Options Trading At 220 Miles Per Hour, Hyzon & Misinformation
What Are You Implying, Sir?
It’s been a long week, Great Ones. There’s just something about that first week back after vacation that hits different, right?
I’d like to thank all the Great Ones who welcomed me back with warm and funny emails … except for Keith F., who didn’t even know I was gone in the first place. Seriously, Keith … why you gotta do me like that?
I guess I shouldn’t go too hard on you. The Great Stuff Team is just that good. Seriously. That. Good.
Speaking of emails … are you ready, kids?
Aye, aye, Mr. Great Stuff!
I can’t hear you! And it’s probably because you didn’t write in to GreatStuffToday@BanyanHill.com to participate in this week’s Reader Feedback! Shame on you.
How can you have any pudding if you don’t eat your meat? Err … if you don’t write in for Reader Feedback, that is.
Do you have burning market questions? Itching stock ideas? An irritating options rash? All of the above?
First, they make creams for that. See your doctor.
Second, you can email us here at GreatStuffToday@BanyanHill.com and let us rant your ear off in a way only Great Stuff can … with memes and song lyrics, of course.
Now, enough of that. Let’s get to the reason you’re all here today. It’s our featured presentation:
What … is the airspeed velocity of an unladen swallow? Huh? Oh, thanks for writing in, Tony!
Options implied volatility (IV), what a wonderful topic. There are two answers, Tony. One short and one long.
First, for those wondering what in the name of all that’s holy is IV or implied volatility, click here to check out this primer.
Second, for those not familiar with the wonders of debit spreads, click here for another primer on that.
The Long & The Short Of It
Now, Tony, the short answer is that I look for IV that will allow me to hit my target return. I typically shoot for a 100% gain on a debit spread. So, I look for IV that will guarantee that I hit a 100% return on the move I expect in the underlying stock.
Now, this is different for every stock and every option, but I have found in my experience that the best IV range is from about 8% to 25%. Anything outside of that is either too little or way too high.
In other words, IV lower than 8% typically means options prices are too low to support a 100% return, while IV above 25% means options prices are too expensive to achieve a 100% return.
Again, this is a rough range for debit spreads and is different for every situation. You need to do the math.
Yeah, but due diligence is due diligence. It is what it is. That was the short answer. Ha…
The long answer is that I don’t start with IV when planning out a debit spread trade. I start with a company that I’ve followed for a while — one where I can reasonably judge the stock’s trend or how that particular stock reacts to an event, such as earnings.
Then, I go down the checklist I outlined on July 10 in this order:
- Direction: You need a stock that will move in the direction you want. Nothing else matters if you get the direction wrong — kinda like a July 4 Roman candle fight.
- Fast: Fast-moving stocks are perfect for options trading since you have the best chance of the stock making the move you want before your options contracts expire. The best way to get a fast move out of a stock is to plan around an event such as earnings or a product announcement.
- Volatility: Finally, we look at IV as a means to judge how much of a return we can expect.
All three steps are vital, but if you don’t have the direction or the speed down first, IV doesn’t matter at all.
Trading on IV alone — without a considerable understanding of higher-level options strategies — is like driving a Lamborghini at 220 mph with no seatbelt and no steering wheel and randomly shifting between drive and reverse. You’re gonna have a bad time.
Now, I realize I’ve skipped over a veritable mountain of specifics regarding trading options and debit spreads. Luckily, I have a Great Stuff primer on options trading right here! (Seriously, click here.)
But that might not be enough for some of you diehard options traders out there. So, riddle me this: Would you like to see Great Stuff do a more in-depth dive into exactly how specifically I set up a debit spread? A write-up littered with terms like “near the money,” “ask prices,” “bid prices,” “options contracts” and all that slick options lingo?
If so, let me know: GreatStuffToday@BanyanHill.com.
However, if you’re tired of waiting and want to get your options on right now … well, Mr. Impatient … check this out:
Flashpoint Fortunes: This options research service, run by my esteemed colleagues (and moonlighting blues brothers) Ted Bauman and Clint Lee, has helped subscribers make as much as 312% profits in as little as two weeks. Wanna know how they’re doing it? Besides with options, of course…
It’s finally Reader Feedback time!
Y’all have been on some … intriguing … tangents this week. Yeah, we’ll leave it at “intriguing.”
If you missed out on today’s ramble about options, electric vehicles and the general vaccination calamity, join in the fun for next week! If you’ve got a trade in your sights, I’m in. A rant on your mind? I’m in. Whatever you feel like sharing with us here — market-related or otherwise — we want to hear it!
So, go on, scribble some random gobbledygook or a well-crafted manifesto for the world to see: GreatStuffToday@BanyanHill.com.
Here’s what your fellow Great Ones are up to this week:
Every Stock Has Its Hyzon Lows
WTF is wrong with this picture. DCRB closes last Friday slightly up in anticipation of the SPAC merger with HYZN, and HYZN opens trading on Monday to drop 20%. Followed by another 10% drop on Tuesday.
What am I missing as I, for one, am sick of losing money on what should be good investments? Did all the insiders decide to sell? Hell, PIPE was $10, and I can’t believe private investors would pay more than the anticipated market price. Shed some light on this please. — Dick K. 😎
How’s it going, Dick! Good to see you pop up again.
