TWITTER: MacroDoζer Summer Special 1/5
Let The Games Begin: Twitter As First Contender In "MacroDoζer Summer Special"
Sell In May And Go Away sounds somewhat lazy to me.
Paul Samuelson: “If you want excitement, take $10,000 and give MacroDoζer Summer Special a go”.
We will generate five Summer Special ideas and review the RoC in September.
First contender TWTR: we know how to squeeze the juice out of that situation.
We bet on a prolonged legal battle with a fair value between 28 and 42.
1. Why Do I Care Right Now?
Rant Around Summer Laziness
While most market participants seem to find an excuse to stop trading during the summer months of July and August, I seize that opportunity to take the other side of their rationales. The saying Sell In May And Go Away is so lazy that I wouldn’t know where to start dismantling it.
Let’s call it the MacroDoζer Summer Special on how to augment while others spend, how to grow while others blow. Or, as Nobel Prize Winner Paul Samuelson would have remarked, investing should be like watching paint dry or grass grow; if you want excitement, take $10,000 and give MacroDoζer Summer Special a go.1
TWTR will be our first Summer Special candidate. The situation seems far from over and is likely to get juicier; we will give it another stab. Check out our initial Twitter play if you like history.
Let’s see how much return we can produce by the end of August. I plan to generate five solid Summer Special ideas (1/5) - (5/5) and review the return on capital in September. People might have to wake up twice from estivation; we will see how good or bad the post-summer vibes will turn out.
In principle, I am no big fan of getting involved in premium sales right before earnings calls. Implied volatilities are artificially high for a good reason; earnings plays are often a gamble. An earnings beat could mean a) price spike, b) price tank, c) first spike, then tank, or d) an all-of-the-above rollercoaster event. Imagine a similar set of outcomes for an earnings miss, and sometimes the price doesn’t move at all. Human and algorithmic traders are going bonkers; this is not a pool we want to swim in. It is nasty, and it stinks.
Having said that, let’s jump right in.
2. Useful Background Information
Elon Musk wants Twitter to have more than 5% fake accounts. Twitter management needs it to be less. Does this make a difference for the Doζe? Not at all.
We care that all volatility measures are high enough for juicy premium sales and that a fair bunch of new information shall now be priced in after Elon’s weekend revelation. We also hope for not too many new surprises during next week’s earnings call. We bet on settling dust and a long legal battle to follow. The fair value of TWTR seems to sit somewhere between our break-even points of 28 and 42. We burn the theta out of that situation all summer, until Christmas if needed. Happy Holidays.
3. Trade Execution
We are selling our classic, slightly bullish risk-defined straddle at 35 strikes. Break-even points are 28 and 42. We chose the Sep 16 monthly contracts due to liquidity issues in the weeklies, and with 67 days to go, we have enough time to adjust the trade if needed.
Trade Entry - Jul 11, 2022
1) Short Call 35, Sep 16, 2022: 3.20 Credit.
2) Short Put 35, Sep 16, 2022: 4.70 Credit.
3) Long Call 48, Sep 16, 2022: 0.23 Debit.
4) Long Put 22, Sep 16, 2022: 0.79 Debit.
Total: 7.20 Credit.2
4. Final Comments
Expect updates on BrainDoζers within 4-6 weeks. We use the exact heading, ending with (+/- xy%), and label the cover cartoon with a red Doζed stamp. That way, the performance will be easy to follow.
We are not sending BrainDoζer updates via email unless you specifically ask for it here. We want to keep the information flow light and to the point. You can still freely access all updates on MacroDozer the moment they are released.
My name is Juri von Randow. You can find me on the top banner to the right. MacroDoζing, as if there was no tomorrow. (Email version only.)
Feel free to share. Sincerely.
Adjusted for inflation.
Total credit equals the sum of the mid-prices of each bid/ ask spread. Brokers usually get filled mid-price for liquid options.