🗞 Your New Insurance Premium

WHILE YOU POUR THE JOE… ☕️
Collector’s Item

I think God is trying to tell me something here…

Never used TikTok, but I still have it installed, and was seriously considering buying a new iPhone 16 Pro Max for camera purposes, but haven’t pulled the trigger until I sort out tax season.

However

With this mania going on, iPhones selling for thousands of dollars just because they have the TikTok app installed, I think (as a trader) it might be time to roll out the Facebook Marketplace posts. 💰️ 

Speaking of traders and manias, let’s get on with today’s email 📧…

IS YOUR DOWNSIDE COVERED?
15 Minutes Could Save You 15% or More

What you see here is the put/call ratio for the S&P 500, and it may not seem like much, but it traded higher to the 0.60 upper range to end the trading day on Friday.

That by itself may not be much of an indicator, but by combining that view with the ATR sheet exercises we did in our last post, you’d know that pretty much all asset classes are set up for some volatility pops in the coming days. 👀 

And in case you forgot, volatility = risk.

So buying puts against the index means these traders are explicitly covering their downside risk in case this volatility is realized this week.

This is another gauge for perceived market risk, the equity risk premiums spreads. Calculated as the price of corporate bond ETFs minus the price of 10yr bond yields.

This spread (in white) declines when risk premiums are on the rise, meaning that markets see added risk in equities coming up, and it is obviously diverging from the S&P 500 in orange. 📈 

Okay we are three for three so far in the measures that we cover in a potential run up to volatility in the indexes, but there’s more.

For those funds that can’t carry negative delta or those long-only places people entrust with their 401(k) money, they also seemed to be seeking some insurance in other ways.

Unusual call option volumes were reported last week for the $XLP, which covers the defensive names and staples in the market, you know the ones that tend to not move down during a market selloff or volatility regimes. 📉 

If that’s not a sign of downside coverage, then I don’t know what is.

Outside this index, I also noticed a few surges in call options for a couple stocks, which also fit this defensive downside protection theme: 👀 

• American Express 

• Johnson & Johnson 

• 3M

As a Twitter user rightly pointed out, two major events this weekend could trigger this volatile environment for the coming days.

First, it is the dollar-to-bonds $TLT spread that we’ve been talking about. Notice how it’s already started to converge after our post on it?

Well, the catalyst happened to be the Bank of Japan’s rate hike, triggering a further unwind in the Yen carry trade, which is far from over and whose implications might cause a much larger rotation out of dollars and into bonds. 💴 

Of course, this also would trigger an October 2023 scenario where equities sold off, which would absolutely make sense given the sudden insurance demand.

The ceasefire treaty between Israel and Lebanon is expiring, which might revoke the low VIX environment that we’ve experienced in recent weeks.

We hope that this event does not cause further conflicts or loss of life, but if the darker side of humanity prevails, then this post will carry its weight in gold. 🪙 

TRADE OF THE WEEK
Top Optimism

Here’s an unorthodox way to figure out whether a stock is going to rally on upcoming earnings or not.

Go to the app store in your phone, then see whether that company has made it to the top charts. 🔎 

For finance apps, Coinbase has made it to the top ten in the store, number 7 to be specific.

This is above Robinhood and most other brokerages out there, and we think that given the bull price action in Bitcoin and people still thinking it can rally, chances are there will be a massive earnings beat here.

However, this might also mean that Bitcoin is at top optimism and might come down soon, especially as it is tied to our whole recession scenario where gold also loses its premium and most risk-on assets selloff, but that’s for another post.

For now, look at this chart:

This is Coinbase's market/volume profile for all of 2024 and so far into 2025. We want you to focus on the $250-$260 range 👀, which has provided strong support and a significant volume cutoff level to attract new responsive buyers.

With this in mind, we want to take advantage of any dips that bring us closer to that range, especially if they come before earnings are here.

This way, we have the best risk/reward setup to express this bullish view on a potential earnings beat given the volume of downloads lately.

Because this not only means downloads, it also means deposits and interest income for Coinbase.

Now given that Bitcoin is trading at near it’s all-time high, while Coinbase stock has fallen to 85% of its 52-week high, there’s a signal we can take. 👍️ 

Notice the correlation between the two? It’s headed to that 60% sweet spot we can then time a correction under.

In this case, it would be ideal to see Coinbase stock fall to the $250-$260 range again while Bitcoin is not too affected. This way, the correlation cutoff can kick in and give us the perfect entry.

Based on the volume profile, we’re also thinking of somewhere between $315 and $330 for exits. 🎯 

Once again, we’re not shooting far from where Wall Street analysts target the stock. 🫰 

NOW GO AND MAKE IT HAPPEN
Never Fails

I cannot, for the life of me, get myself to invest heavily into crypto, other than a DCA (dollar-cost average) into Bitcoin every once in a while. The reason is that it goest against everything I’ve ever learned about investing.

But

I have to admit, I see tremendous potential in the technology behind crypto, which is blockchain. If you’re anything like me, today’s book recommendation 📖 will help you appreciate that little-known world.

To your success,

G. 🥃