OI, DOW & MANIPULATION - Palantir $PLTR - Short Iron Butterfly
When 400~ institutions are crowding a stock, and the biggest of names are playing MM. I want to use them as a shield, and poke out from behind them to stab little by little.
This is my all-time favorite options strategy, and it can be used under very specific conditions..
1. Accumulation/Distribution Phase is identified (Dow Theory).
2. Range-bound movement and a sharp fall in volatility is forecasted (Ascendance/Participation Phase, with clear indication of Ranging Market, Supply/Demand levels).
3. Breakout is forecasted, and there exists great momentum, high premia and implied volatility (Excess forecasted).
4. Personal trend bias (bullish long-term outlook on company, Value investing, Trend).
It is the ultimate premium harvesting strategy...
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Short Iron Butterfly Spread:
"Goal:
To profit from neutral stock price action near the strike price of the short options (center strike) with limited risk.
A short iron butterfly spread is the strategy of choice when the forecast is for stock price action near the center strike price of the spread, because it profits from time decay. However, unlike a short straddle, the potential risk of a short iron butterfly spread is limited.
Explanation:
Example of short iron butterfly spread:
Buy 1 XYZ 95 Put at 1.20 (1.20)
Sell 1 XYZ 100 Put at 3.20 3.20
Sell 1 XYZ 100 Call at 3.30 3.30
Buy 1 XYZ 105 Call at 1.40 (1.40)
Net Credit = 3.90
A short iron butterfly spread is a four-part strategy consisting of a bull put spread and a bear call spread in which the short put and short call have the same strike price. All options have the same expiration date, and the three strike prices are equidistant. In the example above, one 95 Put is purchased, one 100 put is sold, one 100 Call is sold and one 105 Call is purchased. This strategy is established for a net credit, and both the potential profit and maximum risk are limited. The maximum profit is realized if the stock price is equal to the strike price of the short options (center strike) on the expiration date. The maximum risk is the difference between the lower and center strike prices less the net credit received. The maximum risk is realized if the stock price is above the highest strike price or below the lowest strike price at expiration.
Maximum profit:
The maximum profit potential is equal to the net credit received less commissions, and this profit is realized if the stock price is equal to the strike price of the short options (center strike) at expiration. In this outcome, all options expire worthless and the net credit is kept as income.
Maximum risk:
The maximum risk is equal to the difference between the lowest and middle strike prices less the net credit received. In the example above, the difference between the lowest and middle strike prices is 5.00, and the net credit received is 3.90, not including commissions. The maximum risk, therefore, is 1.10 less commissions." - Taken from Fidelity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SPECULATION:
- Why will SP rally 30%+ early in the week?
- SP has just transitioned out of 2nd accumulation level, entering ascendance/public participation phase.
- Price target upgrades from previously bearish institutions suggest they want to markup the SP.
- Previous price action suggests that it opens strong on hype and positive catalysts, before entering a range to trap retail bulls.
- There are Fib levels at 33~ and 35~ that must be tested for confirmation.
- There is a gap to fill at 32~ for further confirmation.
- Frenzied buying will soon come to an end, as the SP stabilizes. It is currently trending as "The top interest for WSB". IV will rise at first.
- Large stopping volume will occur at key OI levels as Excess is sold off and we enter the 2nd distribution level. IV will quickly fall.
- There is 16,286 OI on 40 strike calls for 2/26, so I don't foresee this level being broken for long next week... Above it is a gamma ramp that will take the SP to clear skies... I'm not sure the MM will allow that.
- The broader market is uncertain, and a lot can change over the weekend, but judging from the low GEX, and DIX that seems to be bouncing, the market does not seem ready for a correction, yet...
- Bitcoin is a good indicator for risk asset spending nowadays... Watch for huge selloff before market open, decide if it is profit-taking, or corrective.
FA:
- Please see my Jan. 8 Idea which documents the Fundamental Analysis I have been doing on this company.
- Simply put, this company is unrivalled, and a near-future mega-company. 0.5-1T Mcap, very, very soon. SP500 inclusion without a question.
TA:
- Have very powerful bullish reversal indicators as support, based on my Feb. 18 Forecast.
- This should take the stock price to the 60-70 levels that I forecasted in Jan. 8.
