Jon Najarian’s Unusual Options Activity Sees Traders Getting Bearish

Jon Najarian was on CNBC’s Halftime Report today to talk about Unusual Options Activity and how he’s managing his portfolio throughout the recent volatility. Todays unusual purchases were in Bed, Bath and Beyond (BBBY), the I-Shares Real Estate ETF (IYR) and Discovery (DISCA).

These purchases came at a time where the market was not in a bullish or bearish position, but rather kangaroo mode. With a chart that more resembles an EKG monitor than a stock market staple, the SPDR S&P 500 ETF (SPY) saw two peak-to-trough declines of more than 4% over the past 30 days.

1 month SPY. Source: yCharts

This is nothing compared to the growth-heavy Ark Innovation Funds (ARKK), whose charts look less like an EKG and more like the edge of a mountainside cliff. ARKK is down nearly 16% over the past 30 days, reflecting a change in the Fed’s dovish tone. With that change in tone came a shift in investor attitude that lead to a  ‘correction under the surface’. That lead many of the names that comprise ARKK, like Docusign (DOCU), Roku (ROKU), Teledoc (TDOC), Peloton (PTON) and other high growth names suffering 50%+ drawdowns from their all-time-highs. 

1 month ARKK. Source: yCharts

With action like this, options traders searching for the next big move are targeting meme stocks with valuations that are disjointed from their earnings. Bed, Bath and Beyond (BBBY), a previous ‘short squeeze’ target that became popular among retail traders earlier in the year fits the bill. Though BBBY is down more than 34% over the past month, one options trader believes there’s more downside to come.

1 month BBBY. Source: yCharts

Jon Najarian sees big bearish buying

On Halftime, Jon pointed out a purchase of 5,000 puts expiring this January. Though Jon has a long term bullish view on the stock, as a disciplined trader, he was ready to adjust his gameplan at a moment’s notice. As a result, Jon got in on these puts with a caveat:

“In the long term I like the stock. We all kind of think that the board is going to have to let this one go. Meaning someone steps in and buys it. But in the short term, as in now until January, I think the stock could plunge lower. 

A lot of the meme stocks have been under big pressure, starting with AMC and Gamestop, but it hasn’t stopped there and this is one of those stocks. […] But I am ready to pull the trigger and buy this stock on a significant dip.” -Jon Najarian

Adjusting your strategy on short notice sounds spontaneous, but it comes down to discipline. If you know that a massive put purchase often serves as a warning of more downside to come, then you’re ready to adjust your strategy. This is exactly what saved Jon from downside last week. He was long RIVN until massive put purchases started stacking up the day of Rivian’s earnings. Jon got out and avoided a 17% decline in the stock. Jon timed it perfectly, and he used unusual options activity to do it.

“You can’t time the market” is a farce

Trading is all about timing. About learning to time the market. No matter how many times you might hear the platitude of, “You can’t time the market”, that’s exactly what traders are trying to do. Perhaps you can’t perfectly time the market. That’s a far more accurate statement. You can strategize and hone your skills forever, it won’t work every time. But you can use your market expertise, knowledge of chart patterns, fundamentals, technical analysis, options flow and discipline to improve your accuracy.

That’s what we teach at Market Rebellion. The fact is, nobody is perfect all the time. Even the most skilled of market participants miss a trades on occasion. But we’ll give you the tools and knowledge to be correct more often, and take less damage when incorrect. When combined and honed, these are the factors that allow Market Rebels to trade smarter.

Listen to what else Jon Najarian had to say in the clips below.