Tony Zhang Sees Weakness Under SPX & NDX Surface, Offers UUP & APO Options Trades

the move to the upside for meta and some of those announcements coming out of Meta Connect. Do you want to welcome in our next guest though. Take a broader look here. And we have some example trades for you also with Tony Zhang this morning chief strategist over at Options Play. Tony would love to get your thoughts on the market here. I mean we're kicking the day off with another negative session for now. Got a hotter than expected PMI yesterday. We're in the earnings lull a little bit here until we hear from micron next week. How are you looking at trading action lately. Yeah Marley the market right now is largely being driven by interest rates. You have the ten year yield reaching highs that we haven't seen since 2007. Across the curve the two year the five year, the ten year, all reaching levels that we haven't seen since pre global financial crisis. This is really what's driving the markets. Now some of that was driven by higher oil prices over the last month or so. But at the same time we're also seeing relatively strong economy running fairly hot. That's driving the Fed's need to raise interest rates. So we just got the raise last week look like looks like we might get another raise in October. Potentially even another a second, a third one, if you will, before the end of the year. And that's really what's driving the markets right now. And we're seeing that across the board with impact on consumers. We're seeing that in terms of corporate corporate bonds. We're also seeing in government bonds as well. So this is having a massive effect on asset classes and kind of rotation within assets. And I think it's really important to pay attention to the bigger picture right now, as opposed to necessarily being stock pickers in this market environment, because outside of some select technology names, that's driving some outperformance in this market, the rest of the market is really suffering and falling further and further behind. We're seeing financials, healthcare utilities all other sectors lagging behind the S&P 500. If you look at the equal weight S&P 500 continuing to make new lows, even though the Nasdaq 100 yesterday essentially printed, you know, record highs underneath the surface, things don't look so strong. And so I'm glad you highlighted that divergence between what we're seeing in the mega cap tech. And then a lot of these more rate sensitive areas right now. So how are you positioning around this divergence then Tony, what are you looking at in terms of where you're seeing opportunity? Yeah. So the first place I'm looking at is simply the US dollar. As interest rates climb to new multi-decade highs, the US dollar is benefiting from that. We're seeing the dollar continue to grind higher from here. So I'm looking at using the UU P ETF which is the ETF that tracks the US dollar index. And looking at simply buying some call options to to to to seek further upside exposure in this particular stock with limit ETF with limited risk. And I'm going out to the November expiration, which buys me roughly two months of exposure. And I'm looking at buying a $28 call option, which is a call option that's effectively close to $1 in the money. And I'm earlier today, you can pay just a little under a dollar for that for that call option. So this is a call option that has a break even price that's very close to the current price of of the ETF. And this gives me, you know, upside exposure here for the next two months while risking only less than a dollar per person per share or about $100 per contract. And in this type of market environment, we're clearly the bond market is the driver right now. This is really one way that I think you can take advantage of higher yields, and also perhaps use it as a bit of protection against further downside in equities. All right. And I see that you you're also looking at Apollo. But you're you're on the other side of the spectrum here as you're looking at Apollo. So walk me through your thesis here. Yeah. If you look at where we see the most damage by far, it's the financial sector that's seeing the most damage out of higher rates. We're seeing banks, we're seeing asset managers. We're seeing pretty much everyone across the board. And you can certainly take a view here either using a macro trade on something like Spy or even xlf. But I'm choosing to use a stock specific trade structure here. I'm looking at Apollo simply because private equity has bounced a little bit, even though we saw some pressure in some of these names earlier this year, have bounced so far. And now some of these names that have bounced are starting to show some weakness here in Apollo recently, you know, bouncing off of that 115 level traded all the way up into that 140. And now starting to to push back below into those 120 again. And that's really where I think some downside, some some further downside can materialize here, especially for these asset managers that where exiting the portfolio companies, the, the companies in their portfolio in order to generate a return for their shareholders is becoming a difficult environment for them, for them to do that. And that's really where we've seen some downside for these asset managers. So for Apollo, I'm going out to the October 30th weekly expiration, which gives us, you know, roughly six weeks worth of time. And I'm looking at buying essentially an at the money put vertical, trying to buy the 126 put selling the 110 puts against that. The 110 puts are effectively the lows that we saw earlier this year, essentially targeting those lows to the downside earlier today. You can pay about $5 for that debit spread, and that'll give you about a two a little over 2 to 1 risk reward ratio. And that again, protects you against some further downside in the financial space. If you have some exposure in this particular sector. And Tony, we don't break down the trades very often. So I want to just take a moment to do that. Your last one, you had unlimited upside in terms of your play, but with this one you're using a spread to define your risk. Here. Walk us through why the risk reward on this particular one for Apollo is more attractive. With that short 110 put in place. Yeah, partially it's because Apollo's already pulled back from that 140 level down to this 125 level. So implied volatility on options for Apollo is a little bit more expensive. So if I were just to outright buy that 126 put, I'm paying a fair amount of premium to buy that downside. And every single day I'm holding on to that contract. The time decay on that on that 126 put is working against me in this particular instance. So what I'm doing here is I'm selling that 110 put collecting some premium. And that's going to offset the cost to buy this to buy this downside protection. It's going to reduce the amount of capital outlay that's required. And that has the effect of that is going to increase my rate of return. If I am correct. And Apollo declines down to that 110 level by that October 30th expiration date. And the key here is about selecting the right strike price to sell in terms of a put option. And that's why I've chosen that 110 put, which is roughly the one standard deviation move for that October 30th expiration, which means that there's only about a 15% chance based on current market volatility, that the stock will be below one 110 by that October 30th expiration. So I'm choosing strike price. I'm trying to find enough balance here to offset the cost of my 126 put while also not giving away too much downside if the if this does, you know, drop significantly between now and that October 30th expiration. Tony, really appreciate you walking us through that and also why you chose the