QA:
- Basis of the strategy is the complete control of MM's on the SP... Only a gamma squeeze can break through the key OI levels, Cohen is notorious for his put/call walls strategy, and he most definitely has a hand in the MM action here... As of Q4, his Point72 owns about 2% of the company. Much greater now, I speculate.
- Historical analysis has shown that it is almost impossible for PLTR to break through the large put/call walls, and quickly reverts to the mean if it ever does.
- The SP will tend to settle around the OI "valleys" at options expiration (OpEx), and quite often, it is even at the exact value to 2 decimals.
- PLTR key open interest levels for 3/5/2021:
$35 calls: 14,464
$35 puts: 11,776
$45 calls: 11,311
$45 puts: 8,667
$50 calls: 14,898
$50 puts: 13,168
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
STRATEGY:
- Deep ITM Bullish Short Iron Butterfly for 3/5/2021, then rollover to Deep ITM Bearish Short Iron Butterfly for 3/5/2021 for the expiration.
- Goal is to capture the great premium of puts before the rally, then capture the premium of the calls + puts on the pullback, for expiry.
- Wings will protect the trade from forecast failure and a massive gamma squeeze in either direction.
- Why I am taking this trade, is because of the historical analysis I have done since Jan. 8, and I have gathered sufficient evidence of the manipulation on this SP, and I believe that I can predict the price action to a high degree of accuracy. I don't see why the MM's would suddenly stop the range-bound price action, unless a real gamma squeeze occurs... but the wings and core long positions protect against this.
- Trigger 1: Stable broader market, positive catalyst, good sentiment, 32 gap fill, breaking out of 33 and 35 Fib levels for greater confirmation.
- Butterfly 1: Strike - $49.00, Upper wing - $55.00, Lower wing - $43.00.
- Trigger 2: SP reaches $49.00 on impulse wave.
- Rollover: SP - $49.00, to Butterfly 2.
- Butterfly 2: Strike - $41.00, Upper wing - $45.00, Lower wing - $37.00.
- SL: $46.00 support level pin.
- Expiration: 3/5/2021
- Timeframe: 14 days
DEFENSE:
- How to defend the position, if things go south?
If the short call in a short iron butterfly is assigned, then 100 shares of stock are sold short and the long call and both puts remain open. If a short stock position is not wanted, it can be closed in one of two ways. First, 100 shares can be purchased in the marketplace. Second, the short 100-share position can be closed by exercising the long call. Remember, however, that exercising a long call will forfeit the time value of that call. Therefore, it is generally preferable to buy shares to close the short stock position and then sell the long call. This two-part action recovers the time value of the long call. One caveat is commissions. Buying shares to cover the short stock position and then selling the long call is only advantageous if the commissions are less than the time value of the long call.
- This strategy has a heavy bullish bias, so the chances of being assigned on puts are much higher than on the calls... If the SP does reach beyond, this is good for my core long position.
- The biggest risk in this trade that I foresee is the SP pinned at the $46 support level, which lies between the strike price and the upper wing, of butterfly 1.
- However, high premia of deep ITM options mitigates this risk.
- $46 Short Straddle would be a good defense to this scenario, (Sell call, sell put) since $46 is a high probability level for 3/5 expiry.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
This strategy can be high risk, depending on the long-term outlook on this company... For me, I don't mind being assigned at these levels, and I have a core long position, so it is low risk. The strategy is based on forecasting the price action precisely, not only the levels, but the time frame. That said, this is most definitely not financial advice. I am describing my own strategy.
If you like the idea, please support by giving a like, follow, and sub!
This is my all-time favorite options strategy, and it can be used under very specific conditions..
1. Accumulation/Distribution Phase is identified (Dow Theory).
2. Range-bound movement and a sharp fall in volatility is forecasted (Ascendance/Participation Phase, with clear indication of Ranging Market, Supply/Demand levels).
3. Breakout is forecasted, and there exists great momentum, high premia and implied volatility (Excess forecasted).
4. Personal trend bias (bullish long-term outlook on company, Value investing, Trend).
It is the ultimate premium harvesting strategy...
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Short Iron Butterfly Spread:
"Goal:
To profit from neutral stock price action near the strike price of the short options (center strike) with limited risk.
