Very few stocks have been hotter than Beyond Meat. The fake meat company has been bullet-proof to the China trade war, the inverted yield curve, and all other macroeconomic catalysts that are plaguing most stocks in the market.
Shares of Beyond have been soaring since its IPO in early May, and are now up almost 150% in just four months.
Now, that might not sound overly impressive when you compare it to a small-cap stock, but Beyond isn’t a small-cap. In fact, it has about a $10 BILLION dollar market cap.
But despite its massive size, it’s one of the most volatile stocks in the entire stock market. On any given day the stock can move 4 to 6 percent (no catalyst needed).
You can easily get chopped up… sliced and diced… if you try to trade a stock that volatile.
However, options traders are smart, they know the stock is volatile, and because of that, option premiums in Beyond are extremely rich.
That means you have to pay a hefty price to get in on these options.
But you know what?
I’ve figured out a way to reduce the role of volatility in Beyond, as well as, limit the risk.
Even better, I’ve been able to profit off the directional moves in the stock in the most stress-free way possible.
No joke… check out this screenshot from the text alert I sent Weekly Windfalls clients yesterday:
And you know what else, unlike trading stocks or buying options, my Weekly Windfalls options strategy allows you to piggyback off my trades.
And if you have ever joined a trading service before– one of the biggest gripes people have is getting an alert late, and then having to chase to get in.
But Weekly Windfalls is the anti-chasing strategy. And I’m going to show you exactly why that is as I breakdown yesterday’s $12K winner on one of Wall Street’s hottest IPOs.
How many times have you bought call options in a stock that’s moving really fast only to see it pop – but your options lose value?
I can tell you I’ve seen it happen a lot… traders slamming into call options, being right on the direction, and they end up losing money.
That’s the problem of chasing options on fast-moving stocks…
Well, there are a lot of traders out there who slam into these options because they want in on the action and think they can make a ton of money… but what they don’t know is that when you chase these options, it’s actually super risky and you can actually lose money.
That’s the last thing I want to happen to you.
With options, it gets a bit tricky if you’re going to be buying call options in a momentum stock… and there’s actually a more efficient way to bet that a stock is going to move up or down (more on that later).
Take Beyond Meat (BYND) for example.
This is one stock that a lot of traders want to get into for the potential squeeze higher… they want in on the action… thinking it can hit its recent high of $239.71.
However, as you can see, this stock bounces around and has massive moves to the upside and downside…
… and when a stock is as volatile and expensive as this… traders turn to the options market to place directional bets.
Now, if you don’t know anything about options when a stock is moving fast… the implied volatility actually spikes – which directly influences your profit and loss (PnL) when you’re trading options.
For example, here’s a look at the options chain in BYND expiring next Friday.
Just take a look at the implied volatility on the first line for the $165 strike price calls expiring on Sept. 6.
Those options were trading over $4 when the stock was at $164.50… and when you look at the implied volatility (IV), it’s 46.09% – that’s why those options are so expensive.
You’re probably wondering, Jason what the heck is implied volatility and should I take that into account when I’m trading options?
Of course, but it’s not too complicated… and I’m going to break it down for you.
An Alternative Approach to Buying High-IV Options
Implied volatility is an important concept you need to understand if you’re going to be trading options… and quite simply, it’s how volatile traders think a stock could be in the future.
The higher the IV… the more expensive the option.
Here’s how it works when you’re long calls… if IV rises (more traders buying that strike price)… your PnL benefits… but if IV gets crushed (more traders selling that strike price), your PnL suffers.
That’s really all it is.
If traders think a stock will move a lot… then you’ll see IV extremely high, like we’re seeing in BYND.
However, the last thing you want to do is buy when IV is high.
Well, that means the premiums are expensive… and if the implied volatility drops, then your position can suffer because you paid up for those options.
For example, let’s say you bought call options and the stock actually moves to your favor… but the implied volatility plummets. When that happens, you can actually lose money on the trade.
That’s what I mean when I say you shouldn’t chase options.
Just take a look at the options in BYND again…
If you bought BYND $165 calls expiring next week for $4.40… that means the stock would need to move to $169.40 for you to break even on the expiration date.
With the IV at 46.09%, that means the options market was expecting it to move 2.90% in either direction. If implied volatility drops before then, well you’re out of luck… and you’ll probably end up in losses. If the stock drops… then those calls would depreciate in value as well.
You see, when you buy call options with a high IV, you’re essentially putting yourself at a disadvantage. Not only do you need the stock to move to your favor, but you also need IV to rise.
So what happens if you know you want in on a stock and the implied volatility is high?
Use an anti-chasing strategy – more specifically, my Weekly Windfalls strategy.
With Weekly Windfalls, it allows you to still profit off a stock move… without exposing yourself to risk that buying calls or puts outright have… and it’s a better alternative than buying juiced up options and being susceptible to large drops in volatility.
How does it work?
Well, you use a combination of either calls or puts.
For example, I thought BYND could run higher… but I didn’t buy those juiced up calls because I knew I could lose a lot of money if the IV dropped.
I actually placed a bet that BYND would actually stay above $152.50.
Specifically, I sold the options $152.50 puts expiring Aug. 30 and bought the $150 puts expiring the same day. It’s what’s called a bull put spread.
Here’s a look at how that trade looked.
Basically, what’s going on here is that as long as BYND stays above $152.50 – I would be at my max profit… but as you can see, even if BYND drops – my risk is limited.
That means I improve my odds of success. In other words, even if the IV drops substantially, I won’t be affected. In fact, if the stock stays above that level and the IV drops… I actually get to my max profit faster.
Well, the premium actually got sucked out of BYND… and I was actually very close to my max profit.
You see, since I established a bull put spread (also known as a short put spread), I actually wanted those to lose value…
… and once that happened… I was locking in a 90% winner.
You could do the same thing if you’re bearish on BYND meat, but you would actually sell call spreads also known as a bear call spread.
The next time you think about buying options in a stock with a high implied volatility… think twice and keep this strategy in your back pocket.
Weekly Windfalls not only improves your chances of success when you’re trading options… it also takes out the guesswork.
“Thanks JB my 401k already doubled with your alerts on verticals. Take the trade wait to be filled at the price you want and cash in later half at 50% and the rest around the 80 90% mark” – D.C.
“+6.9K on 3 spreads i just closed from your picks” – J.P.
“Trading tiny closed WW four positions for $2,400!! – M.C.
If you want to see how it can help you profit off directional moves in the most stress-free way possible, click below to learn more.