4 Articles On Our Memorial Day Reading List

Hey Traders,

Today was a market holiday, so the Option Pit VIX Light hasn’t changed from Friday’s red light.

So in lieu of a traffic light update, how about we take a look back into the Option Pit archives?

These are some of my favorite articles we’ve put out here at Option Pit. They’re quick reads, but packed full of valuable information that will help make you a better, more knowledgeable trader.

Those of you that have been with us a while might remember a couple of these, but for those of you that are new VIX Edge readers … these are worth your while!

Just as a reminder, tomorrow I’ll be hosting my live event for Volatility Edge members, where I’ll be releasing my long-awaited UVXY trades! You won’t want to miss it. If you’re not a Volatility Edge member yet, there’s still time for you to sign up here and join me live at noon EST tomorrow.

Now, for your Memorial Day reading list … 

      • Here Is Why The Market Is Tanking – I posted this piece on February 24, 2020 to talk about why the market was “tanking” … little did we know what was to come! This article discusses how backwardation in the VIX indicated potential volatility coming our way (again … little did we realize exactly what we were in store for!) and I said to be on the lookout for another catalyst that could send markets spiraling … which we got with the March lockdowns. I’ve never been one to say “I told ya so” but in this case, we definitely called it!

The date this article was published. Chart courtesy StockCharts

      • The VIX Light Is Red – Let’s Make It Green – If you’re wondering what turns a red light green, this article briefly touches on all four of the sub-indicators that make up the VIX Light. Here’s another recent article that goes through all four indicators as well. 
      • The Weekend Effect … Effect – I think you’ll find this piece to be very timely. Curious how a long weekend affects the VIX? Look no further. 
      • Spike or Swell – It’s not always easy to determine whether a VIX upswing has staying power or not, but there are clues you can look for. Figure out how to tell the difference between a VIX spike and a VIX swell in this article. 

We’ll be back to the usual programming tomorrow. Get out and enjoy the rest of your long weekend.

Your Only Option,

Mark Sebastian

Mark Sebastian

Lest we forget

Yo Pit Crazies,


I’m still on vacation and Memorial Day has me thinking about things we should not forget.


Those who made the ultimate sacrifice for our country, for one.


Without that, who knows where we would be today?


While they thankfully weren’t killed in active duty, my dad and granddad both served in the military.


Dad was a captain in the Navy, and we still have to remind him every now and then we are not his crew. 


I never met my granddad who died of cancer young, probably as a result of getting gassed somewhere in France in 1918.


He did make it long enough to have a bunch of kids, one being my mother.


Lucky break for me!


He managed to become a furrier, of all things, and opened the fur department of Neiman Marcus in Houston in the 1930s.


A far cry from the trenches of France.


After we give thanks on Memorial Day to those who sacrificed, the markets will be back open … and who knows exactly what will happen?


In trading, the past is a good prologue so read on …


Also, don’t forget that tomorrow, June 1, Mark Sebastian will be releasing three ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) trades EXCLUSIVELY to Option Pit Volatility Edge members. You can still get in at a special price, but you have to sign up before 5 p.m. today!.


UVXY Is a Melting Ice Cube (Most of the Time)


Speaking of UVXY, it’s a product that acts a certain way.


Mark will talk reverse split on Tuesday, but notice how it moves:


Two-year chart of UVXY.  Note the spikes in price and the long slides down in value.


The active phrase is:


UVXY takes the elevator up and the escalator down.


Since UVXY is a volatility product priced from the front two month futures in VIX, it can only go so far up and so far down.


It’s not like an Apple (Ticker: AAPL) or an Alphabet (Ticker: GOOGL) that can keep going and going.


UVXY is “mean reverting.” The gist of that loaded phrase is the underlying returns to an average level at some point. This orbital movement informs the trades that work the best.


I know a guy who can help with that.


The Lesson: Mean reverting is a big concept in options because it helps define what a product can do.


