In this video, learn the surprisingly effective trading strategy nearly everyone missed during the GameStop opportunity. See a firm prop trader and me recap a simple, effective, and thoughtful trading strategy that you can use to help grow your trading account.
View Video Transcriptin this video learn the surprisingly
effective trading strategy nearly
everyone missed during the gamestop
opportunity hi i’m mike bellafiore
co-founder of smb capital
and we’re a proprietary trading firm
located in midtown manhattan and i’m
also the office of the trading classic
one good trade
and the playbook in this video see a
firm prop trader and me recap a simple
effective and thoughtful trading
strategy that you can use
to help grow your trading account
[Music]
this was a trade i took back during all
the game stop
kind of madness and this was a inverse
correlation trade
uh between like the short interest names
and the overall market
and i use spy as my vehicle for the
overall market
and then gme for the short interest
names as that was the leader and kind of
the hottest story at the time
so sam are you shorting are you shorting
uh
are you trading spy are you trading gma
i’m trading uh spy
based off of gme okay got it
and so back when uh all these targeted
short squeeze on
high interest stocks it really left
some of these major headphones with
three different scenarios
first one would be to ultimately cover
their short which would lead to massive
loss
and pretty much lose their hedge as uh
most of their shorts were some of these
high short interest names
so typically then they’re only a
long-only fund
so there’s really no edge then uh just
using like a mutual fund in a way
and then the other option would be
protect their shorts
using like options and derivatives but
this is super expensive so this is going
to significantly drag down their returns
as well as just be kind of like a big
cash hole in their pockets
and then the last option which is pretty
much my main focus
of this trade is to raise cash and
they you could use outside investors
but really the best way to do this is to
uh
sell some of their best positions
ultimately to finance the drawdown
and then a stat a lot of people i’ve
been talking about
after uh kind of that two-week period
with the short interest names
was this var or value at risk
and then you can look at this graph and
you can see when
all these short interest names started
to squeeze uh
the var had a huge shock hitting 10
in both directions and uh var is just a
metric to calculate potential losses
within the long
short portfolio and that’s based on
historical
price movements so you could see
this spiked right around the same time
gme was at
300 400 500 so it’s kind of calculating
risk
based off of those past movements
and then another thing was in their in
their portfolio a lot of these shorts
were outperforming their longs so
really their hedge was just kind of
destroyed in that term
where they’re losing money essentially
on both sides
and then just another stat was the
volatility doubled in 50 stocks in the
russell 300.
and then going off of that last point i
touched on
regarding uh like raising cash by
selling positions
uh another term for that is just
deleveraging
and we saw this on a mass scale
so a lot of these funds that were under
pressure were forced to counter their
losses
and to do that they really just had to
reduce their gross exposure across the
board
which pretty much means just selling
their longs and covering their shorts
and the markets they mainly focused on
doing this were leaders
but the most important part was very
highly
liquid names such as apple amazon and
spy
and this graph illustrates that pretty
well where
it kind of shows so these are the most
shorted names on the top
and then this is uh the goldman sachs
vip
holding which is uh a lot of the hedge
funds
major holdings you gotta ask and and i
don’t think there’s a right answer to
this but
i’m curious so you’re doing something
super sophisticated here right yeah
i mean you are two steps ahead of what
most people are thinking about
at this time who are trading gme and am
amc
and triple b y uh
and nakd and and all of those runners
which is your saying i’m not going to
play in that space
because it’s too volatile but there
should be overall selling in the in the
market
because sophisticated hedge funds need
to raise capital
and so i think some of these liquid
names are going to get sold off
um so i i and and your thought process
is super sophisticated so
really well done there and i love
i love how you’re thinking through this
so i’m in no way
discouraging you from doing this
huge huge applause for me for thinking
through this
and my sense is if you’re going to think
through
other trades like this there’s going to
be some super trades you make going
forward
really really well done in this case i
