It’s the inevitable gut reaction that we all have. If you see massive debit-based puts in the options flow screener like we just did for financial giant Citigroup (C), acute feelings of pessimism rise to the forefront. However, the derivatives market can be tricky because you’re never really sure about underlying intentions. In this case, the unusual options activity very well might be bullish for C stock in a roundabout way. On Monday, Citigroup’s options flow readout — which focuses on big block transac ...

Core Viewpoint - Michael Burry, known for his shorting strategy during the 2008 mortgage crisis, has taken a significant position against Nvidia and Palantir Technologies, purchasing $1.1 billion in put options, which may have influenced the recent decline in these stocks [2][9]. Group 1: Burry's Investment Strategy - Burry's fund, Scion Asset Management, manages nearly $1.4 billion in assets and is required to report holdings quarterly, providing a snapshot of a potentially dynamic portfolio [4][6]. - The nature of hedge funds allows for rapid changes in positions, and Burry's current holdings include put options in Nvidia and Palantir, alongside call options in Pfizer and Halliburton [7][9]. - Burry's strategy may not indicate a long-term bearish outlook on Nvidia and Palantir, but rather a tactical move to capitalize on perceived overvaluation or short-term price declines [10][13]. Group 2: Market Context and Stock Performance - Nvidia's current market capitalization stands at $4621 billion, with a recent price change of +1.68%, while Palantir's market cap is $415 billion, with a +1.00% change [8][12]. - Both stocks have experienced price declines recently, which may align with Burry's expectations of market pressure on these high-value stocks [9][13]. - The retail investor's perspective differs from institutional investors like Burry, who operate with distinct goals and strategies [12][14].

Core Insights - Options-based ETFs are gaining traction among income-seeking investors, highlighting the appeal of high yields [1] - Many novice investors are entering these investments without proper due diligence, which is crucial for understanding the underlying strategies [2] Group 1: ETF Strategies - A significant portion of options income ETFs are covered call funds, which may lead investors to overlook the benefits of put selling [2][5] - The Neuberger Berman Option Strategy ETF (NBOS) offers an actively managed put-write strategy that is comparable in complexity to covered call strategies [3] Group 2: Benefits of Put Selling - Put option sellers aim for the options to expire worthless, granting them premium income, which can act as a buffer during market downturns [4][6] - Selling puts can potentially allow investors to acquire underlying assets at a lower cost basis due to the premiums collected [6] Group 3: Market Versatility - Put selling, as facilitated by ETFs like NBOS, is considered more versatile than covered calls, particularly in flat markets [7] - Historically, put writing has shown a greater capacity for upside capture in bull markets compared to covered call strategies, allowing for less limitation on gains [7]

Market Sentiment - Retail traders have shown extraordinary conviction, with demand for call options outpacing puts for 24 consecutive weeks, tying the longest streak ever recorded [1] - JP Morgan's retail radar indicates a robust imbalance, with a net inflow of $6.5 billion from retail investors, exceeding the year-to-date average of $6.4 billion [3] Investment Strategies - A cautious approach has been taken by trimming positions in large-cap stocks like Amazon, Meta, and Alphabet, as they had expanded to nearly 10% of the portfolio [15] - The strategy includes reallocating funds from trimmed positions into other investments, ensuring that cash remains actively deployed in the market [17] Market Reactions - The market experienced a significant sell-off due to escalating trade tensions with China, which caught investors by surprise [2] - Despite the sell-off, there was no immediate follow-through, indicating a potential rebound as market sentiment shifted positively following reassurances regarding China [9] Sector Performance - The Russell 2000 index showed responsiveness to market conditions, with expectations of a breakout in small-cap stocks [7] - The S&P 500's relative valuations are considered stable, with the MAG 7 stocks positioned in the middle of their historical range over the last decade [8]

Core Viewpoint - NuScale Power Corp. (SMR) has seen a significant increase in call options volume following a Craig-Hallum report that maintained a Buy rating on SMR stock, leading to an 11.8% rise in stock price, reaching a 52-week high [1][3]. Options Activity - A notable volume of over 27,000 call options expiring on October 24 at a $55.00 strike price has been traded, indicating bullish sentiment as buyers anticipate a potential rise to $59.30, representing a +15.7% increase from the current price [3]. - Other out-of-the-money (OTM) calls and puts have also been traded, albeit with lower volumes compared to the recent surge [4]. Investment Strategies - Short OTM calls present attractive yields, with a covered call strategy yielding over 6.7% for a 9-day period. An investor buying 100 shares at $5,292 can sell a covered call for $3.55, leading to a potential total return of +10.64% over 9 days [6]. - The breakeven point for this strategy is lowered to $49.37, providing some downside protection against price declines [6]. Defensive Moves - Popularity of OTM puts with a $50 strike price expiring on December 19, 2025, suggests that some call option buyers may be seeking downside protection [7]. - However, these puts are more expensive than the near-term calls, resulting in a cash outlay of nearly $600 when combined with shorting the 9-day calls [8].