Questions about any of that? Drop a comment below!


To Your Trading Success,

AG

Clear Skies Ahead For These Airlines

Hey Traders,

Tomorrow is the big day …

I’m finally revealing my THREE ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY) trades!

This is a big deal … I’ve been excited about these trades for weeks now.

This 10-to-1 reverse split is an opportunity that doesn’t come around often, and frankly, it’s like Christmas for a volatility trader like myself.

If you want in on these trades, you’re in luck.

My big trade reveal event isn’t until tomorrow (thanks to the market holiday today), so you can still click here to become a member of Volatility Edge, and join me as I reveal these trades live at 12 pm EST!

Of course, UVXY isn’t the only opportunistic trade I’m looking forward to making in the near-term.

President Biden set a goal of “reopening” the country by July 4, and many states are already buckling down and beginning to go about business as usual.

Which is great news for most of us … Except maybe traders. A lot of the “reopening” related upside has already evaporated, but I’m still seeing pockets of value that present some promising trading opportunities.

And as I watch “reopening” stocks begin to take flight, there’s two in particular I’m keeping an eye on.

Looking at all the stocks that still stand to benefit from “reopening,” I think cruise lines and airlines offer perhaps the biggest and best opportunity to get back some real value in the months ahead.

For example, Delta Air Lines (Ticker: DAL).

DAL was hitting highs of $62 in the months before the pandemic struck, but closed out last week at just $47. 

Chart courtesy of StockCharts.

Sure, the shares are nowhere near their 2020 lows, but they’re still well off their 2019 highs. 

And it isn’t like travel rates declined last year simply because people lost interest.

In fact, DAL President Glen Hauenstein said in a conference call last week that domestic travel had already reached pre-pandemic levels, and they expect to actually surpass 2019 demand as the summer wears on.

As pent-up demand continues to unwind, I think there’s plenty of upside ahead, and the airline recovery likely has plenty of room left to run.

I’ll be looking to take advantage of this upside through cheap calls, or a solid call spread setup. If I can find the right opportunity, I will strongly consider making a move here.

I’ve already made a move on another airline, and I’m just biding my time waiting there.

Lots of Legroom For AAL

American Airlines (Ticker: AAL) is also sitting well below its pre-pandemic highs.

 

Chart courtesy of StockCharts.

Leading into the pandemic plunge, AAL was in a slight downtrend, but still consistently cracking above the $30 mark. Although the shares have recovered significantly from their COVID drop, last week the airline closed at just $24.24.

I’ve actually been holding AAL June 18 24-strike calls for just under two weeks, and am looking for AAL to make a move to $25 or higher, when I’ll begin closing my position. I think AAL could still pop to $26 in the near-term, so I’ll be watching the trading volume and momentum on this stock very carefully to decide my next move.

Now, while these two names are the ones that caught my eye, they’re far from the only two names that stand to see plenty of post-pandemic upside. 

For example, Carnival Cruise Lines (Ticker: CCL) and United Airlines Holdings (Ticker: UAL) have similar potential upside, currently sitting below their pre-pandemic highs. They could also become targets for potential call-buying in the coming weeks. 

There’s still a fair amount of “reopening” value to be found if you know where to look.

As the summer heats up and things start to get back to “normal,” I will be keeping an eye out for more trading opportunities in travel stocks like these, hopefully finding some good risk-to-reward ratios on the call side.

In the meantime, I will be hitting UVXY hard to milk the recent 10-to-1 split for all its worth.

Remember, I’m releasing these three trades to my Volatility Edge members tomorrow. Don’t miss them!

Your Only Option,

Mark Sebastian


Let’s Not Forget

Hi Shoppers,


Today is the 50th anniversary of Memorial Day as an official federal holiday, and, sadly, it’s the first year we do not have any Pearl Harbor survivors with us.


