Following on my column yesterday for RM, I re-scanned barchart.com's list of the U.S.-listed options contracts with the highest implied volatility (IVs) this morning. The more things change the more they stay the same. Contracts on Chinese BEV-maker NIO (NIO) occupied seven of the top 15 slots on barchart's list this morning. As I mentioned in yesterday's column, NIO management's decision to cancel a scheduled conference call following a disastrous second quarter earnings release has put the options market vigilantes on high alert. In fact, six of the seven NIO contracts on barchart's list are puts.
What is also not helping NIO, as well as Alibaba (BABA) , iQIYI (IQ) , Huya (HUYA) , Baidu (BIDU) , Luckin Coffee (LK) , and other names, is this morning's report in Bloomberg News that indicated that Trump Administration officials are seeking ways to limit capital flows from U.S. investors into China. While the Bloomberg piece was unsourced and short of details - another example of the shoddy reporting that is so common in the mainstream media - it did move the markets.
So, that's an example of the flexibility needed to trade options. If one is writing contracts, one always needs to have dry powder for new positions and to support the aggressive margin requirements needed for naked positions. If trade becomes a negative, then it will become "look out below" for U.S.-listed Chinese stocks. Alibaba lost $26 billion in market capitalization in the five minute period encompassing the posting of the Bloomberg report, and if that's not volatility, I don't know what is.
So, macro rules the micro, but Micron's (MU) terrible stock price performance - down about 10% in early afternoon trading Friday - shows that micro plays into specific events, especially earnings reports, still can be very lucrative.
So, who's next? I teased Roku (ROKU) , Beyond Meat (BYND) and Tesla (TSLA) in yesterday's column, and I am still seeing those names on barchart's high-IV list. Elon Musk, as he often does, stole the market's thunder Thursday with the release of a sure-to-be-leaked email detailing Tesla's chances at reaching 100,000 deliveries this quarter. That takes some of the heat off Tesla's quarterly deliveries report, which, if history holds, would be released next Tuesday or Wednesday, but puts the pressure squarely on Tesla's earnings report. Tesla's investor relations department has not yet set a date for 3Q2019 earnings, but last year the release occurred on October 24th. Thus, the wise play on Tesla is to stay neutral into the sales release - and I am - and prepare for naked call writing of weekly contracts during the week of Tesla's earnings report.
Beyond Meat shares are down today despite news yesterday of a McDonald's (MCD) trial of a plant-based burger from BYND. This stock is just not reacting strongly to good news. In the absence of cash flows, earnings or even a supply contract for its main feedstock, peas, BYND can only move on news. Sentiment has changed, and thus the wise play is to "work" the name by writing weekly call options contracts. Roku is in a very similar position now in terms of market sentiment, which has turned decidedly negative on the streaming device-maker. In both cases I will take advantage of the inflated premia in the options markets to make money on the downside.
That's the great thing about writing (selling) options contracts. Time is on your side. As the time value of the individual contracts decays, your chances at a winning trade increase. Heading into the always-scary October (due to past market crashes, not Halloween costumes) that is exactly the stance I have taken for my firm, Excelsior Capital Partners.