A $7 Trade to Play Robinhood’s Big Week

Robinhood Markets Inc. (Nasdaq:HOOD) IPO’d on the Nasdaq just a couple of weeks ago.

Back then, I told you to stay away from the stock. And I was right, at least at first – in its inaugural day of trading, HOOD fell.

But it didn’t take long for the meme stock medium to become a meme stock itself, spiking at one point to $85 in a 123%-plus jump from its IPO price.

So, what do I think now?

Well, HOOD has really high volatility – and an upward-sloping volatility curve. And I’m done sitting out on what looks to be a ticking profit bomb.

Toward the end of last week, HOOD finally listed options. And on Thursday, I told you three ways to trade those options.

But today, I have an $8 trade idea to bring you – and it’s got potential to turn an asymmetric return this week.

Get all the details right here…

Last week, I explained that HOOD has an incredibly expensive vertical call skew. So you can’t just come at this name with straight calls.

See, the upside calls are more expensive than the at-the-money (ATM) calls. That means we can buy ATM or ITM calls while selling OTM calls with a ton of edge.

Let’s take a look. The August $50 calls, which are $7 in the money, are $19. For one contract, which is equal to 100 shares, that’d run you a whopping $1900 – which is much more money than you want to spend when looking for an asymmetric return.

But if you sell the $80 calls at the same time, you’d take in $12 in premium – meaning, in total, this trade would only cost you $7 – less than over half of the straight $50 calls.

With a call spread like that, you can cash in on HOOD’s upside potential – without breaking the bank and falling victim to the call skew.

The Primetime Trading Summit: August 12

As you know, I go live every week exclusively for Profit Takeover readers.

But listen up – because I’m not the only trader who reveals my profit plays live.

And on Thursday, August 12, at 7 PM, my colleagues and I are putting on the biggest live trading event of the year.

You’re a member of Profit Takeover – and that must mean that, like me, you love trading. And that’s the only requirement of entering the Primetime Trading Summit on August 12.

This event is going to be jam-packed with more trading opportunities than have ever been released at one time. And you can sign up right here.

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VIX Traffic Light

My VIX light is almost red – key word here being almost.

The VIX is still above 17, even as the S&P rises to new highs. And while futures are in a contango – something that typically turns the light red – our ancillary indicators are still yellow:

VIX volatility is high, with the VVIX Index (INDEXCBOE:VVIX), a measure of the change in volatility in the VIX, above 115. And the VIX is still positively correlated to the S&P – meaning for now, we’re staying cautious with a yellow VIX light.

Mark’s Watchlist

1. AMC Entertainment Holdings Inc. (NYSE:AMC)

2. Berkshire Hathaway Class B (NYSE:BRK.B)

3. Draftkings Inc. (Nasdaq:DKNG)

4. Penn National Gaming Inc. (Nasdaq:PENN)

5. Advanced Micro Devices Inc. (Nasdaq:AMD)

Dive into today’s Watchlist now…

1. AMC Entertainment Holdings Inc. (NYSE:AMC)

This meme stock may be up today, but after it fell over 3% last week, I’m not looking to ride AMC today – not to the upside, at least.

Instead, I’m looking at shorting AMC with puts or put spreads as a way to profit off of the inevitable downside.

2. Berkshire Hathaway Class B (NYSE:BRK.B)

Buffett’s company reported earnings on Saturday. And it seems that the recovering economy boosted the company’s operating earnings mainly in their railroad and energy businesses. In total, earnings rose 21% in the second quarter – landing BRK.B on my Watchlist today for a post-earnings play.

3. Draftkings Inc. (Nasdaq:DKNG)

DKNG was a favorite stock of mine at the start of the Olympics because of sports betting demand. But now that the Olympics have come to an end, this stock remains on my Watchlist, especially after last week’s earnings report showed better-than-expected revenue figures and raised future guidance.

4. Penn National Gaming Inc. (Nasdaq:PENN)

Same goes for PENN – like DKNG, this name hit my radar as the Olympics kicked off at the end of last month. And last week, PENN announced plans to buy theScore, a sports news site owned by Score Media and Gaming Inc.

Combined with a positive earnings report, this news is sure to keep PENN rising this week.

5. Advanced Micro Devices Inc. (Nasdaq:AMD)

Like AMC, I’m looking at AMD through a bearish eye today, despite BMO’s rating boost this morning. This stock has risen more than 20% in the past month – and it’s got to drop soon, so I’m looking at puts to short this name this week.

And that’s all I’ve got today.

Until tomorrow,

Mark Sebastian

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