Cannabis Market Takes ‘Crazy Bid To The Upside’
Future of Wealth Head Trader Lance Ippalito joins Midas Letter to discuss what he’s trading in today’s market conditions. With the number of reported Coronavirus cases outside mainland China increasing, further evidence suggesting an impact on global supply chains and general pandemic fears – the market’s have been pretty volatile. With rotations out of the big tech stocks like Apple, Facebook, Microsoft, Lance has found success in other smaller names and is also looking into certain cannabis companies. This Head Trader has found correlations between political events in the USA to weed stock names. Watch the full interview to find out more on Lance’s trading philosophies and trades he is profiting from.
James West: Lance Ippolito joins me now. He’s the publisher of Future Money Trends on the WealthPress network. Lance, welcome back.
Lance Ippolito: Hey, James, how are you?
James West: I’m doing well, thanks. How’s your trading day going today?
Lance Ippolito: It’s been weird, very weird. There’s more cases of the coronavirus, it sent the futures down about 20 handles, and now we’re stabilizing, but the market’s been pretty volatile this week. You had some rotation out of the big tech stocks like your Apple, Facebook, Microsoft, and then today, pretty light volume, but we’re starting to see some money flow into gold and bonds and safety asset classes. So could start seeing more volatility in the markets.
James West: Right. And so, from an options perspective, what’s the trade? What’s the play today?
Lance Ippolito: Michael’s, the art store, actually. That sounds really odd, and probably not a lot of people know that Michael’s is a stock. It’s very low price, it’s only about $5.50, but over 30,000 calls in Michael’s have been trading today, and it normally sees not even 1,000 call options a day hit. And then Gilead, another name, hitting the options market today: over 77,000 calls in Gilead. Most of these were short-dated from next week, February 28th expiration, to March expiration.
I think what I’m hearing on the Street is, they’re looking at a coronavirus possible cure, and I think that’s what these option players are betting on. Obviously, if they find some treatment for the corona virus, Gilead stock should see a nice bid to the upside.
James West: Sure, you bet. So have you been looking for stocks and option plays that are directly correlated to the corona virus?
Lance Ippolito: I took some Gilead today. It’s up now, the stock’s up about 3 percent; the call options are up about 20 percent already, and I literally just placed the trade about 30 minutes ago. It is, you know, in my opinion, when you play names with binary events – for example, let’s say they do have positive news on a corona virus drug, the stock will go up; if they do have a negative news on the corona virus, the stock’s probably going to see some downside.
So, limiting your risk in the options market is what I prefer to do. So that’s why I’m playing it.
James West: So, do you sort of hedge your trades in the options market? Go long and short?
Lance Ippolito: I don’t personally, just because I like to trade directional options, and I’m what we call a premium buyer where, if I buy calls, I’m buying premium. I’m not an options seller.
James West: Okay.
Lance Ippolito: What you can do to limit risk is spread out your trades. Like, instead of buying outright calls, you could buy call spreads, or, if it’s in your risk management, and let’s say you’re very long a specific stock or the market, buying some downside puts as protection or, like a volatility product like the VXX. That’s always something one can do.
I think it really just depends on how much risk are you comfortable holding.
James West: Right. Okay. So, in this market, does the cannabis space do anything for you?
Lance Ippolito: You know, actually, and I was having this conversation yesterday, it seems that there may be a trade in cannabis. And the trade is, I’m exposing my secrets already –
James West: [laughter]
Lance Ippolito: Yeah, it’s like, the trade is – but we saw the Democratic debate, right? And it looked to be, from the polls and, you know, from the media, that Bernie won, or Bernie did well – well enough, we’ll say, not to get into politics. The next day, the cannabis stocks had a crazy bid to the upside. I think Tilray, at one point, was up about 12 percent. You had Canopy Growth, CRON, all these names up about 5-plus percent. So it looks to be the trade, especially if you don’t want to be committed to some cannabis stocks for months or longer dated, is to get in the day before the debate, possibly limit your risk with some options, and look to take profits the next day. You could catch a pretty large move. I mean, a 12 percent move in Tilray, some of those options paid about 200 to 300 percent overnight.