A short iron butterfly spread is the strategy of choice when the forecast is for stock price action near the center strike price of the spread, because it profits from time decay. However, unlike a short straddle, the potential risk of a short iron butterfly spread is limited.
Explanation:
Example of short iron butterfly spread:
Buy 1 XYZ 95 Put at 1.20 (1.20)
Sell 1 XYZ 100 Put at 3.20 3.20
Sell 1 XYZ 100 Call at 3.30 3.30
Buy 1 XYZ 105 Call at 1.40 (1.40)
Net Credit = 3.90
A short iron butterfly spread is a four-part strategy consisting of a bull put spread and a bear call spread in which the short put and short call have the same strike price. All options have the same expiration date, and the three strike prices are equidistant. In the example above, one 95 Put is purchased, one 100 put is sold, one 100 Call is sold and one 105 Call is purchased. This strategy is established for a net credit, and both the potential profit and maximum risk are limited. The maximum profit is realized if the stock price is equal to the strike price of the short options (center strike) on the expiration date. The maximum risk is the difference between the lower and center strike prices less the net credit received. The maximum risk is realized if the stock price is above the highest strike price or below the lowest strike price at expiration.
Maximum profit:
The maximum profit potential is equal to the net credit received less commissions, and this profit is realized if the stock price is equal to the strike price of the short options (center strike) at expiration. In this outcome, all options expire worthless and the net credit is kept as income.
Maximum risk:
The maximum risk is equal to the difference between the lowest and middle strike prices less the net credit received. In the example above, the difference between the lowest and middle strike prices is 5.00, and the net credit received is 3.90, not including commissions. The maximum risk, therefore, is 1.10 less commissions." - Taken from Fidelity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SPECULATION:
- Why will SP rally 30%+ early in the week?
- SP has just transitioned out of 2nd accumulation level, entering ascendance/public participation phase.
- Price target upgrades from previously bearish institutions suggest they want to markup the SP.
- Previous price action suggests that it opens strong on hype and positive catalysts, before entering a range to trap retail bulls.
- There are Fib levels at 33~ and 35~ that must be tested for confirmation.
- There is a gap to fill at 32~ for further confirmation.
- Frenzied buying will soon come to an end, as the SP stabilizes. It is currently trending as "The top interest for WSB". IV will rise at first.
- Large stopping volume will occur at key OI levels as Excess is sold off and we enter the 2nd distribution level. IV will quickly fall.
- There is 16,286 OI on 40 strike calls for 2/26, so I don't foresee this level being broken for long next week... Above it is a gamma ramp that will take the SP to clear skies... I'm not sure the MM will allow that.
- The broader market is uncertain, and a lot can change over the weekend, but judging from the low GEX, and DIX that seems to be bouncing, the market does not seem ready for a correction, yet...
- Bitcoin is a good indicator for risk asset spending nowadays... Watch for huge selloff before market open, decide if it is profit-taking, or corrective.
FA:
- Please see my Jan. 8 Idea which documents the Fundamental Analysis I have been doing on this company.
- Simply put, this company is unrivalled, and a near-future mega-company. 0.5-1T Mcap, very, very soon. SP500 inclusion without a question.
TA:
- Have very powerful bullish reversal indicators as support, based on my Feb. 18 Forecast.
- This should take the stock price to the 60-70 levels that I forecasted in Jan. 8.
QA:
- Basis of the strategy is the complete control of MM's on the SP... Only a gamma squeeze can break through the key OI levels, Cohen is notorious for his put/call walls strategy, and he most definitely has a hand in the MM action here... As of Q4, his Point72 owns about 2% of the company. Much greater now, I speculate.
- Historical analysis has shown that it is almost impossible for PLTR to break through the large put/call walls, and quickly reverts to the mean if it ever does.
- The SP will tend to settle around the OI "valleys" at options expiration (OpEx), and quite often, it is even at the exact value to 2 decimals.
- PLTR key open interest levels for 3/5/2021:
$35 calls: 14,464
$35 puts: 11,776
$45 calls: 11,311
$45 puts: 8,667
$50 calls: 14,898
$50 puts: 13,168
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
STRATEGY:
- Deep ITM Bullish Short Iron Butterfly for 3/5/2021, then rollover to Deep ITM Bearish Short Iron Butterfly for 3/5/2021 for the expiration.
