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Pete Najarian: Forget calling a bottom. Trade the range instead.

Pete Najarian visited Monday’s edition of the CNBC Halftime Report to talk about unusual options activity in what he called “an incredible trading environment”. When asked by Scott “The Judge” Wapner if Thursday and Friday’s rally meant that it was time to call a market bottom, each guest had a different take. “Farmer” Jim Lebenthal: […]

By Market Rebellion · February 28, 2022
Pete Najarian: Forget calling a bottom. Trade the range instead.

Pete Najarian visited Monday’s edition of the CNBC Halftime Report to talk about unusual options activity in what he called “an incredible trading environment”. When asked by Scott “The Judge” Wapner if Thursday and Friday’s rally meant that it was time to call a market bottom, each guest had a different take.

“Farmer” Jim Lebenthal: “Buy the dip, the bottom is in.”

“Farmer” Jim gave an emphatic, “YES”. Jim claimed it was time to start buying, that all of the news about Ukraine, inflation, and the Fed had already been priced in. With economic growth looking strong, Jim said he believed the market was ready to move higher, and today, he’s buying. 

Joe Terranova: “$4,100 is the time to buy.”

Mr. Terranova was firmly in the opposite camp, basing his approach mostly on technical analysis. Joe indicated that he believed the buying opportunity wouldn’t arrive until the S&P retested the $4,100 lows. Until then, he said it was more likely to “chop around” in a state of malaise (defined as “a general feeling of discomfort, illness, or uneasiness whose exact cause is difficult to identify.”) as the market searched for its next catalyst. 

Shannon Saccocia: “Stay on the sidelines until the next Fed meeting.”

Shannon was generally on the same page as Joe, stating that a mass of institutional money is still sitting on the sidelines, and it’s unlikely that institutions will rush to enter positions ahead of the next big Fed meeting (where we are expected to receive answers about the pace and size of 2022’s rate hikes). This reinforced her and Joe’s belief that it was unlikely we would see a meaningful move higher in the coming weeks, and that it is better to wait until the market is on more stable footing to deploy capital.

But what about our favorite ponytailed prodigy?

Pete Najarian: “No one can call the bottom, but this IS an incredible trading environment.”

Pete Najarian was asked to settle the debate once and for all. Though we’re a bit biased, we think he had the best answer by far. Pete said in no uncertain terms that no one can effectively call a bottom in the market. Though things look good today, the market has seen several high-velocity swings lately, indicating that sentiment can change on a dime. 

“Watch out for velocity and volatility.”

To build on his point about velocity, Pete referenced the final hours of trading on Thursday, where SPDR S&P 500 ETF Trust (SPY) (which had already fallen from over $433 down to $410.40) bounced more than 8 points over a period of three hours. 

Pete also referenced his other favorite V, volatility, in building his case against simply calling a bottom. He noted that volatility has been experiencing wide swings this week, with the VIX running up to $37.80 (very close to the 52 week high of $38.94) on Thursday before falling more than 28%, down to 26.91 by the following day. 

Concluding his points, Pete finally answered The Judge’s question: “I’m not sure it’s time to call a bottom on this market, but this is an incredibly trading market”. Pete went on to talk about the way he’s trading this market, including bets to both the upside and the downside. And you already know he’s using options to do it. Let’s take a look at what those trades were, and how those at home can mirror his trades.

$ARKK Put Spread

ARKK ChartChart courtesy of TradingView

Pete used a vertical put spread to make a bearish bet on ARK’s Flagship Innovation Fund. Going out to the April expiration, buying the $55 strike puts and selling the $50 strike puts. Spending roughly $1.00 for a max profit of $5.00 per spread. Here’s what Pete had to say about his bearish bet.

“What I liked that we had seen in the last week was some massive ARKK put buying. I love Cathie Wood — she’s transparent, she’s talented, and she has a much longer time horizon than most other investors. But that doesn’t necessarily mean that she’s bought the bottom. 

I wouldn’t be surprised if the ARKK names come under pressure again over the next few weeks. Those put spreads are all the way out in April by the way, so there’s plenty of time in these options.”

$CRWD Calls

CRWDChart courtesy of TradingView

Just because Pete owns puts on a growth-heavy name like ARKK, doesn’t mean he’s bearish on all of growth. He’s simply following the smart money, and in this case, the smart money led him to purchase $200 strike calls expiring at the end of this week in the high PE name Crowdstrike. Here’s what Pete had to say about these calls.

“At a 200 PE, I wouldn’t buy the stock. But I’ll definitely trade the options. Crowdstrike was trading at $187 this morning when they bought this week’s $200 expiring calls. They were originally going for 2 dollars and they’ve already traded up to 5 dollars today. For a trade, I like this for this week. But would I buy the stock right now? Absolutely not.”

$TSLA Calls

TSLAChart courtesy of TradingView

To an even greater degree than the rest of the market, Tesla has seen incredible swings in price over the past two weeks. The poster-child for high-PE, high-growth names, Tesla’s stock price fell below $700 on Thursday for the first time since last August before quickly surging back above $850 the following Monday. 

And it appeared the smart money was ready to follow the momentum, having bought 29,000 of the March 4th $900 strike calls. Notably, Pete mentioned these calls were purchased at the same strike and quantity last week, indicating that a big buyer is doubling down on his Tesla bet. 

Pete said that though these calls were relatively far out of the money, TSLA is a stock that could do it. For that reason, Pete went long these calls, which are already profitable. Now, he said, the only decision is whether to trim the position now or wait until the rest of the week.

$AMD Calls

AMDChart courtesy of TradingView

Pete’s final play was in the semiconductor giant Advanced Micro Devices, or AMD. Another short-term “smart money” trade, Pete was following the purchase of 16,000 $128 strike calls expiring this week, March 4th. 

When it comes to trading options, the best traders have a plan and stick to it. That’s exactly what Pete did when entering all four of these trades. There’s no point in calling a bottom or a top, or calling out particular levels as the “definitive buying point”. Instead, he followed and executed a more simple plan: follow the smart money. 

Get the scoop on what Pete had to say about his trades in this clip from today’s Halftime Report, and as a bonus, check out Pete’s final options trade in Bank of America.