Chief Investment Strategist, The Freeport Society
Volatility has been off the charts since “Liberation Day.”
We’ve seen stocks gap down 5% in a single day… and surge 10% the next.
We haven’t seen swings this dramatic since the COVID crash in 2020.
While most investors were reaching for the Scotch, master trader Jonathan Rose was helping Freeport Alpha readers cash in a 140% gain in just 24 days.
Jonathan got his start on the floor of the Chicago Mercantile Exchange, where he traded Nasdaq futures.
He also served as a market maker at the Chicago Board Options Exchange – the world’s largest options exchange.
And he’s been a trusted advisor here at the Freeport Society.
Two of the three highest-returning trades at our Freeport Alpha advisory were ideas Jonathan shared with us.
One returned 131% in just over a week. The other returned 100% in four weeks.
You’d typically have to wait years as a buy-and-hold investor to earn gains like these.
But traders often make their biggest profits when volatility is high – like it is right now.
That’s why I’ve been urging you to tilt your portfolio toward trading.
If you’re holding long-term stock positions in your 401(k) or brokerage account, you’re effectively “short volatility.”
When uncertainty spikes, your wealth takes a hit.
But traders can be “long volatility.” They profit when uncertainty rises.
Think of it like two people on a beach. One is a surfer. The other is building a sandcastle.
The sandcastle builder wants calm, sunny weather. Flat tides. Predictability.
The surfer, on the other hand, is hoping the waves will rise. He scans the horizon for swells. Then he grabs his board and paddles out.
Traders are like surfers. They profit from big moves, sharp reversals, and sudden dislocations.
They seek out volatility – and position themselves to profit from it.
Investors, by contrast, are like sandcastle builders.
They want time and stability. To them, volatility is a threat not an opportunity.
Right now, you want to be the surfer not the sandcastle builder. That means learning how to use trading strategies to turn volatility into profits.
That’s why, for today’s Navigator, I caught up with Jonathan over Zoom.
We talked about the strategy he’s using to profit from today’s wild market swings… and where he sees the next triple-digit trading gain coming from.
To watch our conversation, click the image below.
I love talking to Jonathan. Not only does he have nearly 30 years’ experience as a professional trader, he’s a great mentor. In fact, he’s coached more than 20,000 novice traders at Masters in Trading.
Jonathan also hosts Masters in Trading: Live. At 11 a.m. ET each day the markets are open, he gets on camera… goes over his favorite trade setups… and shows you the strategies he uses to profit from them.
If you’re interested in learning how to trade like a pro… and profit from volatility with trades like these… sign up for free here.
To life, liberty, and the pursuit of wealth.
Transcript
Charles Sizemore: Hi, Charles Sizemore here, Chief Investment Strategist of The Freeport Society.
And there’s a lot going on today in the news. We got two nuclear powers that look like they’re at each other’s throats, ready to start lobbing bombs across Kashmir. We have a slew of earnings reports. We have the beginnings of what could be a trade deal between the U.S. and the UK. Just a lot of noise going on as well. So how do you navigate all that? How do you invest and trade through it?
Well, to help me answer that question, I brought on the master of trading himself, Mr. Jonathan Rose. Jonathan, thanks for being on.
Jonathan Rose: Charles, thanks for having me. It’s great to be here.
Charles: Well, before we go any deeper, I will point out, we’re recording this exactly one month after the last time we recorded. And this happens to coincide with the earnings release day of a trade that you made for our Freeport Alpha readers.
So actually, let me go over some of those details here. I’m going to sing your praises as I’ve been very repetitive in announcing three out of the four best trades in Freeport Alpha have actually been from you. So apparently your job in this world is to make me look good. So thank you for that.
Well, let’s get to it. So Remity Global (RELY) announced earnings today. And they did something that nobody really expected. They hit it out of the park. They actually posted a profit.
Now, why does that matter to us? Because last month, you had set up a trade for Freeport Alpha where you weren’t necessarily trying to guess what direction the earnings would go. If I put a gun to your head, I don’t know that you would even be able to tell me what this company does. That’s not your gig, right? You’re a technical trader.
