GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
Release Date: 01/31/2021
VIX Index Goes Nowhere | Cheap Puts to Hedge? |Cheaper to Rent Than Buy? | Markets During Presidential Election Years
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Derek Moore and Jay Pestrichelli join up to discuss an unchanged VIX and VVIX index. Was our trading platform screen broken? Whether the VIX and VVIX Index is a coiled spring as they are both in compression mode of late. Then, they explore new data that shows the cost to buy a home vs rent is really high meaning its very costly to buy vs rent right now. Did the Fed cause this? Jay and Derek also explore how cheap 1 year out puts are on the S&P 500 Index right now. Does no one want protection? Finally, they dip their toes into the all to soon 2024 presidential election looking at data...
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Dave Ramsey Wrong? | Huge VIX Options Bets | S&P 500 Seasonality | When Does Government Debt Become a Problem?
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Derek Moore is back with Jay Pestrichelli this week where they analyze the recent viral video where Dave Ramsey suggests people can safely withdraw 8% forever in retirement. What doesn’t make sense, what is left out, and why the assumptions may be faulty. Then, they discuss the market seasonality and whether this November pop higher already delivered a year end rally? Later Jay and Derek discuss the huge purchase of VIX calls this week and what it did to the VVIX Index as well as an interesting VIX option trade for December. Finally, they touch on Argentina’s plan to dollarize the economy...
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Probability of Recession? | Explaining How US Treasury Bond Auctions Work | S&P 500 Index Member Changes | Option Premium Intrinsic vs. Extrinsic
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Derek Moore is back with Jay Pestrichelli, CEO of ZEGA Financial, to review the Goldman Sachs probability of recession and Fed rate forecast for 2024. Then they do a deeper dive on key aspects of US Treasury Bond auctions. Hint, it’s a Dutch auction and how to read the results of treasury auctions including the bid to cover ratio. Later they talk through changes in the makeup of the S&P 500 Index companies and what the impact on earnings may be. Plus, how even when stocks go in and out of the index how the “divisor” calculation smooths the S&P 500 price out. Finally, Jay and...
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Stock Market Returns After First Rate Cut | Yield Curve Preceding Recessions | Investors Rooting for the Wrong Thing
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Derek Moore does a deep dive asking the question why is everyone rooting for the Fed to lower rates? If the Fed must lower interest rates, doesn’t that mean there is trouble? Should investors instead be rooting for stable but higher rates where the long end un-inverts as a proxy for higher growth? What happens to market performance between the last Fed hike and first rate cut? What is the historical performance of markets post the first Fed rate cut? Then looking at past yield curve (10-year treasury minus 3-month treasury yield) before recessions. How the Fed normally inverts and then...
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Option Selling ETFs Boom | Probability of Future Fed Moves | Bad News is Good News on Employment
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Derek Moore and ZEGA Financial CEO Jay Pestrichelli ponder whether the Fed is truly done and if the street is too optimistic on rate cuts in 2024. Plus, they discuss new data showing option selling ETFs are having record assets between inflows and new entrants. Bad news is good news still as employment ticks up. They delve deeper into the numbers including labor participation rate, size of workforce, and more in the household survey data. Finally, they talk about options volatility and how it got sucked out of the market this week. Option selling ETFs set new record high for assets Is...
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Correction Territory | No Fear Yet in Markets? | When Does Capitulation Happen in Markets?
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Derek Moore and ZEGA Financial CEO Jay Pestrichelli to discuss how despite the correction territory (markets down 10% from top), the VIX index hasn’t shown any real fear. So, what will it take to see capitulation in the markets? Thus far high yield spreads haven’t reflected too much worry. Then Derek is tired of pundits talking about equal weighted market vs the “Magnificent 7” comparison as this is why you buy the index! Later, they discuss the new Fed survey showing how much net worth one needs to get into the top 10% plus median net worth by age range. All this and more plus some...
