$HOOD: Robinhood Stock Options Outlook for Week Ending 13 Aug

TLDR; Options Data supports a trading range of $50-70. HOOD 70c 9/24. RH might be a POS but this is about money. My plan to post these consistently fell apart a bit. Anyways the last call for SPY 439c 7/23 betting on $440 was on the dime (Actually within a dime) and ended up being fairly profitable after some averaging down. The put credit spreads not so much but that's life. However this trading method (Modeling out Delta Hedging) works significantly better on heavily options driven equities which brings me to the recent IPO of Robinhood (HOOD). First off, forget what you think about the company or Vlad Tenev. This is about making money and I don't care about the emotional component. Second, I've explained the options/underlying mechanic and some explanation of what I'm doing in past posts. We're looking at delta hedging to predict what prices are more likely. Go read it there if you're still confused. Options rolled out last week and have been very influential on the movement of HOOD. This is the model of the options chain (weighted for Delta Δ) on 4 AUG close. HOOD ΔWeighted Model for 4 AUG 21 Two neat things here. First, $70 strike has the most significant options concentration and therefore has the most pull on the underlying. Interestingly HOOD closed at $70.39 on 4 AUG which is right on the money. Second, the options concentration is almost entirely from $50 to $70. After news of insiders selling shares broke premarket 5 AUG, HOOD declined heavily but bounced off a low of $50.85 which is the lower bound created by the options. Given this and overall options volume, it would be fair to conclude options/delta hedging is influential here. Over the weekend I updated the model for the new strikes and expirations added. HOOD ΔWeighted Model for Week Ending 13 AUG 21 Call buying on $70 is still elevated and is the most significant strike here. Based on that alone, I like the probability of a gamma squeeze towards $70. Enough said. There's a bound between $50-75 that the spot price should stay within. All of the options are tightly grouped in there and are pulling the spot around. The even Put/Call ratio on $75 creates an interesting setup. Overall, the number of contracts on $75 is high and should therefore be a significant strike and attract the spot price. However let's take a look at net Δ (Call+Put). HOOD ΔWeighted Net Model for Week Ending 13 AUG 21 Because of the even Put/Call ratio, the net Δ is slightly negative and nonsignificant. Therein lies a problem. To say $75 is Δ neutral assumes all those options are being held/hedged by one entity which would therefore have neutral directional risk and no need to hedge much at all. This isn't entirely realistic since different market makers are writing these contracts and each hold different directional positions. But the hedging effect would balance out on an aggregate level because hedging calls and puts balance out. My brain is too smooth to have a hard answer either way so I'm not confident enough to bet anything on it. Positions: HOOD 70c 9/24 My one concern is the insane implied volatility. As of Friday close, IV was sitting at 235% which is insane and options premiums certainly reflect that. You can be completely correct about direction and price and still lose when Vega bends you over. But I didn't get here being risk averse. PS: If you know how to get DvegaDspot data that would be much appreciated. Or get me a Bloomberg Terminal I'll try to pump out another SPY read this week. Have a great week

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$HOOD: Robinhood Stock Options Outlook for Week Ending 13 Aug

Aug 9, 2021

bullish

general Analysis

[3 min Read]

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TLDR; Options Data supports a trading range of $50-70. HOOD 70c 9/24. RH might be a POS but this is about money.

My plan to post these consistently fell apart a bit. Anyways the last call for SPY 439c 7/23 betting on $440 was on the dime (Actually within a dime) and ended up being fairly profitable after some averaging down. The put credit spreads not so much but that's life. However this trading method (Modeling out Delta Hedging) works significantly better on heavily options driven equities which brings me to the recent IPO of Robinhood (HOOD).

First off, forget what you think about the company or Vlad Tenev. This is about making money and I don't care about the emotional component. Second, I've explained the options/underlying mechanic and some explanation of what I'm doing in past posts. We're looking at delta hedging to predict what prices are more likely. Go read it there if you're still confused.

Options rolled out last week and have been very influential on the movement of HOOD. This is the model of the options chain (weighted for Delta Δ) on 4 AUG close.

HOOD ΔWeighted Model for 4 AUG 21

Two neat things here. First, $70 strike has the most significant options concentration and therefore has the most pull on the underlying. Interestingly HOOD closed at $70.39 on 4 AUG which is right on the money. Second, the options concentration is almost entirely from $50 to $70. After news of insiders selling shares broke premarket 5 AUG, HOOD declined heavily but bounced off a low of $50.85 which is the lower bound created by the options. Given this and overall options volume, it would be fair to conclude options/delta hedging is influential here.

Over the weekend I updated the model for the new strikes and expirations added.

HOOD ΔWeighted Model for Week Ending 13 AUG 21

  • Call buying on $70 is still elevated and is the most significant strike here. Based on that alone, I like the probability of a gamma squeeze towards $70. Enough said.
  • There's a bound between $50-75 that the spot price should stay within. All of the options are tightly grouped in there and are pulling the spot around.
  • The even Put/Call ratio on $75 creates an interesting setup. Overall, the number of contracts on $75 is high and should therefore be a significant strike and attract the spot price. However let's take a look at net Δ (Call+Put).

HOOD ΔWeighted Net Model for Week Ending 13 AUG 21

Because of the even Put/Call ratio, the net Δ is slightly negative and nonsignificant. Therein lies a problem. To say $75 is Δ neutral assumes all those options are being held/hedged by one entity which would therefore have neutral directional risk and no need to hedge much at all. This isn't entirely realistic since different market makers are writing these contracts and each hold different directional positions. But the hedging effect would balance out on an aggregate level because hedging calls and puts balance out. My brain is too smooth to have a hard answer either way so I'm not confident enough to bet anything on it.

Positions: HOOD 70c 9/24

My one concern is the insane implied volatility. As of Friday close, IV was sitting at 235% which is insane and options premiums certainly reflect that. You can be completely correct about direction and price and still lose when Vega bends you over. But I didn't get here being risk averse.

PS: If you know how to get DvegaDspot data that would be much appreciated. Or get me a Bloomberg Terminal

I'll try to pump out another SPY read this week. Have a great week

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HOOD

Robinhood Markets, Inc.

8.02

0.02
0.25%

Return

-86.30%
Change % Since Posting
-50.53
Change Since Posting
58.55
Price When Posted

Metrics

70.00
Target Price
9/ 10
Confidence
1-2 Months
Timeframe
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