Cathie Wood is in trouble.
2020’s “Best Stock Picker,” a title bestowed upon Cathie by Bloomberg last year, currently holds a portfolio that might just strip her of that crown.
Cathie may have predicted Tesla’s incredible stock-split adjusted jump to $4,000. But right now, her Ark Innovation ETF (NYSEARCA: ARKK) is in the middle of one of its worst months since inception.
Just look at the numbers. On Feb. 16, the ETF hit a high of $159.70. Today, just under three months later, it’s more than 35% below that level:
ARKK is failing. Just look at the chart – that much is obvious. And today, I’m going to dive deep into Cathie’s ETF to show you exactly why it can’t stay afloat.
But that’s not all we’re talking about today. One man’s trash is another man’s treasure, right?
Right – and so is one woman’s. I’m going to show you how to turn Cathie’s failed ETF into a lucrative strategy for your portfolio… one that gave me a free trade on big tech.
Then, I’ll show you exactly where the impact money is hiding today in our regular edition of I Spy Impact Money.
So, after reading today’s Profit Takeover, you won’t have one new trade idea – you’ll have two.
That’s right – tomorrow at 12:00 p.m. ET, I’m going live for an encore presentation of The Profit Takeover launch.
I’m covering asymmetric returns… implied volatility… two-factor trading…
Mark your calendar, and be sure to register in advance for this event right here. We’re going to beef up the Profit Takeover portfolio, and this is the best place to be when I reveal the next trade… live.
Okay, so, the Ark Innovation ETF (ARKK). As I just explained, it’s down 35% from its February high.
And according to Cathie, well, she “loves this set-up.” At least that’s what she said on Friday’s “Closing Bell.” Apparently, she thinks that 35% drop is going to turn into a 25% win by year-end.
But I have to say – I don’t see that happening. Why? Well, let’s take a look at the ETF’s top 10 holdings:
2. Square Inc. (NYSE:SQ)
3. Teladoc Health Inc. (NYSE:TDOC)
4. Roku Inc. (Nasdaq:ROKU)
5. Zillow Group Inc. (Nasdaq:Z)
6. Zoom Video Communications Inc. (Nasdaq:ZM)
7. Spotify Technology SA (NYSE:SPOT)
8. Baidu Inc. (Nasdaq:BIDU)
9. Twilio Inc. (NYSE:TWLO)
10. Coinbase Global Inc. (Nasdaq:COIN)
ARKK owns $2.3 billion worth of TSLA. Back in mid-2020, this was a good idea. The stock was on a tear. But as far as I’m concerned, that’s when TSLA became a so-called “meme stock.” And after Elon Musk hosted “SNL”, the stock pretty much reached peak “meme-ness.”
Today, TSLA is 30% below its all-time high of $883 in January 2021. And if Elon’s “SNL” appearance didn’t send it soaring back up to the $800 level, then nothing will – at least not in the near future.
Another questionable name on the list is ZM. Back in mid-2020, Zoom was one of the best stocks to have in your portfolio as the video platform’s usage boomed through the pandemic.
But now, people are returning to work. They’re going to in-person parties. Video chat is no longer a necessary part of their daily lives – and what do you know, ZM is down almost 50% from its October 2020 high.
What about COIN? This stock just IPO’d in mid-April. And if there was a school of investing, one of the first things they’d tell you is to never invest in an IPO. Everyone knows a stock tends to go down after its IPO – you’re supposed to wait and see how things shake out before dumping cash – especially $588 million worth – into a stock.
I mean, COIN is already 10% below its IPO price.
Now, onto my favorite piece of any equity – implied volatility. The Invesco QQQ Trust (Nasdaq:QQQ), which is the ETF tracking the Nasdaq 100’s performance, has an IV of 21.12. And that’s all while big tech drops from the top of the food chain – a fall from grace that I’ll cover later this week.
ARKK’s IV? 50.
Cathie Wood has got a date with mean reversion headed her way. And if you’re long ARKK, then so do you.
But remember last week, when I explained the ABCs of put buying? Well, ARKK is presenting the perfect opportunity to use puts.
As a pure profit play, sure – with a 5% drop on Monday morning, a put on ARKK could have handed you a nice asymmetric return. But did you know you can also use puts as a hedge?
A hedge is a way to protect positions in your portfolio by offsetting potential losses. And buying simple puts is one of the easiest ways to hedge your portfolio.
Remember – puts gain value when the underlying falls. And ARKK is pretty much freefalling off a cliff and diving head-first into the Pacific.
Let’s get back to big tech – there’s another group that’s taking a tumble. Got any FAANG stocks in your portfolio? Facebook, Amazon, Apple, Netflix, Google – they’re some of the biggest and most popular names in the market. But recently, these “too big to fail” names have been doing just that: failing.
While the Dow rallied 300 points on Monday to a new all-time high, the tech-heavy Nasdaq sank 1.5% as these FAANG names weighed the index down.
But before you offload big tech from your portfolio, consider using ARKK as a hedge instead. That’s exactly what I did – and on Monday morning, it paid off… literally.
I bought the ARKK May 2021 $110 puts for $3.40 and the QQQ May 2021 $338 calls for $4.10.
Together, that was a $7.50 investment per pair of contracts, or $750 (since each option controls 100 shares).
On Monday morning, as ARKK dropped 5% on the open, I was able to sell my puts for $7.60.
Not only did I make a 123% asymmetric profit on the ETF – I also now own the QQQ calls for free.
So, if those calls lose value, I’m completely covered…
And I have Cathie Wood to thank for that.
Now, I’ve already cashed in my ARKK puts. But do you want a detailed recommendation on a different volatility play?
It could turn an asymmetric profit by summer’s end – so be sure to register right here before tomorrow at noon.
I Spy Impact Money
Here’s an unusually large option trade that crossed the tape this morning, pointing to potential institutional-level activity:
Click To Enlarge
Unusual volume on UBER – Courtesy of Trade-Alert
Uber Technologies (NYSE: UBER) stock has taken a spill in May, as the ride-hailing service faces a massive driver shortage, and as “gig workers” come under assault from the Biden administration.
Although UBER shares were last seen trading around year-to-date lows at $45, at least one big-league option trader is expecting a rebound in the second half of 2021, buying to open a block of 4,665 December $45-strike call options today.
Again, this “impact money” is just one side of the two-factor authentication trading technique I’m looking for, so if UBER begins to trend on the retail side, I’ll be taking note.
And that’s all, folks – until tomorrow’s 12 p.m. webinar, of course. Remember to click here to register.
See you then…
May 11 2021