'Volatility equals opportunity' in options trades as tech soars

The latest earnings season has pushed the stock market (^DJI, ^IXIC, ^GSPC) to new highs yet again, especially on the back of heightened AI demand and adoption.

Simpler Trading VP of options Danielle Shay discusses the opportunities developing in the options market and ETFs tied to Big Tech, highlighting her process for examining risk.

One of the strongest earnings seasons in recent memory, spark and plays in the options market as the great AI trade creates more opportunity for investors. Let's get into what investors are seeing in the options market with Danielle Shay for the Options playbook sponsored by Tasty Trade. Danielle, good to see you. Maybe start, Danielle, your thoughts kind of on the broader market. It sounds like what you're saying um in simple terms is we have a market that's become just sort of, you know, buy the dip and chase momentum again, especially around those those AI names. Is that it?

Yes, that's correct. To me it strikes me as a little bit of 2020 2.0. Um I'm loving the trading environment and what we're seeing is really strong trends, great momentum and we're seeing a lot of new names coming out into the market too with the AI Revolution. So it's provided a lot of opportunity for retail traders especially, particularly because a lot of these new names are lower priced. We're seeing a ton of momentum and a ton of options volume.

Yeah, you also highlight here the role of products available to traders. just more ways for for people to make leverage uh bets on stocks. walk us through some of those.

So, when you look at the MAG 7, a lot of these names have gotten really expensive, right? And so especially for retail traders coming into the market, it makes it more difficult to invest in these long-term stocks or trade in the options market when you see those options prices costing you, you know, $3,000, $4,000 per call. But for example, you know, you have Microsoft. You can buy 2x ETF on Microsoft, MSFU. This is going to come at a substantial discount.

Now, yes, that is going to be more volatile because this is a two times product. However, as an options trader, you know, I love volatility, volatility equals opportunities. So we trade names like those, uh, you know, you can find 2x ETFs in Tesla, in AVGO. There's one in CloudFlare as well. Um and there's more coming out every day.

Those kinds of products, Danielle, do you just sort of broadly, do you see them as uh are they healthy Danielle or no, potentially create, you know, risk underneath the rally?

Certainly it will bring you some more risk. You know, if you're buying a 2x ETF product rather than the actual product itself because it's going to move more, right? It's going to move at a multiple. Um however, I for me personally as an options trader, I'm accustomed to volatility. So I always just tell our traders to only take on risk that's appropriate for your own individual account and your own risk tolerance. And so, uh, you know, I just apply the same patterns that I always apply, whether I'm looking at a 2x ETF or the regular stock itself and focus on those patterns with the entry and exit points.

Let's talk about some uh specific names too. You mentioned how Dell closed at around 317 before earnings and then of course just exploded higher and it looks like you're saying, Danielle, the options traders they they expected good earnings, but maybe maybe not that.

Right. So when we're looking at earnings in the options market, we're typically going to see an expected move before that event. And what happens and especially what's happened a lot this quarter is we've seen so many companies come out with 2X or even 3X what was the expected move. These kind of moves are absolutely phenomenal and they really speak to the heart of the AI revolution because what they're doing is they're saying, you know what, these stocks are are they're mispriced. And so when you come out and you have an earnings move like this in a company, um it's telling us that the fundamentals are there. People can start to call for a bubble uh due to this AI revolution, but the fact of the matter is is that if you look at earning season, so many of these rallies have been backed by true fundamentals and that's why it's important for traders to pay attention to earnings even if they don't like trading the actual report.

Danielle, uh you're making a bullish bet on Reddit. How come? What what do you see there?

So, I think that Reddit has unfairly gotten lumped in with the software apocalypse. and if you look at Reddit's earnings moves the last two quarters, it had phenomenal gaps up after the fact. It also had a really strong beat. And you know, a lot of these large language models are using Reddit's data uh for their information. And so it does have a little bit of an AI play there, but I like the technical pattern. I like the fact that it's reversing off of the lows. Yesterday, we had a lot of high volume and momentum coming into the name. and typically when that volume comes in, that's when it can break out of that bearish downtrend. So, I'm buying into this name. I like just buying the stock itself. I did also buy some Delta 70 calls going out into July. And it has some high short float too. So ideally as it continues to correct off of the lows, as it breaks through those areas of resistance, it should get a little bit of a short squeeze as well. So I'm targeting up to the $200 price point and then if it can break through that, hopefully uh back to the previous high. so

Finally, Danielle, how about MP materials? You think that one looks ready to to break higher?

That's right. I like the energy space right here and you know, this one has pulled back a bit which for me personally provided an opportunity to sell some put credit spread. so I went ahead and did that in our trading room this morning. Uh but I'm looking at these names because this is part of the AI revolution. This ticker is squeezing, it's consolidating. There's any kind of potential news that could come out uh surrounding the AI Revolution as we have seen so many times. And so typically what happens is you see consolidation in these names and then someday somewhere there's a positive news event and these tickers take off. So that's what I'm betting on in this ticker. I'm targeting 75 right now, uh but we'll see again when it gets going how that short interest impacts the stock and if it can really explode.

Danielle, great to have you on the show. Thank you.

Thank you.