From its roots as the Continental Army (established in 1775), the U.S. Armed Forces have grown to include the Army, Navy, Air Force, Marines, Coast Guard and Space Force, with 1.4 million active personnel. 


Our nation is considered the world’s most powerful military because we spend by far the most money on defense — three times more than China at No. 2. (It also doesn’t hurt that we have 800 bases outside our borders.)


The U.S. is ranked No. 4 for military spending as a percentage of GDP at 3.7%. Saudia Arabia is No. 1 at 8.4%, followed by Israel (5.6%) and Russia with (4.3%).


China comes in at number ten spending only 1.75% of their GDP.


History of Memorial Day


In the years following the Civil War, a group of women in Columbus, Miss., began placing wreaths and flowers on the graves of fallen Confederate soldiers.


Noticing that the graves of Union soldiers remained bare, they started placing flowers in that cemetery, too.


In 1868 Gen. John A. Logan, a Union veteran leader, established Decoration Day stating, “Let no neglect, no ravages of time, testify to the present or to the coming generations that we have forgotten as a people the cost of a free and undivided republic.” 


Since 2000, the National Moment of Remembrance has been a way to raise awareness and respect for Memorial Day. It’s intended to encourage all Americans to stop what they are doing at 3 p.m. on Memorial Day for a moment of silence to remember and honor those who have made the ultimate sacrifice serving our country.


It’s a small, but meaningful, gesture and I hope everyone will participate.


***


On the trading front, it will be a short week, but I have an interesting idea heading into tomorrow.


Let me show you what I am seeing on the Quantumscape (Ticker: QS) stock chart.



It is the bullish engulfing formation created by a large green candle engulfing the previous red candle. This signifies a change in trend to the upside.


Looking at the one-year chart below, you can see this level for QS is also a support area:



Looking at the options chain, I like buying the regular expiration June 18, which has 19 days left, decent volume and markets that aren’t too wide.



I will buy the June 18 26-strike calls with an implied volatility of 86.12 and sell the 31-strike calls at an implied vol of 88.99.


That’s paying $1.50 for the five-point spread with 19 days until expiration.


I will take my loss if the spread trades down towards a dollar. I will begin profit taking at the $2.50 level and higher.


Enjoy your extra day off, but also don’t forget to remember.


Thanks for Reading … See You Next Tuesday!

Enjoy the Coal Train

Hey There Income Hunters,

Mark my words here on the last day of May …

Within a year, coal prices will be up 300% and oil will hit $90.

Long ago, I said the day would come when our leaders would be scrambling to meet the demand of a reopening economy.

Now, all of a sudden, the administration is in love with … nuclear power.

Say what?  

Yes, the Biden team has completely flipped (no surprise to me) on nuclear. The American Jobs plan calls for funding to build advanced reactors and incentives for making current facilities more efficient. 

Better late than never, I guess

This shift creates some great profit opportunities for traders who do their due diligence and find the 2- or 3-bagger returns I expect in the coal and nuclear industries.

In the next 12-months, we will see a massive shift out of growth stocks into basic material, precious metals and value stocks.

Just keep your focus on this graph …

 

It is all relative in the world of investing, and being flexible to a changing environment is essential.

To paraphrase Jimmy Buffet, there’s a bull market somewhere. #IncomeHunters just need to be ready to pounce …

I have a couple of great names for you in the coal and uranium markets, low-priced producers with the potential to 2x or 3x your money.

 

Does Anyone Want to Sell 10 million Pounds of Uranium?

 

The world is short about 10 million pounds of uranium through the end of the decade.

 

China has to double its stated plan to bring at least 60 nuclear power plants online over the next eight years. India needs an additional 25 to 30 facilities.

In the U.S., our lack of uranium has the makings of a national security problem because we aren’t producing our own.

We now have a situation where the anti-fossil fuel policy, and reduced production because of it, is driving natural gas and coal prices higher.

