 In today's episode, John, which has been a proprietary trader for the past 18 years, will be breaking down a million dollar opportunity that happened in MicroStrategy because of a short report. Before getting the video, a quick reminder that this is not financial advice and also if you're looking for the best tools for day trading and investing, everything will be linked down in the description. So don't forget to check that out. Let's get right in. Do you wanna start on the technical side or do you rather start on the story side? Well, I think we should start with the story. Because that's kind of how this trade breaks down and kind of what FinTwip was talking about. And they thought that the story was the reason for the move. So there was a big move in MSTR and it's a stock that's been super, I wouldn't say in play, but very extended. And it's easy to see it's going up because Bitcoin went off, but there was a bit more fundamental to it and a bit more on the market making side or just overall story side of this stock. And this is what we're gonna be going over. The first element to this, and I wasn't familiar with it until a couple of weeks ago, is that it was a big arbitrate. And do you wanna go over a bit and explain in the arbitrage between MSTR and Bitcoin? Sure. So a couple of weeks ago, people were starting to put this on and there were a couple of articles and tweets from, you know, not a short report like Kerasdale but other people that I like to follow talking about this arbitrage play. And I wanna say that there was even in either a market watch or CNBC article about how it had become the most crowded arbitrage play. Basically, right now MSTR is trading at, I think like 1.8 or 1.9 times its value to Bitcoin. And, you know, people were buying MSTR originally as a way to get exposure to Bitcoin before it just became easier and before the ETFs were approved and created to track Bitcoin. It came out that people were then shorting MSTR and buying Bitcoin as an arbitrage, right? So if Bitcoin goes up, you know, MSTR is not gonna keep continuing to go up 2X the nav of its Bitcoin holdings. So there should be either a reversion to the mean short and MSTR or a long end Bitcoin basically. And that's where the arbitrage trade comes in. As we now know, like Kerasdale capital yesterday is the one who came out with that short. So Kerasdale has been, I would say, average short report trade over the years. Like he's been doing some good ones, some bad ones but mainly just short report as a whole haven't been what they were, I would say two, three years ago. Like before they used to be almost like a new thing or a new strategy or catalyst that were like really significant but it's mostly happens on like smaller company. Like a big one that was before it was like CII back then it was 2021 or 2022 or other like just in general, like smaller companies but when short reports really try to attack big companies it has to be like the biggest news of all time because otherwise people are like, sure maybe they're doing something a little shady but like who cares if the value is still there in the stock and it has like a short term impact sometime like a week but then it just retrace back to its price. Going into that trade on that morning, the news came on MSTR, it was... Yeah, I want to say that he treated it maybe 9.20. So, you know, pre-market. Yeah, it was pretty much there. It was around the nine, I guess 9.05, 9.10 area and the time is not really important on the tweet just because it didn't make a significant move. So you saw there's an initial reaction which was a bit down and when it comes to price after this tweet we kind of retrace back to almost the previous day high and all this like pre-market high level which in some way invalidates the idea. Is that right? Yeah, I mean, so a lot of these short reports when you know, especially when they come out in the morning they'll get that initial spike down and then traders, people have time to... There's gonna be some algos or some news traders who are just, they see the ticker, they know the play and they just hit it, right? And it's shoot burst, ask questions later mentality but then as traders read their six or seven tweets or people have access to their blog you get to read their full breakdown as we come into the open. You have 20, 30 minutes to kind of digest that news. When the real volume came in in the first 10, 15, 20 minutes a day that was all buying volume and pushing it back up to all-time highs and the prior days highs like you said. And to me like that first 20, 30 minutes of the day looked more like a possible bull flag for a breakout than a setup for a $350 down move. We spoke about it pre-market and we both had a reaction to the news because you sent me the news, I had the news before but the first reaction was just like, meh, like what is he gonna do with that stock? It's just a tweet that is absolutely nothing new to what we already knew. So it felt like old news. It's like what is doing coming out with this news a month later when everybody already know that. It felt like a bit of a desperate move to maybe get out of a position or try to make the stock go down if they were short the actual arc. And so my reaction to it was like, I'll keep it on the back burner, maybe, maybe not but it wasn't like my main watch going into the day which turned out to be probably the biggest opportunity of in a while since we had the SMCI and also NVIDIA and we'll go over with the option and also just how it was actually going off in maybe the back end of the option chain. I think it's gonna be easier for you to talk about that part and did you want it to add up something to what I just explained? Yeah, we chatted and the same thing. I just thought, all right, it went back up the highs. We know that people