- Goal is to capture the great premium of puts before the rally, then capture the premium of the calls + puts on the pullback, for expiry.
- Wings will protect the trade from forecast failure and a massive gamma squeeze in either direction.
- Why I am taking this trade, is because of the historical analysis I have done since Jan. 8, and I have gathered sufficient evidence of the manipulation on this SP, and I believe that I can predict the price action to a high degree of accuracy. I don't see why the MM's would suddenly stop the range-bound price action, unless a real gamma squeeze occurs... but the wings and core long positions protect against this.
- Trigger 1: Stable broader market, positive catalyst, good sentiment, 32 gap fill, breaking out of 33 and 35 Fib levels for greater confirmation.
- Butterfly 1: Strike - $49.00, Upper wing - $55.00, Lower wing - $43.00.
- Trigger 2: SP reaches $49.00 on impulse wave.
- Rollover: SP - $49.00, to Butterfly 2.
- Butterfly 2: Strike - $41.00, Upper wing - $45.00, Lower wing - $37.00.
- SL: $46.00 support level pin.
- Expiration: 3/5/2021
- Timeframe: 14 days
DEFENSE:
- How to defend the position, if things go south?
If the short call in a short iron butterfly is assigned, then 100 shares of stock are sold short and the long call and both puts remain open. If a short stock position is not wanted, it can be closed in one of two ways. First, 100 shares can be purchased in the marketplace. Second, the short 100-share position can be closed by exercising the long call. Remember, however, that exercising a long call will forfeit the time value of that call. Therefore, it is generally preferable to buy shares to close the short stock position and then sell the long call. This two-part action recovers the time value of the long call. One caveat is commissions. Buying shares to cover the short stock position and then selling the long call is only advantageous if the commissions are less than the time value of the long call.
- This strategy has a heavy bullish bias, so the chances of being assigned on puts are much higher than on the calls... If the SP does reach beyond, this is good for my core long position.
- The biggest risk in this trade that I foresee is the SP pinned at the $46 support level, which lies between the strike price and the upper wing, of butterfly 1.
- However, high premia of deep ITM options mitigates this risk.
- $46 Short Straddle would be a good defense to this scenario, (Sell call, sell put) since $46 is a high probability level for 3/5 expiry.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
This strategy can be high risk, depending on the long-term outlook on this company... For me, I don't mind being assigned at these levels, and I have a core long position, so it is low risk. The strategy is based on forecasting the price action precisely, not only the levels, but the time frame. That said, this is most definitely not financial advice. I am describing my own strategy.
If you like the idea, please support by giving a like, follow, and sub!
Comment:
An interesting observation:
Up until around Feb. 2, 2021, several tickers that I am interested in have been tracking each other:
BB, AMC, NOK, GME (BANG), VIX, PLTR, while they have been inversing BTCUSD.
It is likely that these stocks were all a part of a portfolio of some institutions (probably BlackRock), which explains this sort of price action.
Why track VIX, though? Possibly to take advantage of FOMO in high volatility to trap retail, is a guess.
PLTR, BB and NOK are high growth tech stocks, so I imagine they are a part of the same portfolio for many funds as well.
BB, NOK and PLTR are tracking each other very closely indeed... Hopefully PLTR's move is an indicator for BB and NOK.
Does this also signal a pullback in BTCUSD? We will see.
Up until around Feb. 2, 2021, several tickers that I am interested in have been tracking each other:
BB, AMC, NOK, GME (BANG), VIX, PLTR, while they have been inversing BTCUSD.
It is likely that these stocks were all a part of a portfolio of some institutions (probably BlackRock), which explains this sort of price action.
Why track VIX, though? Possibly to take advantage of FOMO in high volatility to trap retail, is a guess.
PLTR, BB and NOK are high growth tech stocks, so I imagine they are a part of the same portfolio for many funds as well.
BB, NOK and PLTR are tracking each other very closely indeed... Hopefully PLTR's move is an indicator for BB and NOK.
Does this also signal a pullback in BTCUSD? We will see.
Comment:
Assigned S Tier Rating
JP Morgan has yet to provide a Price Target for Palantir...
There is a saying that goes: "JP Morgan has more money than God."