Strategy adjustment from conditions at market open

Yesterday I mentioned jumping in on the gamma squeeze play on PLTR, but I ended up passing on that. Last night, the NASDAQ futures went down significantly. PLTR is an IT company that is part of the big ARKK ETF, so I expected it to be under pressure. Sure enough, morning came along and it went down pretty fast.

One thing to watch out for with the gamma squeeze plays is that it works both ways. If PLTR managed to stay above $30/share, where an enormous number of call options were sitting, it would create significant upside pressure because the options dealers have to buy shares to protect their effective short positions against a move higher. Conversely, a drop below this $30/share threshold means that the options dealers have to sell shares to protect themselves from losing money on a falling security. If you ever chase these, keep that in mind because risk control is essential to making it a winning strategy.

Gold and Silver went up, but I still decided to sell off NEM and FNV, replacing them with PVG, more AG, and more CCJ. As planned, I immediately sold at-the-money covered calls on all of them. Those three companies offer much better premiums for these calls. This as a win-win because I get more money for sitting on the shares, and the premiums reflect that these are more highly favored companies in riding the commodity inflation narrative higher.

Note that PVG, AG, and CCJ are more risky individually in that they will certainly drop further in a deflationary event, but my portfolio is over-hedged in that direction so I needed something more aggressively bullish. The big gold miners are great value plays that will do well over time, but I see a market that shooting higher until it drops and I’m aiming to get outsized returns on either side. Or more accurately, I’m positioned to get significant returns on a downside outcome and I need something that will offset my losses if the market continues wildly higher. My big bet on TLT could easily blow up in my face and I don’t want to go broke if that happens, but if you want a chance at winning you have to gamble a bit. Prudence will help you stay rich, but only risk can get you there – and I’ve never seen a market that is so risk-on!

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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