That makes nuclear power much more competitive. This supply/demand dynamic creates an ideal scenario for front-running the institutional purchases.

Think about this, the uranium industry is only worth about $21 billion — that is half the size of Dogecoin. It’s a joke.

You have to have a minimum of 5% of your portfolio in the oil, natural gas, coal and uranium sectors. By my analysis, the upside is 10x the downside.

Uranium Producers

Denison Mines (Ticker: DNN) – DNN is a uranium developer and explorer based in the Athabasca Basin, a region in northern Saskatchewan and Alberta, Canada.

This is the world's biggest source of high-grade uranium, currently producing about 20% of the world’s supply.

DNN’s major project is Wheeler River, which is one of the lowest cost projects currently in development. Reserves in the probable category total 109.4 million pounds, with another 132.1 million pounds inferred.

The company’s other high-grade project is Waterbury. They own 67% of that undertaking, which recently received a positive preliminary economic analysis.

 

The U.S. announced it is considering extending uranium power plant licenses to 100 year. That shift would cause a substantial and long-lasting increase in demand.

So #IncomeHunters have a great opportunity to buy a miner in the early stages of development in an industry with government support.

DNN could be a 10-bagger if you sit with it for three years.

They do offer longer-term options so buying a long-term call and selling short-term calls to collect premium along the way would add more juice while you wait on the big prize.

Global X Uranium ETF (TICKER: URA)

URA offers exposure to a broad range of uranium mining stocks and producers of the nuclear component. These companies have large absolute revenues in the uranium industry.

 

The technical picture offers an excellent entry point as URA has recently broken out with good volume on a monthly chart.

Nuclear energy is clean, scalable and efficient, and with all the revised interest in it globally, I consider URA a potential 5-bagger

The company is a good addition since it offers liquid options and can be traded against a core holding.

 

This Christmas, Coal Will be on Everybody’s List

It’s funny how the “black bheep” of fossil fuels is now in such demand.

That is exactly when you want to get in on a purchase that I think will be at least a 3-bagger.

Peabody Energy Company (TICKER: BTU)

BTU has 3 Different Segments:

 

      • Seaborne Thermal: Composed of Australian thermal coal that is primarily exported to China, India and Japan
      • Seaborne Metallurgical: Hard-coking coal used in steel making.
      • Domestic Thermal: Thermal coal mined in the Powder River basin (Wyoming) and the Illinois Basin. 

Tailwinds from an impending resolution of a trade dispute between China and Australia, along with increased demand in China for coal plants and higher natural gas prices over the next 12-24 months, will be major drivers of higher coal prices.

You have to realize, even though coal is falling in demand in developed economies, it is still growing in developing nations. China is aggressively expanding plant capacity, which generates demand for BTU’s Seaborne Thermal coal going forward.

 

ARCH Resources Inc. (Ticker: ARCH)

ARCH is the coal leader and is on a roll.

The company’s most recent earnings show a nice improvement in financials, and they will be revving up a new mine in Q3. That will stoke growing momentum and higher earnings.

The nice thing with ARCH is they are growing earnings before interest, taxes, depreciation, and amortization (EBITDA) now and as the price of coal rises it will accumulate to their top line.

 

 

ARCH is further along in it’s uptrend and provides a bit more volatility for trading around a core holding.

 

Bring It Home

Keep moving into the asset classes that are hot.

You can see how institutional investors first moved into energy producers, then commodities. There’s been a recent shift into gold and silver and next up is fossil fuels.

With coal and uranium, I like playing them with outright calls or call spreads out as far as possible.

These assets are solid winners in a secular bull market.

When they become overbought you can sell shorter term calls against an outright long-term position…

It’s a short week ahead ending with an important jobs report on Friday. I think it will be a strong number and I have a few trade ideas I’ll share throughout the week.

Until then …

Live and Trade With Passion,

 

Griff

 

 

 

 

Remembering Is the Power Move

Hey Influence Traders,

It’s time for the Weekly Roundup.

