the rotation out of big tech. It popped again this morning on drug trial news and I’m using that pop to get short.
The catch is I can’t time the pullback I’m looking for, and I said so on air. So I gave myself all the way out to December.
A dollar of risk on a spread that can be worth five. Around a 20% probability, which means I lose on this one far more often than I win, and the math still works because of what it pays when it hits.
The second one is a chip name that got cut in half from 452 and then bounced after earnings.
I don’t think the bounce holds. There’s no love in that stock right now and I think it goes right back into the downtrend with the rest of the semis.
Notable thing on that one. The skew is working against me. An out-of-the-money put spread should cost less than what I paid, and it doesn’t, because the market already has expectations to the downside.
I took it anyway and I told the audience why.
The third one is where I changed my mind on air.
I have come on that show a number of times and been bearish on this name, and those trades worked. Today I flipped and went long.
Not because there’s a turnaround story. That story has been sold for a year and a half and it has not played out.
I’m looking for a technical pop, and I’m giving myself until November to get it.
Almost like taking a long position in the stock without having to own the stock.
That’s the logic on all three. Define the risk, buy the duration, and stop needing to be right about the timing.
I walked through every one of them on air with the strikes, the debits, and the reasoning.
To your success,
Don Kaufman
