2021 - The Year of Gamma

2021-02-12 | Jack Roberts

Don’t worry we aren’t going to talk about GamesStop (GME), I just need to get that out of the way just in case you were curious, it’s over – get over it. But guess what! I have my eye on so much more that could be just as shocking and exciting. I’m talking about more of the same, but in a different sector – the cannabis sector. But before we dive into that, please note that we are going to talk about more than that and encompass as much of a big picture of 2021 as we can in this present moment.

First, based on some very fundamental numbers that hint towards not only high short interest but also momentum moves in the cannabis sector, let’s talk about why Gamma in the options world is important. In other words, this might become GME “part deuce”. When the entire world is long calls in TLRY, CGC, MJ (take your pick), then that means that hedge-funds that are short in a major way also have to pay the borrowing fee, which is super expensive. So what do you get when you have to buy back major positions size, meanwhile the market makers have to keep buying stock to appease all the call buyers? You get a mega-super gamma squeeze and it can really become quite a site. I reference Tilray above $350 in a past life (just look at your weekly chart going farther back). The cannabis sector has been on a tear higher and higher, and volume plus high short interest could be causing another phenomenon that, yes, we have already seen at the end of January in GME.

Keep an eye out for continuations in small-caps or any stocks that have short interest above 20%. I believe that we are in the year of gamma and this moment in history reflects a lot of that, even though we did see the majority of this kind of “stuff” in 2020 when Wayfair (W), Restoration Hardware (RH), Chewy (CHWY), Zoom (ZM) and so many more including GME, and sometimes yes the cannabis sector, would take off. I have been following this sector for a decade, so I know that for a very long time the hedge-funds have been in complete control, until now. Now, let me just say that crypto is a controversial topic right now because of what it “could” cause to happen. I believe that we have a very tight correlation that nobody is really discussing.

I am of the belief that both, I repeat – both, crypto, gold, silver, oil, copper and nickel are going higher for the next two years gradually. Even though crypto will be more volatile, I think the herd of people that are continuing to short the market, or just expect a crash, are severely wrong. The 18-year real-estate cycle that a lot of us pay attention to, doesn’t really point to anything super-crazy until 2026. I know that’s a long time for a bull-market but let me just say, I have been comparing this moment in time to the 1998-2000 “bubble”. With that said, I am NOT convinced this is a true bubble yet. I believe we are in for at least three years of insane volatility complimented by a bull market. There is a lot of money in the system and now, more than ever in history, we have eyes on the stock market which means eyeballs yearning for opportunity. This will continue to create a market AND create the volatility for us traders that we love so much, so be happy!

Crypto is here to stay, and I wish I was a baby-boomer telling you that. But I am millennial and it’s my job and passion to be early, not wrong. I believe we are talking about crypto like we talked about e-mail before it was adopted. In fact, this sentiment is super late for a lot of folks (which I find disturbing and weird). In other words, there are TWO bull markets happening people! I want you to consider that commodities are equal in that they are desirable over the long-term as of today. Crypto has extremely more of a feel for higher highs, and fundamentally this stuff is just fun. I’m super excited to see us all quickly transacting with no trust needed, no third parties and especially no paper, just quick QR Codes and validation on a ledger. Sorry to break it to you, but the other side of the world has been doing this for years, we’re just late.

With all that said, I am expanding my horizons and continuing to look at out of the box situations similar to what I talked about in the beginning. What are things that don’t seem like they should go up, but eventually do, and in a major way. How greedy have hedge-funds become? Are we going to find out yet again that it is greed and borrowing on a whole new level? Like I say, watch the cannabis sector. The movements have nothing to do with valuations, buy-outs, prohibition, etc…. It all has to do with money flowing in the options market and how much “heat” the big guys can handle. I’ll end with this, I don’t care that it’s this particular sector, hell, it could be Beanie Babies again or McDonalds toys. It all comes down to fundamentals of how many short shares are available and how many eyeballs are buying one particular thing. Moving forward, I’m not super interested in buying the large-caps to any considerable size. I wanna play where all the redditors are, the experienced trader knows where the free money is.

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