00:00 Spokesman a
With the remaining uncertainty, the word about street instability has entered a new phase. So, how do the options traders have to deal with the rules for shifting the game with instability? Baycrest Managing Director David Bull is joining us now for the Playbook Options, sponsored by Tastytrade. David, it’s great to see you. So you say here, David, the VIX 30 is the new 20. What do you mean by that, David? Translate us through it.
00:35 David Bull
Well, investors have become very comfortable in the last year, indeed after Covid, this VIX look in this range in the middle of teenagers. And then, if there is some panic, some reason to exclude the risk, it is thrown over 20, sometimes it reaches 30, sometimes even higher, but then the sale is as heavy often times as the jump higher. We saw that in August 2024 this was different. I would compare it more, so with the shock of Covid in terms of volatility, where you get the big movement in 30, in FIF in the 40s and then we just have a new base line. It is very similar to the fact that there is a lot of risk for a title on the market, where we trade obviously Trump and Uh’s tweets that it exposes. Like Covid, where it’s just any UH News article, it can move the market. This is almost more important than actual economic data and revenue. We saw Netflix just to move only 5% after its profit report. This is a little less than what the revenue was expecting for this move today. So, but you know, Trump’s tweet over the weekend can move the markets much more. So when I look back what VIX did during Covid, he remained over 30 uh and really didn’t go back below 20 to the whole year from the original jump. I think investors will just get used to this VIX about 30 range, which implies about 2% move every day. Hmm and this is something we saw in April and I think this is here to stay. This is not repeated, this is a new mode we are in.
03:06 Spokesman a
And since we sit in an environment of higher instability, perhaps, structurally, at least for a little while, where are the opportunities you see on the market to take advantage of you?
03:33 David Bull
So for my clients I tell me that VIX is a bit in anyone’s land right here. It’s 30, so you know that if many had a time machine, they would like to go back and buy a lot of Premium option when VIX was 15, but now these options are a little more expensive. Um II see customers, some of them are a little frozen where they say: Wow, hedges are a little too expensive to buy here with VIX over 30. II disagrees. I think there are opportunities on both sides. If you become a little smarter than how you structure the transactions, I think you want to play a range on both sides and you can use part of this expensive variability in our favor when structuring positions while keeping it limited to the premium spent. This is very important. I do not suggest selling the VIX 40 Strike Call and risk blowing the risk there, but I see that people are looking to fade the instability back in the lower 20, mid -20s, the lower 20 years with the VIX. I think they are interesting and I also think there are deals tied to range that still put hedges here where you can get a payment, you know, five, six, seven times more than your money in a very realistic range.
05:37 Spokesman a
David, speaking forward, Tesla deck gains next week. Is there a trade there, David to translate?
05:52 David Bull
Tesla is really interesting. Speaking of trading in the range, she was not in her own range of Tesla, which is about $ 50, or maybe $ 60 on both sides of 240, where it closes where it is closed today. Hmm, the mood is quite terrible in Tesla, especially where I am here, in California, and I feel like a lot of bad news can be priced in stock and this is reduced from 500 to 240. Do you know that I saw an interesting conversation expense, you know, the potential movement back to the high end of this week. So the trade I would put on the UM for the benefit if the action becomes higher is April 25, next Friday, 265, 285 Call distribution. Hmm, you risk about $ 2.75. It is not a lot of premium so you can take advantage of about seven times more than paying your money if the action returns higher. This is an exposure of 10 to 20% range. Hmm, as the action was a lower, five of the last print profits when it rises, it really increases. So there was an increase of 20%, an increased 12% stroke, etc. So if you think the profits next week are few of the coins, I like to accept this coin flip and get paid five, six, seven times for money if this payment is hit.
08:24 Spokesman a
David, it’s great to see you and participate in the show today. Thank you.
08:30 David Bull
Thank you.