To The Moon

On Tuesday, I shared two charts to set expectations around the broad market volatility. Reposting them with emphasis: Interestingly, the August 5th crash in 2019 also occurred on August 5th. Observe the swing amplitudes from these charts, not the specific price levels, as history won't repeat exactly. For the next 1-2 months, be prepared for similarly wide trading ranges before conditions stabilize. Is This the Bottom? If referencing those prior charts, Nvidia at $90 could represent a bottom. But is that really the case? For those familiar with my option flow analysis, stable outlooks tend to show concentrated strike clustering and heavy weighting towards imminent weekly expirations. Institutions rarely initiate sizeable positions in deeply out-of-the-money strikes. So when we see scattered strike openings across disjointed expiration dates, doesn't that necessitate considering downside scenarios being priced in? From my July 19th note: (Chart showing NVDA put strikes ranging from 70 to 100) I can't say for certain, as my observation span is limited. But experiencing this realized risk forces me to carefully consider the 70 strike put openings. Compared to the 100 strike put clusters, the 70 strikes lack uniformity - implying a divergence among institutions on how low Nvidia could actually go. August 7th put opening data: 8月7日put开仓数据 When consensus breaks down, it comes down to catalysts and potential negative events. Some key ones: August 14th - July CPI September 6th - August nonfarm payrolls September 11th - August CPI September 20th - FOMC decision, plus Bank of Japan rate decision same day And most importantly - August 28th after-hours, Nvidia's earnings report Any disastrous print on those events, or Fed disappointment, could easily trigger a decline to $70 for Nvidia. Which brings us back to the same question - if Nvidia goes to $70, how much further does the overall market and related stocks correct? Take this 12,100 contract $AMZN 20240823 120.0 PUT$ sale on Wednesday as another example. Just like my rhetoric about avoiding naked NVDA 70 Puts - the trade sizing/strike seems disconnected from the current fragile sentiment. While some traders may routinely take on that type of risk, it's an entirely different mentality than opportunistic put sales amidst a heightened risk backdrop. Some may feel inclined to just capitulate and deleverage here. Don't panic - this remains a probabilistic scenario, one that institutions themselves seem divided on based on the mixedPositioning. Exiting recklessly now is effectively just letting them harvest your premium. For these types of probabilistic risk events, the only appropriate conclusion is: The need to buy some put protection. The Collar Strategy 2.0 My prior attempts at a collar strategy had flaws in put strike/expiry selection, stemming from an erroneous principle of trying to not "lose" the put premium outlay. But that mindset misses the point - puts should be held through the entirety of volatile cycles to truly provide protection. For Nvidia, I'm buying the $NVDA 20241018 90.0 PUT$ s to define risk. For Tesla, the $TSLA 20241018 180.0 PUT$ for a similar collar. The recent bounce provides a more favorable entry on those protective puts. In hindsight, I wish I had executed this trade a month ago for even cheaper premiums. Lastly on index products, SPY and QQQ sentiment remains firmly bearish with put spread selling continuing to dominate flows. SPY downside targets have dropped towards the 500 region.