March 23rd, 2023

Don’t Blame This One On The Fed

Investors largely shrugged off the 25 basis point increase and the markets turned positive for a brief period after the Fed announcement, but then Janet Yellen decided it was her term to shake the markets.

Testifying before a Senate panel, Yellen said no one is considering looking at expanding FDIC coverage to all deposits. In other words, despite the recent bank failures, there is no guarantee that the U.S. government will save deposits over $250k.

Here’s how it went down today. Here’s an intra-day chart of the S&P 500. You can see that the market responded favorably to the 25 basis point increase, but not so much to the comments bank about the banking crisis. Without the safety net to protect the banking system, markets sold off into the close.

It’s not up to the government to bail out shareholders, bondholders, or depositors in every bank, but it’s also not the fault of the depositor when the bank doesn’t behave, so maybe we could start holding bad actors accountable for their actions instead. Silicon Valley Bank made some very questionable decisions which led to its demise.

On the plus side, the Fed hinted that an end to rate hikes is near by removing a line from its statement about “ongoing increases.” The new forecast is for one more increase this year and then the potential for a rate decrease in 2024.

If Powell and Yellen didn’t simultaneously talk about the fragility of the banking system, I think the rate hike would have blown over with little fanfare.

If you’re tired of the Fed nonsense, you can always go back to the meme stocks. Gamestop (GME) rose over 30% because the losses aren’t as bad as anticipated. Maybe someone can explain to me why that happened while at the same time, Nike (NKE) increased their revenue forecast but warned of margin pressure and they lost nearly 5% yesterday.

I guess it’s time to get back into the meme stock craze.

Who likes video games? Today’s trade idea is on Take-Two Interactive (TTWO), the video game company.

I’d like to see the weekly chart with a more defined uptrend with a series of higher highs and higher lows, but the stock has still been following an upward trend for the last several weeks, dating back to November of 2022.

On the daily chart, you can see the trend lines moving higher and so the $111 area is of interest to me.

The stock moved down 156% of its average true range, which means the puts just inflated in value. At the time of this writing, I can go out to the 21-APR 110/105 put spread and get somewhere between $0.97 and $1.24 in credit. If you want to see if you can get even more premium, wait it out and see if TTWO comes down closer to $111 – $112.

Even if you don’t want to wait, 1.24 on a 5-wide spread still gives you the opportunity to make a 38% return on risk in 30 days on a stock that has been in an overall uptrend. There is a 66% probability that TTWO will close above $110 by 21-APR.

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.