Jonathan Rose: No, a gun to my head though, I would give you direction Charles. I still wouldn’t know what they do.
Charles: You’d come up with a really good story, but it may or may not be accurate.
So, your bet – and you did this by constructing an options strategy called a strangle – was that you were betting that the stock price would move out of its range. You were just betting on volatility itself. The shares had been in a relatively tight band. Your bet was that we’re buying a call, we’re buying a put, we make money if it.If it balances out of the range it’s in, if it stays really tightly in this band that it’s been in, then we lose in the trade. But that was it.
And what happened was they came out guns blazing and made a profit. So, the call option made a lot of money. Why don’t you review the thought process in a trade like that and how they work?
Jonathan Rose: Sure. So, I remember us joking around 30 days ago where I wanted to share a trade and I said, “I want to share a trade in ticker RELY. Just matter of factly, I have no idea what they do.” And you pointed out that’s just like a trader’s mentality. And that is trader’s mentality because for this trade, I don’t care what ticker RELY does.
I felt after looking at the options, the options market was pricing this incorrectly. The way that we were able to take advantage of that is by doing what’s called a strangle. And a strangle is not a play on direction like just buying a stock. Instead, a strangle – we did the $20 calls and the $17.5 puts. So, we’re long from $20. We wanted to get away from $20 on the upside. And we’re also short from $17.5. We wanted to go really far down.
So right now, the stock’s at $23.50. So those $20 calls are worth at least $3.50. The difference between the price and the strike. And so that’s $3.50. The trade that we’re in cost us $2.65 or $2.60. So just taking the calls off, don’t touch the puts. We still have eight days.
Now, Charles, RELY could come out with accounting problems and go trade $10. Well, if that’s the fact, those $17.5 puts that are worthless right now certainly wouldn’t be worthless. But we’re going to hold the $17.5. There’s no risk to holding them. We get out of our $20 calls on this move. And it’s a really great way to play volatility. The reason that you made money on this trade – hopefully you made money on this trade – was because there’s more uncertainty in the world, right?
The VIX is higher, more uncertainty, and this name priced wrong. Options didn’t price enough volatility and it outperformed its volatility this time on the upside.
So, it’s a cool trade and these are the trades that we do all the time in our earnings program at Masters in Trading.
Charles: Love it. So yeah, it’s a two part trade, of course, there’s a call and the put. Current market prices today were up about 140 % in the call option. Now, of course, as you pointed out, the put has a little bit of time decay left in it that if both contracts were to expire today, the put would expire worthless. But of course, hey, there’s there’s still some days left. We’ll see what happens.
Jonathan: Absolutely.
Well, the thing that’s a little bit different with this trade – and we have a community that our members are in there asking questions – is we do look at this as one trade.
So, we got in the calls and the puts. The risk was $2.65, or it’s $265 if you’re just doing a one lot. And the cool thing is you can never lose more. But you take it off for three thirty. You just have to look at it: You get into it as one trade and you get out of as one trade. The $17.5s, let’s think that they’re worthless, but who knows? Maybe if the market sells off a lot, maybe those sell off, we could take a little bit out of them. Even without that, it’s still a nice 30 return for 30 days. And that works out well.
Charles: Indeed it does, indeed it does. Annualized, that’s a really nice number.
Jonathan: Annualized, of course, I had to figure that out. It’s about 1200% just in case that came up.
Charles: This means we’re obligating you to come up with a trade exactly like this every month so that we hit that annualized. I’m joking, of course.
But well done, Jonathan. This trade went exactly the way you hoped. You identified a mispriced option or an option that you perceived to be undervaluing the potential volatility there. And it worked out. So, you did our readers a service. Thank you, sir. On behalf of my readers at Freeport Alpha, thank you.
Jonathan: My absolute pleasure and I appreciate you guys having me on.
I want to throw out that every single morning that I do a live show at mastersandtrading.com/live. It’s actually on YouTube and every day 11 a.m. Eastern time.