just wonder and i wonder if you thought
about this
because gme and amc and
triple b y were so in play
was it worth it for you to be so
sophisticated to be so savvy
and play your game
looking for some of these liquid names
to sell off as opposed to
just looking for the easier trades in
the gmes the triple b wise the amcs etc
yeah so that was definitely something i
was thinking about
but in my trading style i’m more of a
mega cab trader
so just in terms of keeping my risk in
check
and also cost wise not having to pay for
expensive locates
and let’s say i take a scratch on the
trade i have to relocate these shares
for
really expensive so for me i wanted to
first like just attack the the market
i’m most comfortable trading
and then second just keep my costs low
so those are pretty much the two main
reasons why i chose spy
rather than trading uh some of these
other names which
definitely offered a better return in
terms of like points
and uh just overall movement i mean so
looking back at it now
do you think that was the best decision
for you i mean do you think it was
better for you
i mean obviously costs would have been
covered
by getting on the right side of any of
those stocks
you know so there was yeah there was
more costs but there was much more
reward
and then secondly all right this isn’t
your game
but this other game is so opportunistic
that even if i don’t play this game that
well
maybe it still offers more opportunity
and i’m not in any way suggesting this
is the right answer i just want you to
be thinking about this
there maybe there was more opportunity i
even playing a game i’m not as good at
than my primary game yeah definitely
i’m wondering if you’ve come back and
think about that i mean do you
do you feel like no this is where you
should play it or do you feel like
maybe i should have swam and and some
different waters for me
tried it out because there was just so
much opportunity and look we spent a lot
of time saying
let’s do what we do best play play your
game
trade your playbook but there are times
when
there’s so much opportunity in other
stocks that what you can do
is just wait for the easiest trades
in the gmes the amc’s and the triple b
wise
feel a little bit uncomfortable but
there’s just too much opportunity to
ignore it does that make sense
i mean these are special opportunities
these are special opportunities and so
you know when these special
opportunities come
does it make sense for me to switch over
and
and gain some exposure and try it and
maybe it doesn’t have to be
an either or maybe it can be i’ll spend
a majority of my time shorting some of
the large caps
but i’m gonna spend some of my time also
trying to trade
these special opportunities that are
super in play i mean nothing has been as
in play as
gma that we’ve seen in markets in the
last 18 months right
yeah and you know we could see the
backside getting put in below
260. and today it’s trading at
under 60. it’s it’s near 50 now so
anyway i wonder if you thought about
that yeah yeah i mean
that’s definitely a great point and and
while i’m still
pretty young in my trading career
definitely would have been worth at
least putting a little bit of risk on
some of the super in play names and uh
get out of my comfort zone a little bit
and then i at least know if uh that
market was
right for me at the time and let’s say i
get blown out then i can just go back to
uh
apple and some of those other names i
was trading if you want to learn
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but uh going forward uh these were just
two
notes from goldman sachs i found pretty
interesting
kind of uh related to this mass
deleveraging
so the first one was last week we saw
the largest active hedge fund
deleveraging
since february 2009 which is uh
really significant as 2009 as everyone
knows is a pretty messy year
and then lastly uh hedge funds last week
bought and sold
the most stock in a more than 10 years
uh for that week period
which also just shows uh how this
how these short squeezes really affected
the hedge funds on a uh
on a major scale so now going
forward this was uh
another graph showing the inverse
relationship
uh so pretty similar to that last graph
but you can see
this one red is gamestop and then
gs is uh that same
here going back
is that is this same uh kind of etf
following those
most uh kind of the favorite overall
favorite hedge fund names and that’s an
inverse graph so you can see
i mean it’s almost perfectly correlated
whenever
gme squeezed we also saw mass selling in
a lot of these names
and uh it was pretty interesting we saw
this in the vix
as well so i was using the vix
along with spy to uh to monitor my trade
and this inverse relationship offered a
great
leader lagger opportunity with gme as
the leader in spy as the lagger
so just in simple terms gme is going up
it’s pretty much telling me a lot of