Have you been watching over my shoulder? Stalker…
Your email beat my explanation to the punch by, like, four hours this time. Impressive!
By now, you should’ve seen our rundown on Hyzon Motors (Nasdaq: HYZN) from Tuesday. In it, I talked about the factors (or non-factors, in this case) that have pushed HYZN down this week.
If you haven’t seen that rundown, you can find it here. Make like Heinz and ketchup!
This is one of those times where the simplest answer is the most likely … but the least satisfying to us as investors. Hyzon was down because … the market is down. Hyzon sank with other electric vehicle SPACs.
We’d like to think that Hyzon’s immune to the broader market while it toils away in decarbonizing obscurity, but that’s not the case. In business lingo, it’s “executing to plan.” That is, delivering vehicles to contracted customers and signing up more contracts.
The fact that much of this business is happening in Australia, New Zealand and Europe probably isn’t helping to enthuse U.S. investors either.
But, as I explained on Tuesday, Hyzon expects its revenues to shoot up from $37 million this year … all the way to $3.3 billion in 2025. All of this year’s revenue is already under contract or a memorandum of understanding, while 50% of 2022’s revenue guidance and 30% of 2025’s guidance are also already accounted for.
COVID-19 is wreaking havoc on Wall Street again, creating massive headwinds for SPACs and riskier growth stocks like Hyzon. But HYZN is severely undervalued given its growth prospects and its current revenue under contract. The shares will rally, but the resurgent pandemic is making things difficult.
If you’re uncomfortable with HYZN, by all means, do what’s best for you and find an opportunity to get out. I’ll still be holding HYZN in the Great Stuff Picks portfolio because all of our reasoning for buying in the first place still stands.
I’ll Ask Again … What Are You Implying?
I’m sorry to say, you (and many others) have been duped by the NPR opinion article. If you attempt to follow it through and find the data or study to support the article’s claim, you will have accomplished something that many other people have not been able to do. It is widely a piece of fiction.
Now, realizing that even if this is true, the airplay that article is getting alone can make scared people even more frightened. And frightened people do strange things — even move markets.
Have a wonderful day — Jeff B.
Seriously, NPR your “unbiased” source for COVID information? I am sooo disappointed. Besides, I thought that’s what the left wanted anyway; all of those crazy ‘anti-vaxxers’ dead. Hey, they’re getting their wish!
That’s all I’ve got for now, but I may follow up with some more hater, racist, bigot stuff later in the week. Again, welcome back (you filthy animal)! ;-) — Curtis D.
So, I was on the fence about even including this for today, but since there’s more than a few of you still hammering on the same broken nail … here we are. First things first, the sources.
NPR is not the original data source — that would be the Centers for Disease Control and Prevention (CDC). NPR reported on said data source. It wasn’t an opinion article.
I grabbed the NPR article because it was easy to read and presented the CDC data in a well-balanced way. I thought nonpartial info would be useful for y’all, but no dice.
Here’s a full review of that same CDC information if you want more vetting and sources. Look at that, Jeff. I accomplished something that many other people have not been able to do. But then, I am Mr. Great Stuff…
But, of course, if this review, too, is biased because it doesn’t have the cherrypicked data you want to read … well, that’s not my problem. Go check Facebook or Twitter for memes instead? IDK…
Other than that: We’re really still having the COVID-spiracy vaccination conversation? Seriously? What else could I say here? Maybe Sean Hannity is more your speed: “It absolutely makes sense for many Americans to get vaccinated” against COVID-19.
I can already hear the “I don’t believe Faux News either!” chants starting up.
Listen … we’re all investors here, so let’s look at it from that angle. When did inflation, U.S. economic woes, high unemployment and supply chain disruptions start?
When COVID-19 hit, right? So, what is the driving factor behind Wall Street’s inflation and economic worries? COVID-19.
All that other stuff melts away once the virus is under control. We’ve seen it happen in the U.S. already … before the pandemic resurgence. If you don’t want a repeat of 2020, listen to Sean Hannity … or me. Take this pandemic seriously if you value your investments.
Believe it or not, I do care about all y’all Great Ones out there. And by this point, I realize that nothing is going to change your mind about vaccines or the COVID-19 “hoax” if that’s what you believe.
But don’t be shocked when the market goes sideways because COVID-19 shuts everything down again. And that’s all I’ve got to say about that.
Thanks for writing in … ya filthy animal.
OK! We got through that no problem … y’all still out there? If you yourself want to chime in on the conversation, please do!
Share your thoughts (market-related or otherwise) with the rest of the Great Ones out there: GreatStuffToday@BanyanHill.com. I read each and every email personally, so don’t think you’re just sending words off into the void. Keep on writing in, Great Ones!
In the meantime, here’s where you can find our other junk — erm, I mean where check out some more Greatness:
- Get Stuff: Subscribe to Great Stuff right here!
- Our Socials: Facebook, Twitter and Instagram.
- Where We Live: GreatStuffToday.com.
- Our Inbox: GreatStuffToday@BanyanHill.com.
Until next time, stay Great!
Editor, Great Stuff