I get on there live, people come 10 minutes early, we say good morning, and my mission on those is to add as much value as I can to those in the chat, those who came out and are watching me.
And during this time, traders like myself feel most comfortable when volatility spikes. If volatility and the VIX – the fear index – was back down to 13 or 12 going into the summer, there’s not a lot of value the trader can add on your show. That’s when I’m going to be asking Charles, “What can I possibly do because I’m going to sleep over here with the market not moving?” So, traders thrive in high volatility environments.
Charles: Let’s talk about that because that’s good stuff.
Now, personally, I do a little bit with options, but my primary bread and butter is just buying stocks, right? I’ve always hated buying stocks in front of their earnings releases because there’s this binary risk. Maybe they whiff earnings by a dime or a penny, whatever, or maybe they even hit the number that analysts expected, but their forward guidance is a little bit lessand the stock craters by 20%, or they drop some good news and the shares soar by 25%.
It’s tough playing that, just buying or selling the stock because you don’t know if you don’t have inside information. And if you did have inside information, you wouldn’t actually be able to trade on it. So that’s kind of a moot point. But the beauty of options is that for me as a stock, primarily a stock investor,this is a nightmare, right? But as an options investor, this is a dream scenario.
Jonathan: You know, I was a market maker on the floor of the Chicago Board Options Exchange starting in 2011. And before I got down there, I started in the business in 1997. And before I got down to the floor of the Option Exchange, I thought I knew how to trade options and I was comfortable trading options. And I would speculate, like you’re talking about on earnings.
And there’s nothing more frustrating than being so right about an earnings and then they say something stupid in a conference call and the stocks down 12% and it’s so frustrating. And that’s how I was before I learned this earning strategy. So literally since 2011 and since I started Masters in Trading in 2015, we do the exact same thing. Every single earnings period, it feels like 50% of the time we’re in earnings season.
But we’re just looking for stocks like RELY that are not priced correctly in the options market. And we play both sides. We don’t just speculate on long and speculate on shorts. That’s something that I’ve never been successful at. We just default back to statistics and the math. And that’s how we’re able to profit in a name like RELY.
Charles: I love it. And what’s really nice about that is if you are an investor and you’re struggling to know what to do right now… we’re in an Age of Chaos. We are in a period of heightened volatility. Some of that’s economic, some of that’s technological, some of it’s political, of course. President Trump, whether you love the guy or hate the guy, his method is maximizing chaos. He’s done that for his entire career, starting as an entertainer, starting as a property developer.He was always happiest when he was generating controversy. And now, 40 years later, that hasn’t changed.
So, we’re in this environment where you have the most powerful man in the world constantly generating chaos because when he’s not generating chaos, he’s not in the news and he doesn’t like that. He likes to be in the news. We’re in this heightened period of volatility.
Again, that’s tough if you’re trying to pick stocks or you’re trying to make a directional bet on stocks. That’s really tough when the most meticulously researched trade can just go down the toilet because of a tweet or something, right?
Whereas what you’re doing, the value of this type of trading you’re doing is that you don’t care. It doesn’t matter. A high volatility, high chaos environment is actually ideal for you.
So, because you’re playing those strangles, right? I love that. I think if I was going to point someone, what do you do in this environment when it’s so hard to pick direction? You don’t pick direction. That’s what you do. You don’t pick direction. Instead, you play the math and you look for things like the strangle trade where you just you win if you win from movement itself irrespective of direction.
Jonathan: Yeah. Another thing to point out I’ve noticed too, you know, running this live stream every day we have people from all walks of life coming to join us, that most people are just naturally more comfortable buying stocks. And when volatility really picks up like it is, it would be great to add to some of your favorite holdings, but people get so nervous.
The great thing about whatwe do in this kind of option trading is you start out small, but we’re not selling options. We’re not selling naked options. The big risks in options come when people are selling what’s called naked options and they have unlimited risk.