these funds have to
decrease their equity exposure so
ultimately
short spy and then gme is going down
funds are able to increase their equity
exposure as they have
more risk on the table and uh that’s a
good opportunity
to long spot super fascinating chart
were you surprised even when you
developed this theory were you surprised
how correlated they were
oh yeah i i thought it was going to be
somewhat correlated but
i mean you can see it’s almost identical
i’m super surprised by that wow
and so these next two charts i’m going
to show
just kind of explains the relationship
so this first chart
is showing when gme is positive and uh
spy negative and then the next chart
i’ll show uh gme
negative and spy positive so this is
going back
to that first squeeze after hours
when we were at that 150 level and we
had that explosive
move all the way up to 250 and you can
see at that time
really wasn’t too much movement in spy
as this was after hours and uh we
typically don’t see
crazy price movements in the overall
market
uh right after the market closes but you
can see
on this second squeeze from the 250
up to this 365 this is when uh the
correlation play really started to come
in play
so you can see spy sold off five points
while gme
gained 100 points and then gme was just
consolidating holding above this 300
level and ended up closing above 300
and uh that was pretty key in the
options market
so you can see at the end of the day as
uh
gme was holding above this 300 level and
it was looking like it was going to
close 300
and we had uh this little spike into the
close
was the correlation the same for the q’s
as well
yeah but the queue is offered pretty
good opportunity but it’s just it’s not
as liquid so a lot of the selling was
mainly in
spy i would say so cues definitely
followed path
but spy just was a little cleaner in my
opinion
yeah and then lastly uh spy’s super
weakened at the close so another
10 points and that’s a 15 point move
off of all-time highs which is a
pretty significant move in spy as atr
really i think it’s around like three or
four
not not nearly 15 points
i gotta say sam i’m just blown away by
the correlation there
i know we were whispering this while
this was going on
uh but boy is that an incredible
correlation
yeah looking back on this making the
the presentation i really wish i
attacked this setup a lot more because
almost every day during that like week
and a half span
there was just super easy setups where
gme is breaking down
spies lagging by like 30 seconds a
minute so you could have gotten really
big size in that period
100 100 there yeah
wow what a find okay great all right so
this lastly is showing
uh how spy is positive when gme is weak
so a lot of this was started after the
robin hood halt
so we had that last squeeze up to 500 in
the pre-market
robin hood came came out and halted uh
trading
or not really halt it yeah they halted
you could only sell positions at the
time
and you can see that was very positive
for spy we ended up
just in the pre-market we gained around
six points
and then off of the open as this
weakness continued
and gme this spike didn’t really affect
spy too much
but it ultimately sold back off to 100
and spy rallied back
up 12 points kind of near that all-time
high period prior to uh
the steep sell-off and then robin hood
resumed gme trading just with pretty
small size
but that was kind of the catalyst a lot
of people were looking for
for a potential squeeze again
and you can see when that news came out
really really steep
reaction and uh gme
and then around that same time we saw
really
negative price action in spy and then
this i don’t want to go over this too
much because this theme was just
reappearing all over you can see even
see at the close here
a little small bounce in gme leads to
pretty steep selling in spy
and then this is kind of the turning
point i identified this was
the day prior to my trade i believe but
it was
kind of this pre-market action where
gme was came off the highs came off this
380 level pretty steeply and then on the
open
just pretty much limit down steep
selling for the first 30 minutes back
down to this 200 level
and at that same time that’s when spy
was kind of consolidating and then once
that weakness was shown
in gme spy ended up taking off and
this is kind of that opportunity where
spy is lagging a little bit
so i actually bought a little bit in
this zone this isn’t the trade i’m going
to go over
but this is a really great opportunity
as well where you can see
gme is already down around like
60 points and spy is still consolidating
right in this pre-market range
and then this is kind of just that
turning point where you can see
gme starts to fade all day at the exact
same time uh
spy’s up trending for the next two days
i thought this was pretty interesting at
the exact same time
gme hit a five day low at the 75
