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Jon Najarian Uses Volatility to Mitigate Risk PLUS a $29 Million Dollar Options Purchase?!

Jon opened up today’s CNBC Halftime Report with a classic market euphemism, “When they’re greedy, you wanna be fearful. When they’re fearful, you wanna be greedy.” And investors were looking pretty greedy today. Josh Brown would go on to call today,  “A classic faceripper.” With all three major indexes up more than a percentage point, […]

By Market Rebellion · December 7, 2021
Jon Najarian Uses Volatility to Mitigate Risk PLUS a $29 Million Dollar Options Purchase?!

Jon opened up today’s CNBC Halftime Report with a classic market euphemism, “When they’re greedy, you wanna be fearful. When they’re fearful, you wanna be greedy.” And investors were looking pretty greedy today. Josh Brown would go on to call today, 

“A classic faceripper.”

With all three major indexes up more than a percentage point, and the Nasdaq up more than three percent, it’s hard to think of today as anything else. But taking some profit off the table doesn’t mean Jon is staying on the sidelines, or getting out of positions. What is he doing?

Using volatility to manage risk

When the VIX spiked above 35 last Friday, many investors saw red. Jon saw an opportunity. When volatility rises, so do option premiums. Jon took advantage of the spiking VIX by trading in options that were swollen with extrinsic value in exchange for shares of the same equities. When the VIX fell this week, option holders felt it. Not Jon, who was forward thinking enough to sell his options when the VIX was high. 

With the VIX back at 22, Jon’s making the same play in reverse: Trade the shares for options and spreads in the same equities. That’s how we use options to gain an edge. That’s how we, as Market Rebels, trade smarter. If you’re interesting in learning more about how to use volatility to mitigate risk in YOUR portfolio, check out our free guide. In addition to rearranging some of his existing trades, Jon came in hot with 2 new pieces of Unusual Options Activity today, featured in the chart below.

We’ve talked about volatility, but what about our other two favorite V’s? 

Volume and velocity

Let’s use this 29 MILLION DOLLAR Amazon ($AMZN) trade as an example of how all three V’s come together to make a perfectly unusual trade.

Amazon is a stock that has been essentially stagnant over the past 17 months. Additionally, because of its high stock price, options activity in this name is typically relegated to smaller, low volume purchases. Obviously, this purchase was NOT small in contract size or total price.

This trade was 17,000 contracts. Again, a total trade price of $29,070,000. In the words of Jon, “BANG!” That’s a colossal trade for any ticker, but it’s particularly unusual for Amazon. That makes us raise our eyebrows. That isn’t the only curious note about this trade, though.

Let’s look at the expiration date: 12/10. That’s three trading days away, and it’s an out-of-the-money call. This buyer thought Amazon was going to move up in a big way, quickly. If it doesn’t, these options will expire worthless, and he’s going to be out 29 million dollars. Unusually large, unusually quick, on an unusual name? That’s what UOA is all about. 

Then we have Marathon Digital ($MARA). This trade follows a similar structure: Short term options, bought in bulk, FAR out of the money. In fact, these calls are so far out of the money that Jon tweaked the trade before putting it on himself. Instead of buying the $50’s, Jon bought the $45 strike calls and sold those $50’s against the position. The result is a debit spread that still costs roughly the same as those $50 strike calls, with a significantly lower breakeven.

 

Listen to what he had to say about Amazon and Marathon Digital in the clip below.

Looking for a quick bonus trade? Check out Jon’s surprise callout on $SNAP in the Final Trades video below: