00:00 Speaker A
With uncertainty that remains, the word about the volatility of the street went into a new phase. So how should option traders tackle the shifting rules of the volatility game? Baycrest Managing Director David Bool now joins us for the playbook of options sponsored by TastyTrade. David, it's great to see you. So you say here, David, Vix 30 is the new 20. What do you mean what that means, David? Walk through it.
00:35 David Bool
Well, investors have become very comfortable in the past year, really since Covid, that Vix stays in this range in this range in this range. And if there is a kind of panic, a kind of reason to risk, it is above 20, sometimes gets 30, sometimes even higher, but then the sale is often as serious as the peak higher. We saw that in August 2024. This is different. I would compare this more with the Covid shock from a volatility perspective where you get the big movement through 30, up to five in the 40s and then we just have a new basin line. It is also very similar because there is a lot of headline risk in the market where we deal with clear Trump -Tweets and UH messages that he releases. Similar to Covid, where it can simply move every UH news item the market. That is almost more important than the actual economic data and income. We saw that Netflix just only moved 5% after the winning report. That is slightly less than what the income expects for that step today. So but you know, a Trump tweet at the weekend, the markets could move much more. So when I look back on what Vix did during Covid, it remained above 30 uh and it really didn't come back below 20 to the entire year of the first peak. I think investors will just get used to this VIX around 30 reach, which means about a 2% movement every day. UM and that is a kind of what we saw in April and I think that's here to stay. It is not RE, it is a new regime in which we find ourselves.
3:06 AM Speaker A
So if we are in a higher volatility environment, perhaps structurally, at least for a while, where are the where you see on the market to take advantage of the UH through options?
3:33 AM David Bool
So I tell for customers that the VIX is a bit in no man's country. It is at 30, so you know, if many had a time machine, they would like to go back and buy a lot of option premium when Vix was 15, but now those options are a bit more expensive. UM II see customers, some of them are a bit frozen where they say, wow, hedges are a bit too expensive to buy here with VIX above 30. EH and many are petrified UH to sell wall to fade that lower. I don't agree. I think there are opportunities on both sides. If you get a little smarter with how you structure the transactions, I think you want to play a range on both sides and you can use part of that expensive volatility to our advantage when we structure positions while we keep it limited to the issued premium. That is very important. I do not suggest that you sell a VIX 40 -strike call and run the risk of blowing up the risk, but I see people who see the volatility reflected in the lower 20s, mid -20s, lower 20s with UH Put Flies on Vix. I think they are interesting and I also think there are access -related transactions to still set hedges where you can get paid, you know, five, six, seven times your money in a very realistic reach.
5:37 AM Speaker A
David spoke Vooruit, Tesla income on deck next week. Uh is a profession there, David, to walk on?
5:52 AM David Bool
Tesla is really interesting. Speaking of the trade in a range, it is not in its own Tesla range, that is around $ 50 uh or perhaps $ 60 on both sides of 240 where it closes where it is closed today. UM The sentiment is pretty terrible in Tesla, especially where I am here in California, and I have the feeling that a lot of bad news can be priced in stock and it has fallen from 500 to 240. You know, I know that an interesting calling spread a UH, you know, potential movement back to the high -range reach earlier this week. So the trade that I would do to take advantage of UM if the share goes higher is April 25, next Friday 265, 285 Call Spread. UM You risk around $ 2.75. It is not much premium to be able to benefit from about a seven times your money benefit if the shares go back higher. That is about you get exposure to 10, a higher reach of 20%. UM thus although the stock has been lower, five of the last income prints, when it goes up, really goes up. So there is a move of 20%, a relocation of 12%, etc. So if you think the profit is a bit of a coin flip next week, I would like to take that currency flip and I get five, six or seven times on money if that payment strikes.
08:24 Speaker A
David, great to see and you have in the show today. Thank you.
08:30 David Bool
Thank you.
