Score One for the “Trader Bros”

We witnessed some volatile action last week in the market’s most shorted stocks.

Trader Bros piled into these names and sent them soaring, upending my “lifestyle options” approach that targets moves in weeks or months with the right strike and expiration.

I don’t object to their actions. It’s no different than what hedge funds and Goldman Sachs have done for decades. But the shoe doesn’t feel good on the other foot.

Money isn’t made or lost in the market – it just moves. In this case, the establishment is upset the game has changed.

I’ve been chatting with my trader bros during the madness – an airline pilot for Southwest, an Ivy League educated accountant, and an actual Chicago Mercantile Exchange buddy.

The big winner was my “real” trader friend, who banked nearly six-figures overnight with my lifestyle option strategy on one of those high-flying short squeezes. Overall, piling up the wins has empowered the group. They’re no longer intimidated by Wall Street and opportunities on the market.

But nothing has changed for me. I’m still following the smart money to buy in the money options instead of stocks, so that a modest move makes 50% – 100%.

The bros are doing this often – except they’re instead using out of the money options and betting on the monster moves required to make money.

But I have to cut them some slack. After all, I met my wife on the exchange floor when I was just a young trading bro, so I have nostalgia about how it used to be.

Alan

Kudos to those clever enough to beat the banks and funds at what used to be their own game.

This increase in activity just means more opportunity for all.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Trading Tip of the Day: When a stock becomes a meme

Greg Guenthner

The GameStop story officially hit the evening news.

I attempted to spend some time away from my screens late last week, but my phone was blowing up with messages from friends and relatives asking about what the heck is going on in the market…

The mania is real – and it’s spreading. The short squeezes we witnessed last week are historic – and very difficult to trade! The volatility is nuts and you almost have to day trade these names if you can even get in at a reasonable price (whatever “reasonable” means these days).

While all this attention is on the “Wall Street Bets” stocks, the averages are looking wobbly. These crazy young gunslingers aren’t spreading the wealth — they’re just pumping the same four or five stocks every day.

Famed economist Milton Friedman famously noted that the stock market and the economy are two very different things.

This bit of wisdom rings especially true today as we watch these “consensus shorts” and crumbling companies’ shares shoot to the moon.

This disconnect can be incredibly frustrating for investors, who often find stocks “detached” from reality. Recent events have certainly amplified this feeling.

Just remember that the market can stay detached from reality for a long time – but not forever. Something will, eventually, have to give…

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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