Understatement of the year.... "Yes, these are certainly interesting times".... We have a minor sell-off unfolding, the SPY is down 1.8%, states John Person of PersonsPlanet.com.
I am writing to explain what has happened with the major index’s values. The several large-cap stocks Apple (AAPL), Facebook (FB), Microsoft (MSFT), Amazon (AMZN), and most Financials led the S&P 500 lower and are in PPS sell modes. However, earlier last week I had stronger sell signals in the Russell 2K (IWM) therefore we went with a 210/200 bear put spread in IWM. As of this moment this index has finally broken down and is seeing follow through to the downside. We are down 1.46% trading at $205.61.
Perhaps there was a delayed reaction due to support from retail traders buying small-cap stocks. Most of the Reddit chat room community Wallstreetbets trades are in stocks within the SSgA SPDR Retail ETF (XRT) weighted sector. I also see big volume and open interest in the March 19th expiration put options in the ETF. This may be a better trade to go with a correlated ETF rather than trying to play high stakes gambling with GME. After all, we have seen restrictions on other trading firms this week of some sort from most firms such as tastyworks, Interactive Brokers, TOS, Schwab, and most notably, Robinhood.
What's even scarier is many traders have encountered a freeze from internet outages or server outages from trading companies’ platforms. Murphy's law will hit when you least expect. I sense when the carnage begins it may be impossible to get out. For that reason, it may be a smarter play to trade XRT.
As for our positions: I will hold onto the IWM 210/200 put spread until Monday to see how we end up. One of the stocks I recommended, Hollysys (HOLI) was in the news with a cash offer at $17 per share and I believe it was rejected by the board. Therefore, I wanted to exit the trade because when any stock opens lower than a cash offer price, it is best to exit. I am not sure the email alert reached you in time to react, if you didn't exit the trade then keep the original stop loss in place.
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On a separate note.... With so much publicity on the short squeeze in GameStop (GME) and others like AMC Theaters (AMC) and the fallout on the trading firm Robinhood, the real catalyst that created this movement was the Wallstreetbets online community. What's not discussed in the media is how the "system" works, with capital requirements from broker firms, clearing corps., and how the regulators can raise capital requirements on a company. This in effect reduces margin availability or buying power.
This is all a smokescreen, and no one is talking about the real problem, which is how were hedge funds allowed to sell 140% of the outstanding float (shares)? More importantly, who’s behind the fund that’s short GME and others? Better yet what is the history of who’s running the fund shorting the company stock? That's the real story that needs to be told, not the new narrative like "How's this going to affect hedge funds," or "should Robinhood be held accountable."
Let’s connect the dots. Steve Cohen is founder of SAG Capital, a firm that made billions, which was fined and effectively shut down for insider trading to the point that two of his top traders went to jail in 2013. He escapes jail by paying fines and pulling the "I didn't know what was going" on card. But wait there's more, his new firm Point72 (why was he allowed to get back in the business?) was cited for insider trading in 2016. He then has invested close to a billion dollars in a fund by a former employee, Gabriel Plotkin. Now let’s introduce Ken Griffin, founder of Citadel, the company that clears Robinhood, he also invested $2 billion in Melvin Capital, this is one of the primary funds that is short GME! And guess what? The fund is run by Gabriel Plotkin who was one of the top portfolio managers at Point72’s predecessor firm, SAC Capital Advisors.
It seems the old boss of the guy running the fund and the founder of the clearing firm to Robinhood have big money to lose if this fund blows up. Unless regulators stop it and save them or if politicians get involved.
To learn more about John Person, please visit PersonsPlanet.com.