But this is no ordinary weekend …

It’s Memorial Day.

We are going to keep this short and sweet to allow everyone time to remember those who sacrificed everything to make this the greatest country on earth – yeah, I’m that guy!

Enjoy your friends, family, hot dogs, mom, apple pie and watching the Indy 500.

My Power Mover of the Week … is the U.S. and its people.

So please, Remember.

And to all of those who have served or are currently serving – THANK YOU!

DC Action

      • TSA Reports Travel Is Up: TSA reported over 1.9 million travelers on the Friday before Memorial Day weekend, the most reported since March 2020.
      • Origins: The Senate passed a resolution calling for a probe into the origins of COVID-19.
      • Counter to the Counter to the Counter: Republican leadership put a $928 billion infrastructure counteroffer on the table, which the White House signaled it welcomed despite falling far short of its current $1.7 trillion proposal.
      • The Budget: The big news of the week was Biden’s proposed $6 trillion budget, which was immediately skewered by republicans.

Power Moves Portfolio Roundup

      • Ford (Ticker: F) pulled back a bit and we will take the money if we don’t see a rally next week. The strangle was up around 20% as of the close.
      • General Electric Company (Ticker: GE) is a play on green energy and getting stronger with some recent windmill innovation announcements. We own 2 GE Sept. 17 14-strike calls for a credit.
      • Cleveland-Cliffs (Ticker: CLF) broke out and way above the strike in my spread, so I took the $100 gain and bought a midterm call, one CLF July 16 21-strike call for $1.61. Looking for a double in this call to close.
      • Our Vale S.A. (Ticker: VALE) position is down a bit in the five VALE June 18 22-strike calls we own, but it is closing again on even. We sold all the puts in here for a 100% return per put. The loss in this position has closed and we would squeak out for a $1 close on the calls for a break-even and move on. We’re in repair mode on this position, so even is fine and I will move on.
      • We own four Taiwan Semiconductor (Ticker: TSM) June 18 120-strike calls for $3.10 and one TSM June 18 100-strike put for $1.95. We’ve taken in $470 against them via TSM calls we sold and QQQ put spreads we closed. The calls are back to $1.75, but time is ticking. At this point, the position is broken as TSM has made three moves up and down from $108 to $117. The 120-strike calls need a breakout and we’re not getting one, so that’s why we’ll hit the exit for even.
      • Palantir (Ticker: PLTR) stock briefly hit $24.75 on Friday as the meme stocks got hot again. We are back to even on the position, and if we get a move above $25, we will take the win and move on since this one is in repair mode. Our initial strangle lost small and we tried to generate some income via put ratio spreads, but PLTR went from $24 to $18 in about 2 days. With the long stock and puts, we have time to let things work out but still want to exit and redeploy the dollars.

The Budget

The president proposed a fiscal year 2022 budget of $6 trillion.

This is the opening salvo for negotiations, so it is early to make too many predictions on outcomes.

What we do know is that the budget calls for some of the heaviest and most sustained periods of spending since WWII, and supports Biden’s priority areas such as infrastructure, education, research, public health, paid family leave and childcare.

Some of the highlights include:

      • $4 trillion for the American Jobs Plan and American Families Plan, which are currently being negotiated with congress. This covers infrastructure spending.
      • $932 billion for discretionary, non-defense programs.
      • $756 billion in defense funding.
      • $50 billion on domestic and global health initiatives.
      • $36.5 billion for Title I schools, in which children from low-income families make up at least 40% of enrollment.
      • $36 billion for climate initiatives.

The budget calls for spending to increase to more than $8 trillion by 2031.

Biden stated that his spending increase will be “more than covered” by proposed tax increases on wealthy Americans and corporations.

The budget assumes economic growth of 5.2% per year this year and 4.3% next year, which the administration described as “conservative estimates.”