while spy hit a five day high so that
just
really shows the correlation again
so now going into the trade i took
this was a great opportunity so this was
following a lot of the
the madness and a little cool off period
so we had a two-day consolidation zone
this is spy
on the left side and gme on the right
side
you can just see how how nicely these
charts
uh pair like if i were to just flip this
inverse it’d look
almost the exact same so coming into
this i
spotted kind of an if then trade with
spy as
my uh my vehicle and gme as the driver
for the trade
so just going into the setup it’s a
simple consolidation breakout
which you can see we have really nice
range in both of these so it’s going to
be
really clear to spot when that breakouts
happen
happens the driver is the inverse
correlation and just the trading plan
is to get long spy if gme breaks down
from this consolidation
with significant volume and starts to
hold below this 80
level which is pretty much the low the
consolidation
this hundred dollar level is pretty key
that’s what i was watching as well
but on the flip side if gme started to
gain strength in this
consolidation period which a really
wasn’t looking for that much because at
this point
the story was pretty much dead this
thing was most likely gonna fade
but i wanted to keep the opportunity
open just in case
and it was too short spy if we saw
a breakout above this 120 with volume in
a
sustained move back up to this like 200
level then i would uh short spy on a
breakdown of this consolidation
so now going into my trade this is the
the following day
so going back this was kind of that
consolidation period i was looking at
and so firstly right off the open in gme
we just saw super steep selling
and then right in this period is when i
got involved
so yeah it looks like i was using this
85 actually which was
the previous day’s low as well as pretty
key support in the pre-market
and then going to spy i was using
yesterday’s high
as the level to get involved in
so once we were holding down we saw the
volume come in the
on the open saw this weakness and then
we started to consolidate a little bit
below this 85 level which was the
consolidation i was looking at
that that really confirmed my bias to
get long spy so you’ll see how my
executions i actually bought a little
bit
right off of the open just feeler size
but then
once the trade started to prove itself
uh
i got pretty big right at this why high
area
and then just seeing gme continue to
fade all day was
just multiple checks in my favor and you
can see it
even the last minute we had just an
explosive move in spy
so just get going off of this is
honestly one of the easier trades i’ve
taken just with how how clean the setup
was
and how it followed my plan almost to a
t
so going into my executions you can see
i bought
my first tier just pretty much right off
the open i think it was after the first
three or four minutes in this
consolidation and i was just risking
this off of a
pretty nice pre-market support we had
and uh if that broke down i probably
would have
looked to buy some more size lower but
just tier one i was risking against
these lows so i was able to get pretty
tight risk
but off of this why high level was when
i i really started to get involved
so we had this breakout above why high
in this retest
and then in this little consolidation
right in this period
is where i ended up getting most of my
size for the trade
and uh prior to that i took a little bit
off at this
previous y high level just to cover some
risk it wasn’t
really significant size as i kind of had
a longer
thesis for this trade i took off another
piece
during this consolidation as you can see
the volume just dried up
so i wanted to lock in a little bit of
profits but uh also
still be in the trade and look for
another place to add
and the other place to add was this 385
level
is a previous swing high and we’re in
this consolidation zone for a little bit
and i got pretty aggressive here as gme
continued to fade and
it was pretty much closing at low day
and we also had a
a pretty pretty big buying balance this
day
so i ended up getting another size kind
of front running the buying balance
and then i had some limits set at this
386 level i took
a little piece off at 380 550
which in hindsight i i definitely regret
as this was breaking out consolidation i
pretty much
took it off right before uh the trade
was working
but i didn’t feel too comfortable
holding that big of a core
into the after hours so i definitely
wanted to take some profits there
and i got my last exit at this 386 level
so now just going into uh the recap of
the trade
uh is definitely a great edge in this
setup
finding a recurring pattern uh
some of my best trade setups are based
off of kind of these correlation
patterns
so so definitely going to keep kind of
diving into