are making this far play. Other people have come out and spoken about it. It's kind of why now? Why is today the day that it's gonna sell off and make the move after other people have been talking about this already for two, three weeks? And kind of what you're saying, and this is where maybe we kind of fumble this trade when it comes into options or thinking about those two prior big moves in NVIDIA and SMCI, they both happened on a weekly options expiration day. And since today Friday is a good Friday as we're recording this, the market's closed. So yesterday was that expiration day. And maybe we can see something in the options flow that could have hinted that this was gonna happen, but I didn't really see anything, right? And here is now as we pull this up, we scroll through the first little bit of flow from the open, everything's bullish. There's nothing significant really that really says like someone's making a play here. And even when we get the first down move at 10 a.m., if you go look at the flow closer to 10 a.m., you don't really see anything significant that says that it's definitely a short. The only thing that obviously now in hindsight is that the market makers were just looking to crush the call buyers. If you do look at this, all of it's call buying and there was a really, if you scroll up just a little bit, there was a really big call buyer for the 2,000 calls. This one here at 224,000. Right, so then the market makers are essentially pulling the rug so those options expire worthless, right? And that's what we saw. That was the big thing with NVIDIA. NVIDIA, everyone thought it was gonna go to 1,000 that day and the 1,000 calls were printing like crazy. And then the market makers kind of just sold the stock to kind of collect all that premium because they were short, all that call premium and didn't want to get crushed. So they just start selling the stock and all those options expire worthless and it's just a waterfall lower, right? And maybe that's something that we should have thought about a little bit more. Now this is the third time on a Friday or weekend where we've seen this rug pull on a lot of calls when a lot of call volumes come in. Yeah, I think we definitely fumbled this one. And the issue I think we had, it was just such a bias instead of just letting the price tell us what the story was. Sorry for the interruption, but if you enjoyed the show, don't forget to like and subscribe. I also did link all the best tools for day trading and investing in the description. Don't forget to check that out. Let's get back in. If we go back to just the technical standpoint, I know you like to look at the higher timeframe like a five or a 15, especially for these big reversal. We've talked about it so many times but they normally happen on the higher timeframe because you're trading a daily chart and you're not trading like an intraday momentum chart. If it goes, it should really go and you should be able to catch an entry on the higher timeframe. Saying that you were looking for a short on that day, what is the ideal entry and how you would have played it? What I think the trade really was for me and where I really fumbled this is that I know some traders like to anticipate and kind of play and think a bigger picture and maybe they're shorting, maybe they're shorting 1950 when kind of like 2000 fails and it rolls over. But I don't, for me, I've lost so many times trying to make that trade because it ends up making a new high or the low of the day holds or the gap will hold and it starts to curl back up. And for me, it's just a low probability trade. As we've talked about in these videos, I prefer to wait for the consolidation after moves been made. It just gives you more conviction that a direction's been picked and you're looking for continuation. So we see that move down to 1850 and that's the prior day's lows and it's basically showing that it's a significant area because regardless of the wicks over and under because it's such a spreading in high price stock, that 1850 area is the important area and it kind of bounces and what stops it like those short five minute moving averages and VWOT kind of stop the bounce. It comes back down and starts to consolidate for two candles basically right at that low of the day. And for me, that's the spot where we really should have been focusing on it, right? Irregardless of what the news was and what our bias and opinion was, we were obviously wrong. The stock had made a $250 down move and that was consolidating at the lows which was also just the prior day's lows as well. So even if we're not expecting another $200 move lower, right? We've seen a $150 move and now we've seen a $50 bounce and now a consolidation, this is a good now set up for me and if you scroll to take the right side of the chart out, so right before that breakdown, you know, the other way, yep, because we don't, we want to try to think about how we want to keep thinking about this without the advantage of hindsight. And this green candle is the key candle for me because the doji candle prior, this is where people start looking for a possible double bottom, right? Traders are gonna come in, oh, this is just a five minute double bottom, it's retest, we can bounce higher, you know, why are we gonna go down on carousel, right? The whole, you know, think about the trader psychology here and if you go back and look at the options flow, a couple more call bullish call options came in around this time. It wasn't until the next candle as we'll then see, right? So if you're looking at the double bottom here, $1050, $1050, $1055, and if you go back to the options flow, I think we saw a couple more bullish options trades go through at that time. Yep, $1052, 1810 calls, 1860 calls, 2,100 calls, 2,700 calls, 1,700 calls, the whole