To enact the budget, the U.S. will have to borrow 50 cents for every $1 it spends, and it is expected to push the public debt to $24 trillion. 

Republican Reactions …

In short, they didn’t like it.

House Minority Leader Kevin McCarthy called it “the most reckless and irresponsible budget proposal in my lifetime” and Senate Minority Leader Mitch McConnell claimed that it would “drown American families in debt, deficits and inflation.”

While the devils are in the details, given the rosy growth estimates I’m going to have to side with the Republicans on their critique of the proposal.

Travel

The major airlines reported that ticket prices in Q2 are up almost 18% over Q1 — and are continuing to climb.

Meanwhile, a consortium of travel agents reported that they are expecting a record summer travel season as a result of pent-up demand and as the U.S. and world reopen.

I’ve been looking into European travel and it ain’t cheap! From planes, to cars to hotels, prices and inventory are at a premium.

Option Pit guru Mark Sebastian has been touting American Airlines (Ticker: AAL). While heightened gas prices will dampen profits somewhat, there is a good chance that demand and rising ticket prices will solidly offset that variable.

Andrew and I are going to start looking at some trades around AAL in the Power Moves portfolio. So standby …

Cutting Through the Noise for You.

Frank

 

If It’s Broke, Fix It!

Yo Pit Crazies,

 

I’m on vacation, such as it is. 

 

We drove to North Carolina from Maine, and my car gave me fits the entire way.

 

Nothing like driving over the Chesapeake Bay Bridge thinking your car is going to break down.

 

White knuckles … but we survived.

 

Made me think about broken cars and broken trades.

 

If it’s broken, you gotta fix it!

 

Mark will talk about the best broken product ever, the UVXY ETF and reveal three incredible trades — on Tuesday.

 

I will be playing golf.

 

Mending Fences

 

I am managing the The Power Moves Portfolio with Frank Gregory and we have a couple of broken trades.

 

While the dollar amounts are small, I will wrap them up because we have three weeks to go to expiration.

 

The most important thing about a broken trade is to …

 

Live to fight another day!

 

No trade should take you out or blow up your account. If the trade sniffs that number, it’s way too big.

 

I like to keep my trade size around 1-3% of account size while finding excellent plays to put on for big profits.

 

In The Rundown below I will outline fixing a couple of positions.

 

Realistically, just getting back to even is a win when things go bad.

 

I define a broken trade as the initial outlook being totally wrong. But the best time to plan for the worst is before entering the trade …

 

I have found after teaching option trading for 30 years that open trades do not lend to good decision-making when things go off the rails

 

The Lesson: Live to fight — or drive your car across a bridge — another day.

 

The Rundown

 

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Radar to find order flow in active names.

    • Mark has some mojo rolling and with the tweaks he made to the Robinhood Radar. He now has five wins in six and closed two dingers on Friday.

      • UVXY is the gift that keeps on giving. June 04 26.5-puts were bought for $1.60 and closed for $3.
      • Blackberry (Ticker: BB) June 04 10-strike calls were closed for a 160% gain in less than 24 hours.

 

The Power Moves Portfolio:
Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise. We are aiming for positive theta trades and using that income to buy calls is the big growth opportunity.

Ford (Ticker: F) pulled back a bit and we will take the money if we don’t see a rally next week. The strangle was up around 20% as of the close.

General Electric (Ticker: GE) is a play on green energy. I own two GE Sept. 17 14-strike calls for a credit.

Cleveland-Cliffs (Ticker: CLF) broke out and way above the strike in my spread, so I took the $100 gain and bought a midterm call, one CLF July 16 21-strike call for $1.61. Looking for a double in this call to close.

Our Vale S.A. (Ticker: VALE) position is down a bit in the five VALE June 18 22-strike calls we own, but it is closing again on even. We sold all the puts in here for a 100% return per put. The loss in this position has closed and we would squeak out for a $1 close on the calls for a break-even and move on. We’re in repair mode on this position, so even is fine and I will move on.