James West: Wow.
Lance Ippolito: And really just hope Bernie performs well and he starts doing well in the polls. You know, again: I think if Bernie starts building momentum, the cannabis stocks, I think investors will be cornering cannabis stocks.
James West: Yeah, you bet. And what about gold? Gold has been on fire lately. Do you do any options trading that are correlated to gold?
Lance Ippolito: Yeah. So two names I like are Barrick Gold – so, GOLD – and then Newmont, NEM.
James West: Good symbol.
Lance Ippolito: They have very liquid options. You know, literally, a couple of pennies wide. They trade really good volume in the stock and the options, and they move really well. An options trader can also play in the ETF, like the GDX or the GLD. Those are also potential very liquid names that one can play. I personally just like singling out a gold stock, especially if I have a background with it and I’m pretty familiar trading it.
James West: Right. So those are large cap miners, that’s your sole focus? You don’t get into the mid-tiers or juniors?
Lance Ippolito: I don’t in the options market, just because when you start looking at names that don’t trade as much volume as those large-cap ones, the options market can get a little illiquid, meaning the bid and the ask is going to be a little wide. And as a trader, you want that tight bid-ask. You know, I had some members today play around with the NUGT, which is the 3x leverage ETF; you know, those are for the people who have some guts, who really like getting leveraged in those gold names.
But as long as a stock moves, I’m pretty much open to trading anything.
James West: Yeah. Interesting. So, tell me about your publication, The Future of Money – Future of Wealth, rather. What is the focus?
Lance Ippolito: So what we see in trading in 2020 is, we’re seeing a large shift into options trading into your online brokerage platforms and to mobile trading, as well. And what I try to do is give real educational tips from my experience in trading, for The Future of Wealth, and we post it on the website. I shoot probably five videos a week or so that I upload on real-time. This is real time, with stocks moving in the market, what I see for overall market direction, and mostly again, options strategies out there, just because when I started, there was very little YouTube videos. You know, there was a few books on options, but they were mostly selling options.
And as traders, the number one thing is obviously to make money, but risk versus reward. And I try to risk as little amount of capital possible to try to hit those big reward trades. So I’m not looking at, you know, 10 to 20 percent returns on my trades, I’m looking for 100, 200, 300 percent returns in my trading, and that’s at The Future of Wealth what I try to give our members.
James West: Wow. And in what kind of time frame?
Lance Ippolito: I’m pretty short dated. I trade anything from weekly options to front-month options to three-month-out options. Like, it’s very rare I have a June position on or a September position on. It’s really going to be a stock that I absolutely love, that I really want to hold it long-term. It’s just for me, the more time you’re in the markets, the more things that can go wrong. So if I could single out a trade for a specific event, I want to do that with my money.
James West: Right. Very good. Okay, Lance, so then, what are you seeing, you know, in terms of, like, we’re hearing about the middle of Q1. What do you think is the longer sort of dated expectation for you in terms of the fundamentals of the market that are going to define your options trades?
Lance Ippolito: So I was speaking with a hedge fund manager, actually, last week, and we were having this conversation of, well, you know, until something drastic changes with the Fed, with the global markets, money is going to continue to pour into equities. What’s crazy is, we’re seeing equities, gold and bonds go up in 2020 together.
It’s hard to be a bear right now, because we are seeing the markets go up really despite the coronavirus with all the negative news; but it’s also hard to be a bull. It’s hard to want to buy this market when you know we’re right near all-time highs, and we do have, from a macro point of view, so much negative news out there and so much uncertainty, especially in China, that it’s hard for me to commit capital to the long side in a decent position size, here.
So if I do miss, let’s say, the next 10 percent move in the overall market and possibly the next 20 percent move in a stock like Apple or Facebook, I’m fine with that. It’s just, I do think we see the market start to decline, and I want to be prepared for possible 10, 15, dare I say 20 percent move lower.
James West: Right. Right. Okay, Lance, well, that’s great intel as per usual. Really appreciate your input today. We’ll come back to you next week. Thanks and have a great weekend.
Lance Ippolito: Thank you, James, I appreciate it.