The trades that we do, again, I’ll go back to RELY because it’s a perfect example. For RELY, the trade was $2.65. To do a one lot of that, it’s $265.You can do two of them and that’s what, $530. But the great thing is if you do a one lot for $265 and the worst case scenario happens and that stock doesn’t move, you know exactly what your risk is before you get into the trade.
And what I want is for people to get comfortable with the risk before they get into the trade. So, the mindset is I’m willing to lose $265 because I think in 30 days we’re going to be able to take this off for a really nice profit. And that’s what we’re able to do. It doesn’t work out for everyone, but the risk is limited to what you decided to get in before you got into the trade.
Charles: Well, and to your point, you live to trade. Let’s say you whiffed on this trade. Let’s just imagine it didn’t go the way you wanted. You live to trade another day. Your loss is easily recoverable. You could lose 10 of these in a row and it’s not going to break you. But it’s a numbers game. You keep making trades like this, eventually it’s going to go your way. But if you’re taking too much risk on each trade, you can’t afford to have a bad streak, right? Like you make one or two bad trades and you’re done.
And you mentioned naked options. My goodness, if you were doing a lot of naked option selling, we probably wouldn’t be having this interview, or if we did, you’d be doing it from a hospital bed, from your fifth heart attack, or from the psychiatric ward in a strait jacket, because that’s what that kind of trading does to you.
Jonathan: And when people talk to me about their horrible experiences trading options, it’s stories like that. I’m sure people listening are doing cash secured puts at times and you can get really, really hurt doing that stuff.
So, a great way to learn options – in my opinion – how I teach them, is do try to find options that you can buy, as they’re called debits and you’re risking principle, but you have an option for… it’s asymmetric risk. You can make 10 times your money on a small bet, but you’re making that bet or risk taking before you get in. It’s not a surprise.
One of the things that frustrates me the most with options is you can find approaches that win 99 % of the time, but remember you’re literally winning a penny and risking 50 cents every time you do it.
Charles: Is that proverbial picking up pennies in front of a steamroller, eventually you’re going to get run over, right?
Jonathan: And sometimes some really good marketing can convince people that that it’s a good play. And that’s I think when people talk about options being scary. There are scary approaches with options. There are scary approaches with stock if you’re not doing it smart. I want to teach people to be comfortable trading options because it literally, if you think about it in a time like this you can buy or sell a stock. Options give you millions of different permutations that you can potentially do.
Charles: Love it.
Well, let’s pivot a little bit. So one of the things I know you’ve been talking about in your show, Masters in Training, is the resurgence of meme stocks, right? I look at this and I’m thinking, this sounds crazy, but I also kind of get it.
So the news broke, it’s not exactly new news, but it’s been kind of making the rounds lately… GameStop (GME) stock, the original meme stock is in the news because of two things. One, they said they were going to authorize putting substantially all of their cash into Bitcoin. And then beyond that, actually raise more money via bond offering for the purpose of buying more Bitcoin. Now you’re thinking like, well, it’s just their cash balance. So what?
Well, remember,GameStop has had a really interesting history here because it was such an overvalued stock due to the meme stock trading that they were able to pay off all their debts and actually build up a lot of cash. When you have such a low cost of capital because your share price is so high as GameStop’s was, their balance – they have about 42% of their market cap, which is actually just the cash on their balance sheet. And the rest is just a little bit of inventory here and there. I mean, that is the company. The company is effectively cash. And they’re authorized to invest most of that, or substantially all of it they want, in Bitcoin.
So, you have a company that is a struggling business, to put it mildly, reselling used video games is their primary business. And they’re essentially converting themselves into a massive Bitcoin hedge fund. But if you’re GameStop management, why wouldn’t you do that? Your traditional business is struggling. Why not? And investors are apparently willing to give you unlimited capital.
So, know, why not invest that capital in something that could potentially make money? I find it interesting. It’s one of those deals that this is not anything you’re ever going to learn about in an MBA class. You know, this is not something you ever learn about in school because in school they teach you that business is always rational. Well, I think we know better.
