Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Markets held steady ahead of a pivotal week, with investors treading cautiously as Nvidia's earnings approach. While broader indices nudged slightly higher, options activity suggests a more defensive tone. Traders are showing increased interest in put contracts tied to semiconductor ETFs, signaling nerves around Nvidia's results and its outsized influence on the tech sector. The company’s performance is seen as a bellwether for AI-driven demand, and any signs of weakness, especially amid ongoing U.S. export restrictions, could rattle sentiment.

Globally, competition in the electric vehicle market intensified as China’s BYD surpassed Tesla in European EV registrations for the first time. This marks a significant milestone for Chinese automakers making headway in Western markets. Meanwhile, India saw a major boost in tech exports, with iPhone shipments to the U.S. surging over 75% year-over-year in April. The shift reflects Apple's deepening supply chain diversification away from China, adding a new dynamic to global trade and manufacturing flows.

“Good-To-Know’s”

Defined risk trades are especially valuable because of the versatility they allow traders. They allow participation in the market with a full understanding of the maximum potential loss. Personally, I also believe that there is good reason to suspect that it is easier to manage positions and stick to a disciplined plan when the total possible downside is known and limited. Whether you’re using spreads or protective options, knowing your worst-case scenario helps avoid emotional decision-making and unexpected surprises when things take a turn.

Quote(s) I Like

Thought Throttle

Options, like most investment products that operate in free markets, derive their value from the laws of supply and demand. Since options are priced based on the underlying stock, we can use the premiums investors are willing to pay to gain insight into the market’s expectations for that stock’s movement.

In simple terms, investor sentiment expressed through options pricing sheds light on their outlook for an underlying stock. We can use this information to help form our own view on how a stock might move on a given day. There are two common methods to do this: one is the straddle method, and the other involves using the implied volatility provided in the option’s data.

The Straddle Method

This method involves analyzing the at-the-money call and put option prices. And when I say “price,” I mean the premium of the option. You add both premiums together to get a value that represents the expected move (in either direction) by the option’s expiration.

For example, Tesla (TSLA) is trading at $359.80. The $360 call (ATM) is priced at $23.45 and the $360 put is priced at $23.05. Add them together and you get $46.50. This suggests that the market expects a move of about $46.50 (either up or down) by expiration.

Note: There are variations of this method. For example, many investors and traders argue that the straddle tends to slightly overestimate the expected move, and rectify this by multiplying the Straddle premiums sum by 85%. Using our example from above, this would be $46.50 x .85 = $39.53.

IV-Formula Method

This method is slightly more complex, though it is considered more reliable in the long run. Using the IV-Formula Method, we calculate the expected movement utilizing the Current Share Price, IV, and Days-Till-Expiration (DTE). The formula looks like this:

Let’s use TSLA again, which is currently trading at $359.80 per share with an IV of 61.6. The expected movement by June 20th, 2025 (24 DTE), is calculated as $359.80 x .616 x Sqrt(24/365) = $56.83.

While the IV-Formula Method may take a bit more effort, it offers a more data-driven view of market expectations. That said, there is value in both.

Why Bother?

First and foremost, it’s important to remember that these expectations aren’t a crystal ball. They don’t predict with certainty what the market will do. Instead, they offer a glimpse into what other investors think might happen. Use it as a reflection of investor expectations, not an outcome prediction.

There are countless indicators and metrics out there, and while we’ve focused on two core strategies, they’re far from the only tools available. From statistical models to proprietary algorithms, traders have a wide range of methods for estimating expected movement. Many brokerage platforms even provide their own projected ranges, giving you a quick snapshot without doing the math yourself.

That said, having a deeper understanding of how these expectations are formed gives you an edge. It not only enhances your ability to evaluate trades but also helps you read between the lines of what the market is really anticipating.

