In this edition, we’re going to break down the ARK Innovation ETF (shown as ARKK on the charts). Some traders pay close attention to this ETF, others don’t. So why do we care about ARKK? What is the idea of ARKK anyway? Why are we frequently including this with things that we’re scanning for in the Futures Room as well as the Sector Secrets Mastery?
Let’s dive into this a little more to find out…
The ARK Innovation ETF:
Well first of all, ARKK has met the trading volume requirement for me, which is minimally 1 million shares per day. ARKK is somewhere around 2.2 – 2.3 million shares a day (if not more). So it has definitely met the liquidity. The options on the ARKK in terms of the open interest and volume are a little light (I’ll admit), but they’re tradeable. As a rule of thumb, I’d like to see typically a minimum open interest around 500 – 1,000. So it’s a little illiquid, but as long as you’re not trading a large size, the ARKK options chain is good. And the options are relatively inexpensive in terms of if I wanted to buy an at the money call, does it meet the requirement of being under 10 points to 7 points… it does. In fact, sometimes it’s even below that.
So it’s an inexpensive ETF.
Names Within ARKK:
So what’s in it? When you take a look at ARKK what exactly are you looking at? They’re disruptive, innovative companies within the technology field — that’s what they describe this particular ETF fund as anyway. And so, when we take a look at the symbols that are heavily weighted within it, we get Roku, Tesla, Zillow, Spotify, Slack, etc. There’s a lot of very popular names within what I’d believe to be high beta, high momentum.
This collection of stocks is unique to ARRK, and it contains a lot of names of companies traders like to trade. But these companies can sometimes be a little daunting and/or a little expensive. So ARKK provides a way to reduce the expense while still getting a lot of exposure to these popular names.
One Specific Name In ARKK:
One of the ways I’m looking at ARRK, which we’ve done relatively recently in the Mastery, is I’ve put certain names on my watchlist as they go double green. One of the recent trades we took within the Mastery was PSTG. Just like any ETF the top 11 will switch from time to time, but this is typically at the lower end of the holdings. But it’s a really good name when we’re talking about liquidity and that minimal open interest. PSTG does have good liquidity at multiple strikes, so this is actually much more liquid than the ARKK ETF options chain.
So if there’s a good setup in an individual stock that has better open interest and volume, like PSTG does, that’s something we’ll definitely look to get into.
In this case, we looked for a pull back buy into the wave on a double green market. That means the 8, 13, 21, and 34 EMA were giving us very good bullish structure. We stepped in by buying the 17.5 strike for Jan 15, and they’re already moving higher. Our initial target’s going to be around 19.5 to 20 as we’re looking for a nice surge in momentum to scale out of these options.
If you’re interested in jumping in on this trade, or others in the future, consider joining my Sector Secrets Mastery here. We have monthly live trading sessions as well as other awesome content available to only members.