Jonathan: So the GME story, we started talking about this on Masters in Trading Live. And the reason we started talking about it is because they did have a very, very unusual bond offering. And with this unusual bond offering puts lots and lots of bids towards the upside, it’s called skew, of how game options are priced.
So GME right now is $26.80. The $50 calls give you the option to buy GME stock at $50. The $40 calls give you the option to buy GME stock at $40 and so forth. So, this unusual bond offering that people had questions on on the live stream – so I started talking about it and I dug into it – what they’re doing is the stock’s at $32.50. The bond offering allows the bond holder to get long GME stock at $32.50. The bonds expire in 2029. You know how much the bonds yield? 0.0, nothing, zero.
What they’re going to do with this money is they are permission to buy Bitcoin. And so if Bitcoin rallies – and GME is going to be invested – GME will rally. If GME gets over $32.50, They’re going to do the same thing again. It’s going to be similar to a micro strategy type of thing, but that’s all they want to do. They want to raise money at higher levels, then use that money to buy Bitcoin.
The options pricing is silly in the fact that, again, talking about this each morning at Master in Trading Live, the options pricing looks very similar to a short squeeze, what happened in 2021. So that’s what brought it to our attention.
Charles: Which by the way, that short squeeze was so legendary, they made a movie about it. That was the most epic short squeeze.
And by the way, for anyone who needs a refresher on what a short squeeze is, when you short sell a stock, you borrow the shares from another trader. Now, you don’t do this yourself, your broker does this for you, but you borrow shares. If I’m shorting a stock, I might borrow those shares from Jonathan, sell them.But then I’m obligated to buy them back to return them to Jonathan, right?
And so what happens in a short squeeze is you have too many people that have sold the stock, the stock starts rising, and then they start panic buying because they’re like, “Crap, I have to return these shares and they’re getting more expensive. I need to buy before this thing gets away from me.” And the next thing you know, you have panic buying and the shares can go up hundreds of percent in virtually no time. That’s what happened with GameStop.
It was legendary, it nearly bankrupted Wall Street. It did make some of the traders involved with it extraordinarily wealthy. So, handing the baton back to you.
Jonathan: Charles, this might just be my claim to fame here because I put out a video and a trade recommendation for GameStop when it was trading $4. And Jim Cramer found that video, shared it, and then it was posted on Wall Street Bets. And Wall Street Bets came over to my video as well.
And my YouTube channel went, at the time it was at 15,000 subscribers, and it immediately went to 30,000 subscribers. And Kramer tweeted that this was the best coverage of GME. And needless to say our subscribers made a whole bunch of money getting long GameStop at $4. If it’s okay with you, I’d love to share the link with the three GameStop videos that we can post under the video because it’s really cool. My Masters in Trading community celebrates it.
You know, Wall Street Bets gets a lot of credit with the original GameStop trade idea. But if you look at the timestamp and the comments under the YouTube video, there’s a good argument that I was there just as early. And during that video, what really stood out was GME was short 110%. If you’re short and a stock’s at $4, and the stock goes to $7 and you don’t have the money in your account, you are forced to buy. They don’t want you working a limit order. They want you lifting offers, which means the stock is going to fly. And I’ve seen it as a market.
Charles: Yeah, goes parabolic. It can move. Well, I don’t remember. What was the trough to peak move in GameStop?
Jonathan: $4 to $400.
Charles: Yeah, four to four hundred. Wow, yeah.
Jonathan: And so, if you’re short, you get called in right away and it’s automatic and they’re just going to lift offers. And so if the stock’s at $7, market makers might be willing to buy it at $6 and sell it at $9. Now it’s at $9. They may be willing to buy it for $6 and sell it for $15. You have no choice but to buy $15. They don’t care. So that’s what happened. I’m really excited to share those videos with your subscribers.
It was a really fun time and that’s how we got a lot of growth on the YouTube channel.