Core Insights - The stock market's "fear gauge," the Cboe Volatility Index (VIX), has risen above its long-term average, indicating increased investor anxiety regarding a potential escalation in the U.S.-China trade standoff [1][2][3] Group 1: VIX Movement - The VIX reached an intraday high of 22.76, marking its highest level since May 23, when it peaked at 25.53, and closed above 20, a significant threshold [2][3] - Historically, the long-term average of the VIX is just below 20, serving as a dividing line between calm and panicked market conditions [3][4] Group 2: Market Conditions - The summer saw a period of low volatility, with the three-month realized volatility for the S&P 500 dropping to its lowest level since January 2020 [5][6] - The divergence between the VIX and realized volatility began around Labor Day, suggesting a shift in investor sentiment [6] Group 3: Investor Behavior - Portfolio managers noted that investors may be favoring call options to bet on further market gains rather than purchasing actual shares [7] - Some traders are also buying put options as a form of insurance against potential market downturns, indicating a cautious approach despite holding onto stocks [8]

Core Insights - The article discusses the implications of persistently low volatility, particularly as measured by the CBOE Volatility Index (VIX), on options trading strategies and market behavior [3][4][10] - It highlights that low volatility can lead to inflated expectations for options strategies, especially covered call ETFs, and suggests that a rise in VIX could be beneficial for options sellers [4][10] Volatility and Market Behavior - Low volatility typically correlates with stable or rising stock prices, while high volatility is often associated with market declines [3] - The VIX has remained low over the past three years but is susceptible to sudden spikes, which can disrupt options strategies [2][5] Options Trading Strategies - The article emphasizes the challenges faced by options sellers in a low VIX environment, where the compensation for taking on risk is diminished [4][8] - It discusses the use of covered calls and collars as strategies to manage risk, but notes that the current low VIX results in minimal returns for these strategies [6][9] Market Indicators - The article suggests that volatility may be nearing a bottom, as indicated by technical analysis tools like the Percentage Price Oscillator (PPO) [4][5] - It warns that volatility often spikes without warning, making it crucial for traders to anticipate these movements [5] Conclusion - The article concludes that options sellers may benefit from a rise in VIX, as higher volatility would lead to better compensation for risk [10]

Group 1 - The current market bubble may continue to rise, presenting an opportunity for trend-following strategies to capture additional gains [1] - A significant opportunity exists to short the bubble aggressively, potentially using put options, although timing remains a critical factor [1]

Market Overview - The Federal Reserve Chair Jerome Powell highlighted the dual risks of weaker employment and persistent inflation, indicating that there is no risk-free path ahead but emphasizing the importance of managing portfolio risks [1][2]. Investment Strategies - In the current economic environment, characterized by slightly higher inflation and potential economic growth, the focus should shift away from bonds, which are not providing adequate value or diversification [3]. - The recommendation is to invest in stocks and commodities, as these are expected to perform better in the prevailing conditions [3][4]. Sector Focus - Technology is identified as a key sector likely to benefit from a lower interest rate environment, particularly in relation to advancements in artificial intelligence and large language models [5][6]. - Companies like Oracle and Palantir are highlighted as potential leaders in this space, focusing on building productivity tools for corporate America [6]. Options Trading - The use of options is suggested as a strategy to capitalize on market opportunities, with a specific mention of buying call options on stocks like Oracle and Palantir while financing these purchases by selling downside puts [7][8]. - The current market conditions, characterized by low volatility (VIX), present a favorable environment for using call options to express bullish market sentiments [8].

Market Sentiment - The recent record run by the US stock market is at risk as investors are retreating from their strong bullish positioning [1] - Evidence of buyers' fatigue is suggested by weak flows into US equity funds compared to earlier in the year, although they have returned to positive territory [2][3] Investor Behavior - Flows from American and European investors into US and non-US domiciled equity funds have been soft, while global flows excluding the US have shown positive but deteriorating trends [2] - Retail flows into US equity funds have recently faltered, with passive flow from retail investors turning negative [4] Valuation and Positioning - Elevated equity valuations, a decline in bullish sentiment, and seasonal weakness are concerns for the market, particularly with September historically being the worst month for S&P 500 returns [4] - A measure of aggregate equity positioning by Deutsche Bank has slipped but remains modestly above neutral, with professional portfolio managers now moderately underweight [5] Market Reactions - US stocks saw a slight increase following a dip from a weaker-than-expected jobs report, with the S&P 500 rising 0.2% [6] - The options market indicates concerns about the rally, as the five-day moving average of total net volume in call options fell last week, driven by a drop in single stock contracts [7]