After a sharp down day, with the Nasdaq futures 4.6% off their high but the S&P still above its 50-day EMA, Jim Iuorio and Bob Iaccino bring on former floor trader Scott Bauer to talk about protecting a portfolio if the AI rally starts to unwind. Jim opens by saying he has started buying Treasury duration for the first time, after the 10-year yield spiked to 5.33% and fell back to 5.18% Bob puts his own hedge up for review. In QQQ, he sold one November 725 put and one 715 put about five weeks out and bought three 700 puts a week further out, for a debit of about $1.40. Scott likes it: the short puts will start losing value quickly as expiration nears, while the further out-of-the-money 700s hold their value. The main risk is a slide to about 705 into the front expiration, and Bob plans to roll the structure in about three weeks. Scott’s rule: “buy insurance when you can, not when you have to,” and hope it expires worthless. Bob also admits he got a margin warning and cut his size before realizing he was in the wrong account, a reminder that experienced traders still make basic mistakes. Is AI a bubble? Scott doesn’t think so, but expects consolidation in six to twelve months, with the biggest players surviving and companies that aren’t yet profitable at very high valuations getting hurt. He points out a trade that caught everyone’s attention: someone opened a purchase of 26,000 CoreWeave December 37.5 puts, roughly 50% out of the money, for about $2 million. Scott reads it as a cheap margin hedge or an early investor protecting an entry near the IPO price, not a bet that the bubble will burst. Bob says the government’s productivity data has risen faster since 2023 than at any time except 1997–2003, when internet use spread widely. For worried investors, Scott thinks the VIX is too low given how much stocks are moving during the day. He suggests buying wide QQQ put spreads several months out, for example a 675/600 spread, or cutting the cost further with a broken-wing butterfly: buy the 675 put, sell two 600s and buy the 575. Going out to January costs only about $5–6 against a possible $75 payoff. Bob notes that the 200-week moving average sits near 610 and that two years of heavy volume cluster between 605 and 620. Then they look at live trades. Scott’s DoorDash iron condor sold the October 23 180/175 put spread and the 195/200 call spread for $2.60, risking $2.40. The breakevens are 177.40 and 197.60, with a bullish lean near the 200-day moving average. Bob’s weekly chart shows a buy pattern triggering near 197.90, close to the top of the condor. Scott plans to take partial profits at about 50%. A similar Palo Alto order at $3 didn’t fill, so he cancelled it instead of chasing. If you don’t get your price, it isn’t your trade. He also talks about selling half of a Walmart winner: the decision was right even though the stock kept rising. On zero-day options, Jim thinks retail traders are far more sophisticated than they used to be. Scott says he only uses 0DTE as a hedge, never as a naked lottery ticket. They compare two takes on Dell: Bob’s double-top chart with downside targets, and Scott’s put butterfly (buy the 490, sell two 487.50s, buy the 480) that profits with a breakeven around 484. Scott explains that his team’s watch list comes from scans of technical patterns, implied volatility and option liquidity, and that he’d use defined-risk spreads to take advantage of the volatility a big put buyer creates. Scott closes by talking about the Lori Bauer Foundation, which now runs three free grief centers for children in the Chicago area. Key takeaways: – Buy protection when it’s cheap; wide put spreads and broken-wing butterflies keep costs low. – Big unusual option prints are often hedges, not predictions. – Use strict entry prices; there’s always another trade. – Defined-risk premium selling can pay steadily without home-run bets. Options involve risk. This episode is educational and not a recommendation. |