other possible opportunities in the
future i’m seeing
a real strength of yours
that that’s just blaring at me which is
you’ve got all these people who are so
hyped up
to be trading the gamestop opportunity
right
yeah and like it’s like everyone’s
in this feeding frenzy after
the big trade and that and and i see you
very calmly very thoughtfully
taking a step back and saying
where’s the easier money where’s
the the better trade for me
you know how do i uh express
what’s going on here in in a way that
it isn’t so fast
but is is a little bit more thoughtful
and i see
that being a strength that can be
applied to
a lot of different types of
opportunities not just in this
gamestop opportunity for instance you
know right now the what’s the
what’s the big frenzy what’s everybody
talking about right now like it’s like
cnbc has gone from
24 7 talking about game stock
and you know the
the the central media has gone from 24 7
talking about gamestop
to talking about what right now bitcoin
yeah and so is there another way where
you can
take a step back thoughtfully graham is
doing this a little bit
thoughtfully find a way to use your
strengths
to participate in this opportunity
and i suspect you don’t really like hit
and run trading
as much as as maybe max does i think he
probably likes
things that are steadier and slower if
is that is that an accurate statement
yeah definitely
yeah and so you’re applying to your
strikes so
yeah that’s it’s really important to see
that as a strength and i see you being
able to
apply that to lots of different types of
traits
you know the spax are pretty hot as well
the marijuana stocks are are super
strong
right now are there some lesser-known
marijuana stocks right now
that haven’t caught a bid yet that you
can go study
that are going to catch a bid and and
you can get in on them that’s a super
effective way
to attack trading definitely uh
i mean i mean right now with so many
different markets being hot
i think you touched on graham with the
bitcoin he does a great job
treating riot and mara as kind of a
leader laggard
correlation trade and that’s definitely
something i want to dive into
and that’s also a good point with uh
some of these marijuana names
as that’s kind of seems to be the next
the next hot store it
i mean definitely has been the story
this week and if that trend continues
definitely worth looking into
and then going off of this uh
so this is kind of what we touched on
earlier for just getting a better return
about you bringing up
just trading gme rather than going
through and trading spy
uh kind of on the flip side of that is
looking at some of these
uh big names such as apple so
i could have went through and i kind of
identified the sector
with the most relative strength or
weakness at the time
and let’s say that’s xlk or technology
that’s leading in the pre-market first
15 minutes
just go through and find some of those
most liquid and
highest institutionally owned names so
apple would have been a great vehicle
for this i know this caught a pretty
nice bid that day as well
not nearly as strong as spy but uh
definitely something i was looking at
and then this trade also had great
overnight swing potential
because we ended up closing high a day
we ran
in the pre-market and then the next day
we also had
pretty much a vertical day so definitely
could have done a better job holding
a core and adding onto the position uh
in the pre-market or after hours that
following day
to have a pretty solid average price and
kind of continued to trade and then
the last thing i want to touch on is uh
just going back to this trade
it seems like everyone was super
interested on
the correlation to the short side so
i’ll just go back
to this uh i saw some stuff on twitter
about some people taking some of these
trades at the short side
but it didn’t really seem like anyone
was focused on
the long side of this trade for the the
correlation
which was a little iffy for me coming
into this trade setup but it ended up
working great so
i wanted to bring that up as well too so
to definitely look for
both long and short opportunities when
you have a correlation
and just not only be focused on uh
kind of spy breaking down if gme keeps
running
but yeah that’s all i have for you guys
if you have any questions oh we
appreciate that so
we’ve got a special guest with us right
now sam
who would like to give you a little bit
of feedback on this trade we got luke
bella fury
our special guest in the building today
and uh luke you have any feedback for
sam
um congratulations sam
thank you pretty good trade
luke when are you going to start trading
are you on the demo account
no
lucas is working on playing for the new
york yankees first
if he doesn’t play for the new york
yankees then then we’ll we’ll have some
trading to maybe fall back on
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