Happy Vol-entine's Day!

Introducing The Collection of Max Stupid

How nice that after’s yesterday’s CPI fiasco, we get a lovely holiday to relax a bit:

Vol-entine’s Day (TM)! This basically VIX expiry Day :/

A little known fact about Volatility Trading: it was a silly game invented by Charles Darwin as a way to speed up the Process of Natural Selection, since 99% of monkeys who play this game end up with the lifespan of a fruit-fly. But they still want to play, which helps with the Natural Selection process (and with Wall Street’s profit pool).

Anyway. On today’s Vol-entine’s day, 58% of total outstanding VIX Options Gamma expire. That can cause some funny moves on the upside and the downside.

I have a different perspective: I see this day as a cleansing event, whereby the Vol Monkeys finish their stupid games and we may get some real price discovery in the next few days. Or not.

In the meantime, I fully expect some relief in the markets due to the VIX expiry dynamics to be confused by the Market Monkeys as “the market digested the CPI” and “we have an all-clear to add risk”. This is just their nature.

MAX STUPID - Greatest Hits

Since I introduced the concept of “Max Stupid” in “Did someone eat the Cherry on the AI Cake?” as a way to identify proper exhuberance (h/t @paulomacro), I’ll document some “Max Stupid” occurrences for the sake of future historians but mainly because it’s so much fun to see such level of stupidity that even an imaginative Twitter parody account couldn’t come up with it even if he tried!

Exhibit 1: LYFT

LYFT reported results post-market. In the outlook, they said they expected margins to increase by 500bps. The stock surged +60% in the post-market (14% short-interest helps!). Then AFTER ONE HOUR and DURING THE CALL, the CFO said it was a “clerical error” and they actually expect a 50bps increase in margins. Pity the fools who traded the stock at that spike. The stock then dropped 30% from the highs.

What’s impressive though is that the stock is STILL up 16% after the print, as if none wants to question the reporting & accounting processes, because who cares.

I find this price action incredibly bullish. It means that the gullible monkeys are fully in control here.

Exhibit 2: NVDA

UBS upgraded their NVDA price target from $580 to $850, in a classic case of “Follow the Monkey”. What struck me was the commentary:

“Customer discussions confirm NVDA's lead times have come in substantially over the past few months (now ~3-4 mos), meaning shipment slots are still available in C2H:24. Normally, this is bad, but demand for AI compute capacity is still so strong, in the near term, we think this just points to significant upside potential to shipments/revenue”.

Thankfully, legendary Jim Chanos stepped up and dared to talk against the market darling that is NVDA: “"No, that’s bad…if true”.

I don’t know much about semi-conductors, but I invested enough in the commodity space to agree with Chanos. When lead times come down, stuff hits the market quicker. Sure, demand can follow up with supply. But lead times coming down is NOT bullish by itself. Sorry UBS. Maybe hire a mining analyst in your team to explain to you the laws of supply and demand. Or did you fire them all during Covid ?

EXHIBIT 3: BEZOS

Bezos filed to sell 50m shares in 2024. He sold half of that in 4 trading days, netting him a cool $4 billion. The monkeys of course came out to dispel that there’s any read-through to the company’s share price or fortunes.

Don’t get me wrong, Amazon is a great company and all that. But where I come from, $4bn is the GDP of a country.

So I like to pay some attention to it. Below are all the insider sales that Jeff did. The last one was near the top in 2021. And he did buy a SINGLE share in May 2023. Legend.

Maybe just admit that Jeff can trade his stock better than you?

That’s all Folks. And now a word, not from our Sponsors:

Enjoy St Vol-antine’s Day!

Disclaimer:

This isn’t financial advice.

This is the trading blog of a shrub.

Don’t be Stupid.