At Theta Throttle, we focus on strategies and structures that let us use time and theta decay to our advantage. Most of the setups we explore involve trades placed outside of the expected move—farther away from where the stock is currently priced. While many strategies demand precise predictions, a well-constructed theta trade just needs you to be vaguely ‘not wrong’—and often times, that’s more than enough.

Credit spreads can be set up on the border of the expected movement. For a breakdown of a credit spread, check out the example for Walmart (WMT) from last week’s edition.

Trade Mechanics

Assume that we believe TSLA is an absolute steal at anything below $325/share. It is nearing a resistance level, and we’re under the impression that it will decrease in the near-term—but we think it is still a great hold for the long-term.

We would like to enter into a position by June 20th at a lower price. Combining the expected movement calculation with our short-term bearish & long-term bullish outlook, we can plan to sell a cash-secured put at $315/share. This is just above the average expected movement to the downside of $312.18 [ 359.80 - 47.62 this is the average expected move ($46.50 + 39.53 + 56.83)/3 ].

Selling this put would get us $6.55 in premium. So, if TSLA stays above $315, we keep $655 from the premium collected. If TSLA falls below $315, we buy a stock we believe in for $308.45 per share [ $315 Strike - $6.55 Premium Collected ]. This strategy will require the commitment of $30,845, since it is a Cash-Secured Put.

This is not cheap, but this way of thinking and setting up trades can be applied to cheaper stocks for those of us with less capital. This is a ~2.1% return on our at-risk capital. Not bad.

The 2.0 Version

In addition to the cash-secured put, if we truly believed that TSLA was going to remain within the bounds of the expected movement, we could go for even more premium.

If we were to sell a Bear Call Spread (Call Credit Spread) around the expected movement in the bullish direction ($407.42), we would receive additional premium. We could sell the $410 Call for $8.65 and buy the $420 Call for $7.05, which is a net premium received of $1.60.

This would turn our trade into a Jade Lizard. This is how the trade would look:

This Jade Lizard balances our short-term bearish and long-term bullish view on TSLA. If the stock stays between $315 and $410 by June 20, we collect the full $815 in premium—a solid ~2.7% return on capital without owning the shares.

If TSLA drops below $315, we’re assigned shares at an effective price of $306.85, a discount we’re comfortable with.

If it rallies above $410, the call spread caps our risk, and because we collected $815 in total premium, the max loss on the upside is just $185.

This strategy shows how options can help you enter a stock you believe in—on your terms, at a better price, while earning income along the way. It’s hard not to love the versatility that comes with options.

As always, this isn’t financial advice—just a look at how we’re thinking through potential setups. Make sure any trade you place fits your own risk tolerance, goals, and account size.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

Can these strategies be applied to lower-priced stocks or smaller accounts?

Yes, the concepts behind these strategies can be adapted for lower-priced stocks or smaller accounts. While a cash-secured put on a high-priced stock like TSLA requires serious amounts of capital, traders can look for similar setups on stocks with lower share prices. It’s all about adjusting position size and strike prices to fit your capital while still managing risk effectively.

How should I adjust my trades or risk management if the stock moves beyond expected ranges?

If the stock moves beyond the expected range, it’s important to reassess your position. Defined risk trades like spreads help limit losses, but you may want to consider adjustments such as rolling strikes (closing and reopening options at different strikes), adding hedges, or closing the position to lock in profits or limit further losses. Staying disciplined and flexible is key to managing unexpected moves and maintaining profitability.

What are some common misconceptions about options and expected move calculations?

A common misconception is treating expected move calculations as exact predictions rather than probabilistic estimates. These calculations reflect market sentiment, not guarantees.

Another is thinking options strategies are only for high-risk gamblers; in reality, many option trades, especially defined risk setups, are designed to control risk and generate steady income.

Lastly, some believe options are too complex to understand, but with the right education and practice, they can be powerful tools in any investor’s toolkit.

Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!

If you found this helpful, feel free to share or forward this email to anyone who might be interested! We appreciate your support.

Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.