We own four Taiwan Semiconductor (Ticker: TSM) June 18 120-strike calls for $3.10 and one TSM June 18 100-strike put for $1.95. We’ve taken in $470 against them via TSM calls we sold and QQQ put spreads we closed. The calls are back to $1.75, but time is ticking. At this point, the position is broken as TSM has made three moves up and down from $108 to $117. The 120-strike calls need a breakout and we’re not getting one, so that’s why we’ll hit the exit for even.

Palantir (Ticker: PLTR) stock briefly hit $24.75 on Friday as the meme stocks got hot again. We are back to even on the position, and if we get a move above $25, we will take the win and move on since this one is in repair mode. Our initial strangle lost small and we tried to generate some income via put ratio spreads, but PLTR went from $24 to $18 in about 2 days. With the long stock and puts, we have time to let things work out but still want to exit and redeploy the dollars.

 



Volatility Edge/Volatility Trading Club:

The Option Pit VIX Light is RED.  As in, “Down goes VIX!” We also have some BIG news coming soon on the UVXY reverse split. So get in on that.

 

      • Vol Edge closed trade No. 92 UVXY June 04 37-strike puts for 63% profit.  There is a theme here and Mark will be happy to talk on Tuesday.
      • No real change to VTC positions, as both are up and ready for a move either way in VIX. With three weeks to go with each position is up better than 10%.

 

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

 

To Your Trading Success,

 

AG

Newsflash: Biden Budget Won’t Pay for Itself

Hey There Income Hunters,

 

Where can we get one of those self-paying budgets?

 

I mean the Biden & Yellen Show never stops entertaining … 

 

Treasury Secretary Janet Yellen had a laugh-out-loud line in front of the House Appropriations subcommittee this week while defending President Biden’s $6 trillion budget.

 

“I believe it’s a fiscally responsible program,” she said.

 

LOL!

 

Fact Check Time

 

Every politician loves to say their budget plan will pay for itself.

 

But if that were true, we wouldn't have a 130% debt-to-GDP ratio to worry about… 

 

The graph below highlights the fact that just five years ago, the U.S. went into a decent economic growth period — and guess what? The deficit widened. It didn’t narrow, and it certainly didn’t pay for itself.

 

 

Now the dollar is ready for its third major bear market in the past 25-years …

 

And here’s a secret: when the dollar goes down, commodities go up!

 

Get ready for a renewal of the commodities bull run.

 

My Commodities Trades

 

I put a bullish vertical option spread on Southern Copper Corporation (Ticker: SCCO) yesterday. A couple of supporting fundamentals to consider:

 

      • In 2020, supply of most industrial metals tripled while copper only doubled.
      • Global inventories continue to decrease. London Mercantile Exchange (LME) reported inventories were down 20% mid-year last year.
      • Recently, many mines in Chile, which accounts for 28% of global copper supply, were forced to cut back on production due to political issues.

 

SCCO, which owns the largest copper reserves in the world, will continue to benefit immensely from the trend in lower supply/greater demand. In Q1 they only realized a price of $3.85 per pound, so with prices at $4.50 per pound now, their top-line number is much higher.

 

SCCO also captures by-product credits of $.74 per pound.

 

Technical Setup

 

SCCO has had a healthy correction since completing a double-top a couple of weeks back.

The company is down 20% from the high at $83.5 and is now rebounding from the bottom of a well defined $66-to-$84 trading range.

 

 

For SCCO I purchased a Sept. 17 70/80 call spread… 

 

      • I paid $3.40 for the spread and my net delta is 22.
      • I would stop myself out of the trade if SCCO closes below the $66.75 low.
      • So, my max profit would be $660 per contract, while my max loss would be $66 per contract — for a 10-to-1 risk/reward ratio.

Bring It Home

A complete game plan is incredibly important if you want to be consistently profitable.