slew of like 2 million, a million and a half in premium kind of go through on that green five minute candle right there, that $1050 to $1055 area. What is that significance for you about these prints? So basically again, if you have the thesis that the options market makers are trying to pull the rug on people, the fact that all this bullish flow is going off and price is not confirming a double bottom, like really pushing higher, all right, maybe that means that, you know, the next down moves in. So I'm not, I don't want to risk the whole bounce so you have to formulate your trade based on what you've seen and what you think can happen, right? So right now I see two tight candles at the low of the day. I'm going to use a tight stop just above the highs of these two candles, right? So just over, it looks like the high of these two candles was approximately 1850. So I'm going to use a stop 1850, 1851, and I'm looking to enter below a break of these candles, so the 1825 area, right? Because I don't like to play double bottom longs, right? Cause that'd be going against the trend, the intraday trend, but people who are looking to play a double bottom long, right? They're going to be looking to buy within this consolidation. And then if you're treating it a five minute candlestick, like confirmation strategy, you're going to be buying above 1850 basically, right? So your entry would be just below that range and risking like very, very tightly against that 1850. Because if it goes, it should go right away. There's no reason after that kind of trend. Like we see it's very trendy, right? There's no chop. It's like, it's down, nice bounce, like nice low sideways. Like it's pretty picture perfect in terms of technical setup. Yeah, I would agree. So, and I think the key is that there's only one or two candles. What I've noticed from my trading recently, the best little setups and flags or pauses are the ones that are happening in one or two candles, maybe three max, because more than that, then you get more eyes on it. And all of a sudden, it might not work out as well, right? Where like SMCI, perfect example, when I made that down move, it can solid, and the shorter timeframe didn't work out. There's too many eyes on it. And what it really needed was, if you look at it, it was like a 60 minute candle that finally, it was like 60 minutes and then 60 minutes, and then it broke, right? So to me, like timeframe is very important. The more eyes that you have on something on a particular timeframe, the less likely it is to work. Because so many people are tripping over themself both ways, it gets very choppy until there's a side that really breaks. I guess we talked about it, but I'm pretty sure you would have took it with option and not just with the stock. Yeah, I mean, I think you can do it both ways, right? I mean, it just, it's hard, right? I mean, so options are, excuse me, the stock is gonna be just harder because this trades with a three to $5 spread. So you're entering this entry with already $5 out of the money, if you hit the bid to get in. But if you're risking $25, that's just a part of the little, you have to deal with those little fluctuations. And it's just an expensive stock and not everyone has the ability to do that. So if you're looking at this trade again and you were thinking about all the things we're trying to put together here, I'm again a believer in measured moves. So you get the move from 2000 down to like 18, 25, so $175. So now you're looking at 1700 to 1650 area. And the options that we both sent to each other yesterday were the 1700s and they made a crazy move maybe from five to 80 on that low of day break and that crazy move lower. And again, with an options flow, you start seeing some puts, some big put trades start to go through basically at 11 a.m. where you finally see some bigger, valued puts like 150,000, $200,000 orders going through on various strike prices, kind of confirming a thesis of other people are now starting to play with this, play this with directionally with puts. So you would be looking at the 1700, even if it's out of the money, just because the risk reward is just so much better? Exactly, yeah. So you're looking for that asymmetric like, you know, and you have to remember like options are, the way that I personally like to trade options is just, it's gonna be like a zero or maybe a 50% loss because you're looking at this week's options. And this is now the lesson that we were learning from, again, SMCI in the media. You're risking 50% of the options premium and that's how you can get a little more size and being so far out of the money is okay because even if you get a 50% move, it doesn't go that full measured move, the value of the options as it's starting to get vertical or go down in your favor, it's gonna get expedient, it's gonna start going vertical itself, right? So as long as you know that you're really risking that 50% and you can't trade the option like you can stock, entering the option based on the price of the stock, but you still have to exit the option based on what you see on the stock. Yeah, it's not just about percentages. It's like, if the trend is broken on the stock, you just have to take the option out also. That's what you mean? Yes, exactly. But because it's a Friday and it's expiration date, the decay on the option is, I don't know, you have really high. I'm not a Greek's expert, but you have to factor in decay as time goes on. So you're looking for that, like a threading of the needle basically move to try to capitalize on extreme leverage and possible hundreds of percents or thousands of percents of upside on the option basically. So thanks for watching this episode. If you enjoyed the show, don't forget to like and subscribe. We're also available on Apple Podcasts and Spotify. Peace.