Three Traders Share Their Best Ideas

Tesla, Pound Sterling, and Volatility: Contrarian plays from Nick Battista, Ilya Spivak and Mike Butler

We asked three stock market veterans what trades are catching their attention amid the current market carnage and yesterday’s rebound. Here’s their take on how you can capitalize on extreme swings in prices.

Tesla’s down but not out

By Nick Battista

Has the public soured on Elon? Maybe. But Tesla (TSLA) is still the most innovative company in the world. Plus, the velocity of risk in its shares has always been and continues to be to the upside. It’s a stock that trades with huge upside skew in options prices.

Into extreme downside moves, high beta names tend to snap back faster. And Tesla is arguably the highest beta name on the board. If the market does bounce out of this “bear market,” I’d expect its stock to see upside volatility greater than the rest of the Magnificent Seven equities.

With Tesla’s stock nearly halved since the start of the DOGE campaign, it would seem there would need to be only a small catalyst to spark an upside move. The 200-day moving average sits around $290, and that might be a good target in the short term.

Nick Battista, tastylive director of market intelligence, has a decade of trading experience. He appears Monday-Friday on Options Trading Concepts Live. On Wednesdays, he co-hosts Johnny Trades. @tradernickybat

A stronger British pound

By Ilya Spivak

The British pound was trending higher against the U.S. dollar before the “Liberation Day” tariff policy bombshell. Treasury yields started marching lower in January as signs of stress began to appear in forward-looking economic data. That shifted yield spreads against the greenback, pushing it broadly lower.

In fact, the pound rallied even as President Trump unveiled his new menu of tariffs, ostensibly because the U.K. faced only a 10% levy, the new minimum, whereas the Eurozone faced a 20% hit. But its fortunes turned as panicking markets went into liquidation mode last week with haven-seeking capital flowing to the dollar’s unrivaled liquidity.

Beyond this volatility, the case for a stronger British pound still seems compelling. Worries about the dependability of the NATO security blanket have become acute, triggering a rush to boost defense spending across Europe, and the U.K. is no exception. That may be a potent fiscal uplift even as inflation has already crept higher since September.

That might reduce the scope for rate cuts at the Bank of England, even as growing fear of recession makes for an increasingly dovish outlook on the Federal Reserve. U.K. rates are already seen surpassing those of the U.S. by year-end, and the spread has widened in the pound’s favor since late February, meaning it may be due for a larger run higher.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts #Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

How to short the VIX

By Mike Butler

It’s impossible to find a “sure thing” in the stock market. Markets crash and markets rally, but they all have one mean-reverting aspect—implied volatility. It’s defined as the range of one standard deviation projected on an annual basis. It’s tracked by the Cboe Volatility index, which is called the VIX for short and sometimes described as the fear gauge. It traces the 30-day forward looking implied volatility of SPX, the S&P 500 index.  

The VIX may trudge along at lows, but eventually it will spike. Then after a while it will come back down. It’s the one thing we can hang our hat on when it comes to predicting market movement because it is truly a mean-reverting product, meaning that even if it goes much higher or lower it will tend to return to its average. 

With that said, trading changes in implied volatility can be difficult, especially when attempting to time a big upside move. This is the case not only because it’s hard to gauge when the truly violent moves will happen but also because when volatility futures are in contango, volatility products tend to drag down over time if you’re trying to time an upside move.  

A contango curve occurs when near-term futures contracts are less expensive than the next month. It’s an “easier” trade to short a big rally in volatility, but it can be risky when shorting products outright because there’s no cap on how high volatility products can go.  

SVXY, the ProShares Short VIX Short-Term Futures ETF, is an inverse volatility product that seeks to replicate half of the inverse daily move of the VIX. This means that when the VIX is spiking, SVXY is dropping, and vice versa. 

For a pure stock purchase play, I like SVXY for anyone trying to short the VIX—but in a more conservative way. For context, during the current market sell-off, SVXY has dropped from $50 to a low of $34.20. When we reached the near-term high in the S&P 500 ETF (SPY) on Feb. 19 of this year, SVXY traded to a high of $52.34. 

These returns are not mind-blowing if we return to the mean price in VIX, but it’s much easier to wait for a pop in volatility and play for a return to the mean, compared to trying to time a massive pop in implied volatility that may not come for many years. 

Buying SVXY is not for the faint of heart because a continuation in implied volatility spiking would mean further selling in SVXY. But for long-term investors who believe implied volatility will come down eventually, SVXY would drift higher on a VIX sell-off over time, especially if that’s paired with a contango volatility futures curve. 

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb  

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