 I was never a big fan of using stop loss orders… However, they can really save you from throwing money and, more importantly, they keep your head in the game

Unforeseen losses can set you back by distracting you from your next winning trade.

Take your lumps, ride your profits and move on to the next one.

 

Have a great long weekend and God bless the hard-fighting men and women who sacrificed it all for our freedom.

 

Live and Trade With Passion My Friends,

 

Griff

AMD Going Up

Hi Shoppers,

 

The school year is almost over — woo-hoo!

 

You know what that means, right?

 

Time for summer camp!

 

Grant, my son, has been going to the same camp in the Northwoods of Wisconsin every year since he was nine years old.

 

It has been fabulous for him (and us).

 

Camp teaches leadership and independence. He’s met kids from all over the U.S. and several countries.

 

We can actually see the changes in him when he comes off that bus every year.

 

This year, he returns as an assistant counselor, which should be a great learning experience. He’s also driving himself up there, an almost six-hour trip. First time for that, too.

 

It’s an all-boys camp and their motto is “To be kind, because manliness requires kindness.”

 

Actually, here is their creed which is a nice reminder to us all:

To enjoy the Great Outdoors as one of the gifts of life
To greet the dawn with a smile and the mess call with a laugh
To spread sunshine and good cheer, just for the fun of it
To play every game on the level, win modestly, lose gracefully, and have a kind word for the opposing side
To speak the truth and to think the truth
To cooperate with other campers and find pleasure in lending a helping hand
To try to see the other fellow’s side of the question and strive for harmony
To be kind, because manliness requires kindness
To be strong, because self-reliance is born of strength
To be careful, because recklessness is the admission of unwise judgment
To be too generous to bear a grudge and too good natured to pick flaws in others
To aim for self improvement
To be a “regular fellow,” a pal to other campers, a friend in manner and deed, a booster rather than a knocker, an optimist rather than a pessimist, and a gentleman under all conditions and circumstances

We’ve been fortunate enough to be able to send Grant to camp every year.

 

There is an organization that helps children of prisoners go to camp every summer, check it out.

 

On to the Trade

 

Thanks for your patience (and consideration!).

 

As a reward …

 

Check out my trade idea in Advanced Micro Devices (Ticker: AMD)!

 

AMD is breaking out and I think it will be trading higher next week. Nvidia (Ticker: NVDA) broke out also in the same sector, chips.

 

 

AMD closed at $80.06 yesterday and I think it could trade back up to the $84-$85 area by Friday.

 

Since I think this will happen by Friday, I will buy calls expiring June 04 because they are cheaper.

 

 

I would pay up to $1.20 for the June 04 80-strike calls. 

 

As you can see, there isn’t any premium in the out-of-the-money calls to sell against these. 

 

Anything worth selling would be the 81 calls at $.75, but then you would be limiting your upside.

 

You would have a $1 spread for $.45, with most you can make being $1. No fun there!

 

So, I like buying the calls outright. I will take my loss at $.80 and begin to take my profits at 

$2 and higher.

 

Let’s Review

 

      • AMC Entertainment (Ticker: AMC) … Wow what a ride!

 

The June 18 18-/28-strike call spread I paid $1.70 for on May 26 traded up to around $5. 

 

I have taken four of my five spreads off for an average gain of 81%!

 

Initially, I was taking the money as the stock traded higher — but, man, it just kept going … and so did the vol!

 

I am still holding one spread. It’s very interesting to watch what is happening to the implied volatility in there. 

 

The crazy call skew (out-of-the-money calls with much higher implied volatility than at-the-money calls) is messing with my vertical spread.

 

It is keeping my short call too high, therefore I am hanging onto my last spread.

 

OK, enjoy Memorial Day Weekend with your loved ones, and remember those that have sacrificed for us.

 

Thanks for Reading … See You Next Tuesday!

 

Licia Leslie