🗞 De-escalation Vibes

WHILE YOU POUR THE JOE… ☕️
Heat Level 5

How do you feel safe in a state where only thugs and hitmen have guns? You don’t.

Whether you’re pro or against gun ownership, you have to admit anyone walking by the scene of the crime could have shot this guy down on their own.

More than that, I don’t even think this guy would have done what he did if he knew pretty much everyone (like in TX and FL) could have a gun hidden in plain sight.

You always have to be aware of your surroundings, in markets, and in life. 🫰 

Speaking of being aware, let’s get on with today’s email 📧…

WIND OF CHANGE
Cashing Out

I was kind of shocked to see this post last night. I mean, $450 million flowing out of Bitcoin, roughly 25% of its market cap, just vanished in a single day. 📉 

That can’t be good news for the risk-on assets, right?

It’s also not good for any other asset class, let me tell you that. If you’ve been following us for a while, then you know that the way some asset classes have been behaving lately points to a potential recession scenario.

And as the commitment of traders report also shows diverging inventory selection between small caps and the S&P 500, we are confident that this Bitcoin pullback is only the tip of the iceberg.

Let’s get on with something a bit more actionable, shall we? 👀 

You can go back to a post titled “Rhyming History,” where we pitched you a trade involving going short gold and long silver.

Well, we’re just about ready to make a new run in that trade and collect over 200% in returns from our options setups. 🔥 

Anyway, I got to thinking the other day about what could be an event that would get us paid in this play, and I decided it was our duty to share it with our subscribers, so here it goes.

Remember when Donald Trump said he would end the Russia/Ukraine war in 24 hours? Well, he wasn’t kidding.

Even after Joe Biden gave Ukraine the green light to use long-range missiles against Russia, Zelenskyy barely did a thing as he knew messing with Trump wouldn’t be a walk in the park for the next 4 years.

Putin knows this as well, so Russia isn’t up to much on that front.

I guess you can say things are de-escalating quickly in geopolitics. By the way, have you heard anything new out of Gaza? Yeah, me neither. It looks like peace is slowly returning to the world. 🌎️ 

Because of that, the price action in gold is starting to move down in our favor, but there are many other reasons behind it as well.

You should be pretty familiar with this one from our nightly market recaps. $TLT has rallied for almost a month, and we have repeatedly said that bond yields are going down for the wrong reasons.

If they were, for the right reasons, A.K.A. a recovering economy or “soft landing,” then you would see better crude oil prices, not struggling to stay above $70 for so long. 🛢️ 

More than that, the $IWM small caps index, representing the Russell 2000, is down to our key level, $2400, without any new buyers in sight. 🎯 

But if there’s one chart I really want you to take home is this one.

In white, you have the difference between ten-year and corporate bond prices; as you can see, it is nearly the mirror image of the S&P 500 in orange.

This spread is what you call equity risk premiums, or how much risk is inherent in owning stocks right now. And, considering the falling spread against a rallying S&P, I would say we’re overdue for a pullback any day now.

Take that to think on over the weekend. 🗒️ 

TRADE OF THE WEEK
Do You Like Memes?

Remember when this guy first started tweeting about GameStop and AMC?

Yeah, he just could never let that one go could he. Anyway, he’s back at it, posting a picture that implies it is “Time” for the stock to rally again?

Who knows, at first I thought it was about Rumble stock, but seeing the whole red and black setup on the computer I think it is more aimed towards GameStop.

This isn’t your typical stock pitch, and I’m sorry if you were expecting one today. I promise we’ll have a good one on Monday. 👀 

Nonetheless, I think it’s worth exploring this one before just deeming it a YOLO play.

This is GameStop's market profile over the past year. Notice that the red bar signifies that most of the momentum during this period took place around the $25 level, right?

Well, considering not a lot of time was spent around there, someone has been accumulating shares quietly, and is now ready to make the stock pop.

This expectation has been made very clear in the options market. Here’s the current open interest distribution to give you an idea of what’s going on behind the scenes.

60,248 contracts are outstanding for January 2025 at a $125 strike. Yep, there’s a crazy bet out there that GameStop could reach $125 within the next month or so. 🔥 

If that isn’t RoaringKitty, I don’t know what it is.

But let’s just do an exercise here, shall we?

These options are trading at an implied volatility of 237.1%, which is high. However it’s not high enough to get the stock to $125 from today’s price of $28.6.

What we need is volatility of 340% to see it reach that level within a month, which sounds insane but is nothing this stock hasn’t done before.

Now, when we value these options at the 340% volatility, they would be worth closer to $3.20 per contract compared to today’s fair value of $0.72. 🧮 

That’s a nice 4.4x on your money, so you better know we’re taking a small position in this for the fun of it. 🫰 

NOW GO AND MAKE IT HAPPEN
Sign of the Times

So look, today’s market seems a little too excited about Bitcoin and AI and all these sorts of things. It happens every cycle.

But

The music is about to stop, as you can see in the price action we described above and in the bearish commitment of traders report for the S&P 500.

For whatever volatility may come your way, today’s book recommendation 📖 will help you identify when to step on the gas and when to ease off during the turmoil; it’s a recommendation everyone on Wall Street has read at least 3 times.

To your success,

G. 🥃