(Here's Why That's Wrong)
| | Your emails are going to be flooded for the next three months by every self-appointed financial expert in the world. | And they're going to say that the AI trade is going to create the most lethal downturn for any number of sectors over the next 18 months. | They're gonna tell you that you need to buy puts on WPP, on SGPI, on Moody's - even though that is the wrong way to trade this AI sell-off. | Don't do that. Don't do that. Don't do that. | These Names Are Already Crushed | Look, these stocks have been getting crushed. WPP is down 60% in the last year. The legal companies, the advertising firms, the logistics brokers - they've all been beaten up pretty badly. | But here's what every newsletter guru isn't telling you: When you're looking at these names right now, you're not just fighting the stock direction. You're fighting implied volatility that's working against you. | Take WPP. Current implied volatility is 42.9%. The percentile rank? 87%. That means it's 87% higher than previous metrics in the year. | This is not a place where I'm buying straight puts. | Remember, elevated implied volatility means the market makers want to sell you those puts. The purpose of the market is to sell you expensive options when you think you're being smart. | | | If you buy a put on WPP right now, your probability of profit - even if you pick a strike just one tick lower than where the stock sits - is about 30 to 33%. Those are terrible odds. | But if you do a spread? | You get up into the forties for probability of profit. You can sell that other put at a higher IV, define your risk, define your goal. And if the trade goes against you and there's a squeeze, that put you sold operates as a cushion. | The Signal Everyone's Missing | Instead of chasing puts on beaten-up names, pay attention to insider buying activity. | This morning, we saw a pretty sizable cluster buy in CHRW - CH Robinson, the logistics company everyone says AI is gonna destroy. Executives bought their stock at $163. The stock's already moved to $178. | When a stock gets cut by 25% and executives are buying at $163, $168, $167, $162 - that tells you something the AI panic sellers are missing. | I asked Cathie Wood this question point blank at a conference a couple years ago: "Why are you buying stocks if the executives aren't?" | Same principle applies here, just flipped. If executives aren't buying their beaten-up AI "victim" stocks, you shouldn't either. But if they are buying? That sets up an opportunity. | Instead of chasing expensive puts on names that have already moved, focus on spreads. You want to understand implied volatility, probability of profit, and everything that comes with elevated IV environments. | The dealers want to sell you puts right now. Don't make it easy for them. | Look for insider buying clusters in the sectors getting hit. Wait for better entry points. Use spreads instead of naked puts. And remember - when everyone's becoming an expert on the same trade, that's usually when the big moves have already happened. | Stay Positive, | Garrett Baldwin | |
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