Charles: Well, yeah, going from $4 to $400, that’s the sort of thing that’ll get eyeballs, right? But again, that was a period of pretty nutty volatility there. That was in the aftermath of Covid, and you had all of the crazy money sloshing into the market from everyone’s stimulus check and the Fed with the most aggressive monetary policy in history. That created a very combustible mix, and you ended up with meme stock mania.
Those weren’t good days if you were able to trade that.
Jonathan: And the mechanics of the market made that happen, it wasn’t a fluke of why that happened. There was a short squeeze. And they’ve had to change requirements because word gets around that people are trapped short and big banks are going to stick it to them. And that’s what they did. They didn’t allow that stock to go down until everybody got hurt. So those are the mechanics of the market that make things happen. It wasn’t random.
Charles: For sure. People said at the time, I remember, “This is irrational that GameStop is rising this much. It’s an obsolete business. It’s a joke of a business. What are people thinking?” Well, they’re thinking that you have this massive pool of forced buyers that have no choice but to buy. It’s not optional. They’re not choosing to buy. They have to buy.
So that’s, as you said, it’s market mechanics. It’s not, well, there may have been a few true believers that honestly believe that GameStop was worth whatever on the fundamental basis. That’s a very small minority and those people are insane. A smart trader just smelled blood in the water and realized, my goodness, there are some short sellers who are, as Warren Buffett would say, swimming naked right now. And the tide’s about to go out and they’re about to get exposed. And they got in front of them. You know, that’s some mafia level stuff right there, but that’s the market.
Jonathan: Yes, sir. So yeah, they’re trying to do it again. I don’t think it’s going to work. I hope it doesn’t work because who’s going to do it next? Every company is going to want to put up expensive bonds so they can buy Bitcoin. That ends somewhere.
Charles: That’s not the sort of thing you imagine ends well, but in the meantime, it does create some trading opportunities for us. So, you know, we’ll take each day as it comes. We’ll take those trading opportunities as they come across our desk. And you just keep your risk management in place and you live the trade another day.
Well, let’s pivot again. I know you had mentioned that you have a challenge coming up. So let’s talk about that.
Jonathan: Cool, thank you, Charles. We do.
We’re coming out with a Master’s in Trading Challenge. I think it’s for two weeks. It’s going to be released, I think, early June. So, I’d love for you all to join us at Master’s in Trading Live. We’re on every day, 11 a.m. Eastern time. Join early, say good morning. I’m in the chat saying hi to everybody, and I’d love you to see what we’re doing. Follow along.
Charles: Yeah, we’ll put a link here for everybody to follow that.
I will say the beauty about what Jonathan does is it’s educational. He’s not just telling you, buy this stock, buy this option. Yeah, sure, there’s some of that. But that’s not the point. The point is I’m teaching you how to be a trader. I’m teaching you how to trade options. I’m not giving you fish. I’m teaching you how to fish, to use a very tired old metaphor. But it’s true.
That’s the point. You are teaching people how to do this for themselves. And I really love that. So if you are interested in options or you’re just curious, I would really strongly recommend you tune in to Jonathan’s show.
You will learn something. I cannot guarantee you know the rules. I can never guarantee that anyone will make money, of course. But I can guarantee that you will learn something. I have absolutely.
No problem guaranteeing that you will learn a ton from any session we’ve done with them. So that is the strongest endorsement I can ever give and I’m happy to give it.
Jonathan: I appreciate that. One of our mantras that we like to go back to is: education mitigates risk. It just does. The more you learn, the more you’re open, the more you’re curious, the more you’re creative, all of that mitigates risk.
Charles: And it’s like compound interest as well. Your knowledge and your experience, it’s not linear. It’s actually, it’s exponential. It builds on itself and that’s how that goes.
So, Jonathan, thanks for being on. We’re going to put a link at the bottom to direct people to Masters in Trading.
Thanks for being on. It’s always a pleasure. I’d love to have you on again. And I hope that every time I have you on, it’s as successful as this last time.
Jonathan: Thanks for having me. That was a lot of fun.
Charles: Yes, sir. So, to everyone that stuck around to the end here, thank you. Thank you for viewing.
This is Charles Sizemore, signing off.