The CORRECT Way To Trade OPTIONS On "Meme" Stocks (BBBY Analysis)

[@scottreesetradinginvesting7936]

Hope this video gave you some good insight into how to best trade these crazy meme stocks! :)

[@wiryonobudiman9322]

Awesome video 👍👍👍

[@scottreesetradinginvesting7936]

Thanks for watching, Wiryono! :)

[@enrique8288]

Scott, would you have insight on how to spot a short squeeze coming? Doesnt have to be for meme stocks but in gral as well

[@scottreesetradinginvesting7936]

Only thing I can think of is to monitor which stocks have super high short interest and which of those stocks are currently being talked about the most in online forums. But to be honest, there’s no way to predict when short squeezes will actually occur…they’re a very rare and spontaneous event. Not something I would bank on as a core trading strategy.

[@ServicePluss]

Isn't there another strategy, one far less risky than selling calls--that being to buy a put and then sell a lower strike put to offset the cost of the put and mitigate the premium/volatility crush? I

[@scottreesetradinginvesting7936]

Yes buying a put debit spread would certainly be better than just buying a put. The short leg of the spread will help offset the effects of IV contraction. However, I still think the best alternative to selling naked calls is to sell call credit spreads.

[@BOGsaHtrade]

I was so tempted to sell $42 strikes when the stock was at 28 a few days ago... the IV was ridiculously high. But these MEME stocks can get away quick, especially with such a high SI.

[@scottreesetradinginvesting7936]

Ya I totally get it haha. I was very tempted as well, but I can never forget what happened to GME. That being said, the GameStop short squeeze was literally a once in a lifetime event. Every other time after that where any of these meme stocks have experienced another short squeeze, they never got very high and always crashed and burned soon thereafter. So if you have the capital and keep your trade size VERY small, then I think these meme stocks offer a lot of opportunity for option sellers.

[@jeffha4057]

Selling naked calls is not really worth the risk/reward for these kinds of plays in my opinion, and the credit spreads hardly pay anything. For instance, if you did a 9/16 Credit spread of 20/30, the credit is only 50 dollars and the max loss is still a thousand dollars (as of market close 8/19/22). If it wasn't for the huge bankruptcy risk, it might be worth it to sell puts, but there's a very real chance that a stock like this could go to zero.

[@scottreesetradinginvesting7936]

Fair enough…but BBBY is also a very cheap stock. So even going in with short naked calls would not be too risky as long as you have a decent-sized trading account. Of course, there’s always the possibility of a GME situation playing out with BBBY as well, but I think that’s extremely unlikely. What happened with GameStop is literally a once in a lifetime kind of event.

[@jeffha4057]

@@scottreesetradinginvesting7936 It also happened with AMC, however. That stock did nothing for many months and then out of nowhere exploded to $70 in June of 2021. I saw someone lose $600,000 because they were selling a bunch of $60 naked calls. Also, BBBY has a very small float so it can be manipulated by retail as we've already seen, which is why the risk is too great for me. CSPs at least have a defined risk since the stock can't go below 0, but even then, I don't know if the risk/reward is there since they realistically could be headed to bankruptcy. Sometimes it's just better to avoid certain plays like this, although I know they it is tempting to open positions when you see the IV this high.

[@BOGsaHtrade]

I also considered selling puts instead of calls when the stock was at 28.... but there wasn't any real base level. It ran fast from single digits. Ultimately, I decided it wasn't worth the risk of being assigned since BBBY is not a company I'd ever buy.

[@scottreesetradinginvesting7936]

@@jeffha4057 Yup I definitely understand...as I said in the video, my rule of thumb is to avoid trading these meme stocks altogether because there is so much added risk. But if you REALLY want to trade them, then I still think selling calls in some fashion is the best approach on the way down....and buying calls would be best on the way up!