Search

Trading ARKK's recovery

ARK disruptive ETFs were 2020 big winners, thus they reached more than 50B$ AUM in the beginning of 2021. In the last days, ARK funds experienced a major correction, as all of its holdings, which are reported on a daily basis, were crashing more than 5% a day. If you are holding TSLA, SQ, TDOC and other stocks in their portfolios, you probably felt the pain.


However, my belief is that the forces that took the prices up in 2020, will resume as the 1400$ stimulus checks will be paid to the American people during March.

So, how can we frame that trade and what is the R:R ?

We can buy Call130 for Apr 16th for 3.1$. Buying when the market crashes isn't something easy to do when you are using live stops because your timing has to be perfect. But by using options, we can limit the risk to only the premium paid, and we won't be stopped out if it will continue to go down, and then when it will recover again we will still be in the position.


Going back to the previous highs, where it traded only 2 weeks ago will result in 8R winner.

The reason for choosing Apr expiration is to make sure that the stimulus checks will already be paid by then.


In the meantime, let's take a look at some day trading opportunities, in a reversal day:


First one is buying 50 Call60 on BMY for 0.09$ on expiration day, when BMY traded for 59.6$. This means that we risk 450$ for the right to buy 5000 shares of BMY at 60$ by the end of the day (300K$ exposure). Usually, you don't want to take such bets on expiration days, as the price is pinned to the closest strike, and the options expire worthless.

However on a day where there is big range move in the indices, it is a good trade to take.

That trade played out well, with 4R winner.


The second was, buying Calls on the QQQ. Here risking 1300$ resulted in 1800$ profit (1.4R winner).

Again, it is hard to catch the exact reversal timing, but by using small position sizing, you can scale into the trade, and then take your risk out as soon as you can.

The bottom line is that as realized volatility is high, you can place good trades by buying options and riding the moves.




Disclaimer:

The following trade frame is an example for educational purpose only.

We are not an investment advisory services, nor are we registered investment advisors or broker-dealers and do not purport to tell or suggest which securities customers should buy or sell for themselves. Customers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment.

It should not be assumed that the methods, techniques, or indicators presented in this example will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. We, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

26 views0 comments

Recent Posts

See All

©2020 by The Options Course. ALL RIGHTS RESERVED. Reproduction without permission prohibited.