The VIX, Bitcoin, DermTech (DMTK) and buying Calls

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Thoughts on the Vix, the Stock Market, Bitcoin, DermTech (DMTK), and buying call options.

The VIX, Bitcoin, DermTech (DMTK) and buying Calls


Podcast Transcript

Hey, this is Jeffrey with another edition of stock smart, February 11th, 2021 edition and I hope you’re doing well today. Let’s talk about the VIX really quickly. The VIX or the fear-gauge as far as the stock market is concerned has a new normal and it’s 20, it’s right about where the VIX sits today. It’s 21.84 which is slightly elevated, but if you look over the past year, because of the increase in options being bought, the VIX now is reset, it used to sit at about 10, but now it’s sitting at 20. It’s got a large period of stability in that 20 range. So I think now the new normal for concern when you see the VIX is in the 30 range, but don’t look at the 20 range as out of line or when people start getting nervous and maybe they’re buying more puts.

I would look at 20 as a baseline of you know, low volatility and then when it gets bumped up to 30 and 35, The last time it was at 37 it was late January and we got about a 4% drop in the market. I still do think we’re way over bought over bought again yesterday increasing the over-boughtness. That’s not a word but I’m going to use it but we are increasingly getting more and more overbought. So if you’re adding now be very safe be very careful because there should be an unwind of this at some point. You know, we’re heading into markets closed on Monday. So we have one more day of trading this week, but there’s going to be an unwinding of this at some point.

It’s going to take a few days to unwind now because we are building up. Today in the market is somewhat flat again S&P is at like 10.10 the short interest in that GameStop trade has gone down there right now and the update on the short Interest really comes every two weeks. So, you’re sort of behind or lagging it, the actual shorts, but short interest now in GameStop’s down to like 41% at a tie it was in over 100. Some of the other companies just for interest that are short, a company that’s actually really interesting.

It’s been on here that I actually took part in was Fizz National beverage company, bought it for a little bit, had a good chart, had a little run in it, made a little money got out before, you know short started selling after they had to cover. SunPower a lot of solar companies on here. That’s interesting. So Clovis cost corporation, which is the headphone company is also on here and then Ison, again another solar play but overall shorting is very low right now comparatively over time periods. So it’s not you know, this whole idea of getting into short squeezes, there really aren’t that many available very limited number of companies. Let’s talk about Bitcoin for a second, announcement today from Mastercard, saying that they are going to allow some transactions of Bitcoin. Bank of New York Mellon, huge custodian, announced that they will start allowing their clients to buy Bitcoin.

And they’ll also store it, so they’ll have custodianship of the actual Bitcoin and they’ll be selling it and so Bitcoin on that news is up, you know was up 4-5% today. So it’s nearing 48,000 again.


So hey we gotta watch a stock, we talked about it last week, DermTech, DMTK, DermTech on the day is up 24% to $66, chart is still breaking out, announced really interesting news yesterday. Remember we talked about DermTech earlier in the week. It’s a Dermatology product and it’s for non-invasive skin. It’s called non-invasive skin genomics platform and they’ve announced that they’ve contracted with Blue Cross and Blue Shield of Texas to make their pigment lesion assay available to its 6 million members in the state of Texas. Remember this is still a very small company the market caps about 1.3 billion. That is a tiny fraction in the medical world.

But essentially what their product is again is it’s a piece of tape where you put it on a skin lesion or a mole and then you rip it off and you send it into them to the laboratory and then they give you a result whether it’s cancerous or not. In the old days, you would have to do a biopsy which would involve cutting and a scalpel and then you take it and you still have the same process but this is far less invasive. So what you’re going to have is it’s more preventive and people are going to be more apt to want to do this rather than going under and having a scalpel to a mole or something.

So DermTech exploding on this news and you can only think we could go from here because this is just Blue Shield of Texas, Other companies, you know medicine really is going to go into a preventive place, to cut costs, they’re going to always looking at preventing things. So if you can access or get information about something cancerous before there’s any issue, a company like this stands that do very well in the market because they’re going to be preventing possible issues going forward and people will be more likely to go do it, in the less invasive way


So we got a question from Peter. And thanks for the questions. You can send them to Peter asks, he wants to experiment with buying call options and how does it work. You can either buy or sell calls. One call represents 100 shares of an underlying stock.

So let’s look at example with Apple this morning. We could have purchased 137 February 19th, 2021 Apple call for a $1.57. So that’s essentially you take $1.57 times a hundred and it’s $157. Now that would be in the money that call so it would be at the money at 137. Now if the price is above 137 you’re in the money and you can sell or roll up your call. If the strike price is below 137 on the day the call expires the call expires worthless. So you break even and that’s what you need to look at. Where is my break even point? So you break even on a call like that when the stock hits approximately 138.60 but it also depends on time decay of the option.

You know the time value decay is an important aspect. A lot of people buy longer term options so that they last longer the time value decay goes down slower because as the option gets close to expiration it falls in value greater. Let’s go over one more example let’s say a call option strike price is 15 and the underlying market price is $25 a share. The intrinsic value is 10 or the stock price. You know, minus the $15 strike price of the option. If the option premium that you pay were $2 you make essentially $8. If the intrinsic value or the price that you sold it at was 10. So there’s a misnomer to options and most people say, you know, there’s always this thing about “oh most options expire and they expire worthless”.

Well, that’s because a lot of options are actually closed before they even come to expiration. There are a great deal of options, probably 25-30% of them. So it is still very risky and many options will be closed out before their expiration. So it doesn’t exactly fit in the numbers. Because when you see those numbers it’ll say, well these are options that weren’t exercised and they were worthless and then ends up being somewhere around 20,25,30%. So it is a risky strategy, doesn’t mean people close them out or also doesn’t mean if they close them out that they were winners, also a lot of people close them out at a penny and you know, that’s a losing option trade as well. writing covered calls, by the way, and we can talk about that more later.

It’s a good way to generate premium, but that’s another complex thing and then there’s the idea of what, you know Warren Buffett’s number one strategy is, which is selling puts now in that if you’re going to sell puts you need to have or make sure that you have the money to cover, you know, if the put gets executed on, meaning you’ll have to buy the stock at the price of the put if it gets executed on you, but we can talk more about that later as well. Thanks again for listening. Hope you enjoyed the show and we’ll see you again next time on Stock Smart.

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