February : A Difficult Month?

This February is the second month of the presidential cycle, and it’s usually quite terrible, with the market averaging a 1.1% drop. Every sector has averaged a loss during the second month of the presidential cycle. It isn’t that every February is bad—returns were positive 12 times out of 23—it just tends to be that way.  (Barron’s)

As shown below, some early bearish signals on the SP500 index. The comforting point is that the index is still hovering around the 50D-moving average support line.

As the short squeeze saga continues to unravel, XRP and SLV are the latest targets :

Short squeeze saga caused sell-off in other stocks as hedge funds (that are in short positions in the targeted securities) need to drive up their liquidity position to cover for the short squeeze. Despite positive earnings surprise in FB / APPL / MSFT, their stock prices dropped. Further warning from Goldman – https://laptrinhx.com/goldman-warns-if-the-short-squeeze-continues-the-entire-market-could-crash-3855492461/

A notable mention – VIX has spiked to few points shy of 40%, presenting opportunity to sell options? Do take note – https://www.barrons.com/articles/for-small-investors-the-surge-in-volatility-is-a-warning-sign-51611970918?mod=past_editions

What do I do this for this month?

My overall strategy will be tilted towards neutral-bearish positions in some stocks with some long opportunistic play in tech stocks.

ABBV: AbbVie is an American publicly traded biopharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories. Sold an iron condor position at Call (115/120), Put (85/90) with March 19 as expiry. Collected $1.18 CR, which is short of a typical credit rule of 1/3 of the width of the spread. Currently, the combined options leg is in a net delta position of -1.89, reflecting a mild bearish view on the stock. As shown below, the stock appears ‘bearish’ as it has broken past the 50D-moving average support line.

I read of this week’s Barron magazine. https://www.barrons.com/articles/ev-battery-start-up-quantumscape-is-driven-solely-by-promise-51611918010

It shows a list of “the 29 most highly valued U.S. companies with revenue of less than $1 million for the past 12 months” – presenting possible opportunity to short against them. Out of the 29, based on a quick technical analysis, these may be possible candidates for bearish positions (sadly, the option chain seems limited for these stocks):

  1. Kura Oncology (KURA) – Kura Oncology is a clinical-stage biopharmaceutical company committed to realizing the promise of precision medicines for the treatment of cancer.

2. Immunovant, Inc. (IMVT): Immunovant, Inc., a clinical-stage biopharmaceutical company, develops monoclonal antibodies for the treatment of autoimmune diseases. It develops IMVT-1401, a novel fully human monoclonal antibody that selectively binds to and inhibits the neonatal fragment crystallizable receptor, which is in Phase IIa clinical trials for the treatment of myasthenia gravis and thyroid eye disease, as well as has completed initiation of Phase II clinical trials for the treatment of warm autoimmune hemolytic anemia. The company is headquartered in New York, New York. Immunovant, Inc. is a subsidiary of Roivant Sciences Ltd.

3. Romeo Power, Inc. (RMO): Romeo Power, Inc., an energy storage technology company, designs and manufactures lithium-ion battery modules and packs for commercial electric vehicles in North America. The company operates through two segments, Romeo Power North America and Joint Venture Support. It also offers battery management systems; and design, research and development, and other engineering related services. Romeo Power, Inc. was founded in 2014 and is headquartered in Vernon, California.

4. XL Fleet Corp. (XL): XL Fleet Corp. develops and deploys hybrid electric solutions for the commercial and municipal vehicle market in North America. Its products include hybrid electric drive systems (powertrains), and data-analytic systems that measure key automotive performance indicators, such as miles per gallon performance and carbon dioxide emissions in hybrid-electric fleet vehicles for new and in-use vehicles. XL Fleet Corp. serves end-use customer base comprising Fortune 500 corporate enterprises, public utilities, and various municipalities. The company was founded in 2009 and is headquartered in Boston, Massachusetts.

5. Kodiak Sciences Inc. (KOD): Kodiak Sciences Inc., a clinical stage biopharmaceutical company, provides novel therapeutics to treat retinal diseases. The company’s lead product candidate is KSI-301, a vascular endothelial growth factor (VEGF)-biological agent that is in Phase 1b clinical study to treat wet age-related macular degeneration (AMD) and diabetic retinopathy. Its preclinical stage product candidate include KSI-501, a bispecific anti-interleukin 6/VEGF bioconjugate to target inflammation and abnormal angiogenesis in the pathogenesis of retinal vascular diseases. The company’s early research pipeline include KSI-601, a triplet inhibitor for dry AMD. The company was formerly known as Oligasis, LLC and changed its name to Kodiak Sciences Inc. in September 2015. Kodiak Sciences Inc. was founded in 2009 and is headquartered in Palo Alto, California.

In view of ‘whoisnext’ for the short squeeze, I will prefer to stay cautious on any short positions with defined risk approach via options.

Possible opportunity of long play on tech stocks

Since its share price didn’t pick up (even with beating earnings estimates by analysts), I may consider a possible bullish position on AAPL:

Possible support on 125/120/112

Given a reasonable IV rank of 33.7% and IV>50%, may consider a bull credit put spread on AAPL with Put (110/112.5) with a credit premium of about $0.37 (OTM%>80%, DTE = 46 Days).


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