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Powell vs. Bond Traders | Option Volatility During Earnings | Mortgage Rate Spread to Treasuries
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Derek Moore is back with ZEGA Financial CEO Jay Pestrichelli to discuss whether Jay Powell or bond traders are in charge of interest rate policy? How option volatility changes around earnings announcements. Why the spread between the 30-year Mortgage Rate and 10-year treasuries is historically wide including MBS (Mortgage-Backed Securities) impact. Plus, how MBS are doing something kind of weird right now. Later they discuss financial conditions, how high yield loans and bonds have greatly outperformed “safer” fixed income areas, and the breadth of the market vs the “magnificent 7”...
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Deep Dive: Can Bonds Recover? | TLT ETF Breakdown |Inflation and the Fed
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Derek Moore explains what it would take interest rate wise for bonds and TLT to get back to breakeven on price. A lot of misunderstanding is out there on buying bonds at the bottom and what that means. How bonds have different drivers than stocks. Plus, inflation is ticking back up and what that means for the Fed. Finally, a deep dive into TLT components and the math behind what those buying TLT are hoping for. What would make bonds go back up? Examining TLT iShares 20+ etf components Effective Duration to show how interest rates affect bond etfs and bonds. Math behind movement in...
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Bond Market Collapse | Oil Price Problems? | Bond Stock Correlations
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Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, observe the destruction in long term treasury bonds due to the reflation of the yield curve. How does the market do with higher rates? What does a flattening yield curve mean for the economy? Bond and Stock correlations mean bonds not protecting portfolios? The Hussman 12-year forward return gauge. Strategic petroleum reserve (SPR) now only has 17 days of supply left. And by the way, there is still a lot of good news like improving mortality rates around the world. That and more including some recommendations. How much long-term...
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Government Shutdowns & Markets | Short ITM Puts Alternative to Covered Calls | Why Hedging Works
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Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, look at how markets have done during past Government Shutdowns. The S&P 500 Index during, and 3 and 6 months later. Then they get in dept on why selling in-the-money puts is the same as selling covered calls on stock. What are cash covered puts? How US Treasuries yielding 5% plus may tip the scales. The risks and payoffs of one versus the other. How cash settled European style options differ from American style options at expiration (and before). Finally, they touch on why hedging works to take pressure off investors while...
info_outlineThe Wall Street Bets community executed a short squeeze through Reddit on stocks like GameStop and AMC Theatres this week. But what is a short squeeze? How did they and others buying stocks and options cause the stock to go up at least in the short term? Is short selling bad? Why potentially some brokers had to halt trading in certain names? A look back to the late nineties when internet chat rooms were pushing stocks. Examples of the little investor turning thousands into millions, and vice versa. How short sellers can root out fraud in companies with examples. Jay Pestrichelli and Derek Moore get into this and more in this very timely and fascinating episode.
What is a short squeeze?
What is the GameStop short squeeze?
How did Reddit group Wall Street Bets execute a short squeeze?
How some people have made a lot of money
How other people may lose a lot of money?
What is short interest ratio?
What is short interest as percent of float?
What is a delta or gamma squeeze in options on stocks?
Large in the money option open interest in GameStop at expiration
How short selling adds liquidity.
What are short days to cover metric?
Short sellers uncovering fraud in Amazon Prime documentary the China Hustle.
Short sellers with Enron, Nikola, Wirecard
Trading halts and liquidity requirements on brokerages
Congressional hearings coming on Robin Hood and Wall Street Bets GameStop activity
Examples of pump and dump in 2000 by Michael Lewis in New York Times
Short selling was found useful even in 1918.
How short selling in itself does not bankrupt companies.
How short selling that drives price lower can impact ability for secondary equity offering.
Mentioned in this Episode:
Explaining Delta and Gamma Options Squeeze Robinhood vs Softbank Whale https://brokenpiechart.libsyn.com/robinhood-option-traders-vs-the-softbank-whale
Derek Moore’s Book Broken Pie Chart https://amzn.to/2YoxRaF
Documentary “The China Hustle” on Amazon Prime Video https://amzn.to/39uBJgm
Michael Lewis article on 16-year-old penny stock trader 2001 https://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html
ZEGA Financial www.zegafinancial.com
Jay Pestrichelli’s Buy and Hedge Book on Amazon https://amzn.to/2YoJDSg