They’re Back!

Yo Pit Crazies,

 

I will be back again at full force next week after my “vacation” included a questionable car and faulty back.

 

But to end the week, this post is about meme stocks coming back into vogue and what that means for volatility and the VIX.

 

How does one trade these things?

 

Of course, you can check out Mark or Licia with their trade ideas and/or …

 

You can read on to structure a trade!

 

Mark has the Option Pit VIX Light on red, which means solid contango pushing down VIX futures. (In contango, futures prices are higher than spot prices.)

 

AMC Entertainment (Ticker: AMC) started to blow last week, while the iPath Series B S&P 500 VIX short term futures ETN (Ticker: VXX) downward slide was abruptly halted.

 

See those charts below:

 

10-day AMC Entertainment (Ticker: AMC) with 10-minute candles.

 

10- day VXX chart with one-minute candles.

 

Normally, I would say one stock is not a market. But right now I would guess a lot of funds that shorted these stocks again are regretting it. The S&P 500 (Ticker: SPX) has not moved too much over the last 10 days either since it is dead flat.

 

Mark mentioned this setup this week.

 

The reason for the halt in the VIX futures slide is fear of the unknown. That is coming from liquidity issues in the funds that trade them, and no one really knows how that will turn out. (Remember Bill Hwang’s fund group, Archegos Capital, the Robinhood scare, etc.?)

 

Tradin’

      • As a trade, I’m looking at VXX puts for a two-week cycle minimum, at the last VXX low of $33.54.
      • Remember, VIX has a way of doing what it just did, that is the mean reverting character, so VXX should have an easy time getting back there if no real action out of the meme stocks.
      • I’m favorable toward buying VXX June 18 33.5-strike puts for $1.30 and just a blowup hedge for VIX — say, buying the VIX Jun16 20-/30-strike call spread. 
      • Since I’m expecting a drop in VIX, I want the trade short enough delta relative to VIX. This means I am expecting a drop in volatility. The ratio is three VXX puts to two VIX call spreads …
      • The reason is that VIX will blast off if there is a real problem and the call spreads will pay big time. The last “scare” brought VIX to 27 in a hurry and then right back down again!
      • Since we should know by next week how the AMC pop turns out, that buys enough time to let the VIX futures and VIX sink and the trade should win.
      • I put out a similar idea in the Volatility Trading Club yesterday morning and the prices are about the same, since VIX and VIX futures are sitting.

 

The Lesson: When the Option Pit VIX Light is red, I lean short VIX direction and just hedge for a surprise. Kind of like right now!

 

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.

 

Frank has cued up Coinbase (Ticker: COIN) and Global X Cyber Security ETF (Ticker: BUG) as potential winners. 

 

The cheap Sept. options in BUG are calling me if I can buy the BUG Sept. 17 18-strike calls.  

 

We are up about 10% since the portfolio launched in late April, and I can afford to buy four BUG calls with that dough.

 

BUG Sept. options — note how low the volume.

      • Ford Motor Co. (Ticker: F) is moving out and I sold out three of the five calls in the trade at $1.06. The trade is semi-mirroring the ratio I have in the Trading Legion. Up 33% on the first leg and 88% on the second.
      • General Electric Company (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.
      • I own three Taiwan Semiconductor (Ticker: TSM) June 18 120-strike calls for $3.10 and one TSM June 18 100-strike puts for $1.95 and have taken in $470 against them via TSM calls I sold and QQQ put spreads I closed. I sold one TSM June 18 120-strike calls at $2.25 at the break even area.
      • Palantir (Ticker: PLTR) stock is trading over $24 and up around 5% on the all in capital, including the stock purchase.  I am looking at converting the stock to calls here but was looking for $400 in profits before I did so.  PLTR is a meme stock so the chance for a launch is pretty good.

The Power Moves Portfolio Track Record

To Your Trading Success,

 

AG

A Big Bearish Bet On The VIX

The Option Pit VIX Light Is Red, And Volatility Is Likely To Drop.


Hey Traders,


Thursday was a slow day for VIX trading…


Apparently all the would-be VIX trading went to AMC (which traded over 4 million contracts!) …


But there was one giant whale of a customer that executed two huge trades simultaneously.


Given the recent action of the VIX (finishing higher on Thursday) …


I find these trades REALLY worth talking about!


Like I said, Thursday was a slow day for VIX trading.


While activity has certainly picked up in the last few weeks, there are still some days where trading is REALLY slow.


Thursday just happened to be one of those days, with fewer than 350,000 VIX contracts crossing the tape.


And the crazy thing is that over 20% of those contracts were traded in what appears to be one trade!


One lone customer bought 23,800 of the September 18-strike puts for $1.27, and then just 0.19 of a second later …


The same customer bought 47,600 contracts of the July 16-strike puts for $0.40!



This is quite a sizable bearish bet on the VIX, and on a day that meme stocks were running wild — which ALWAYS puts pressure on the VIX to go up (see yesterday’s post).


The trade took place towards the end of the day …


Given the movement in AMC Entertainment (Ticker: AMC) and other meme names toward the close (pulling back slightly), this has me wondering …


Is the meme train running out of steam?


Did we, in fact, reach peak meme today?


My gut says that ‘memeby’ the case …


With the VIX curve holding pretty darn steady, I think we could see a vol drop to end our week …


Your Only Option,


Mark Sebastian

Central Banks Have a Golden Plan for Digital Currencies

 

Hey There Income Hunters,

 

Another Power Income prediction is closer to becoming a reality …

 

Central banks are planning to use gold as the vehicle to devalue paper currency.

 

As Trump would say — but can’t because even his personal blog has now gone dark — “this is yuge!”

 

It all begins with the central bank of central banks — the Bank for International Settlements (BIS). The BIS, you see, is rolling out new rules this month that will all but eliminate unallocated paper trading of silver and gold.

 

These rules require an 85% haircut — which means 85% of the value of the asset must be held as a buffer against the position on all gold and silver derivative contracts that are not covered by the physical metal. 

 

The wholesale physical metal does not require a haircut, which essentially lifts the physical from its derivative, and opens the door for a revaluation of physical silver and gold.

 

And there is a lot more to this story, including what the Chinese have been doing behind the scenes.

 

A Corrupt, Bank-Manipulated Derivatives Market

 

This is another tale of banks taking advantage of their role as middleman between end investors and their central bank. It’s essentially the London version of the U.S. primary dealership.

 

There are 43 approved London Bullion Market Association (LBMA) dealers who up to now have been responsible for providing liquidity in gold, silver and other commodities derivative markets.

 

The largest markets are the SPDR Gold Trust ETF (TICKER: GLD) and iShares Silver Trust ETF (Ticker: SLV) products, which are the most popular ETFs to trade as a proxy for Physical metals 

 

The moral hazard created in these markets stems from the banks’ ability to lease physical gold and silver from the Bank of England (BOE), the U.K. central bank.

 

I will take you through the structure, similar to how the U.S. prime broker model operates, which we discussed during the Archigos default.

 

Creating Gold and Silver Out of Thin Air

 

The LBMA rules allow the banks to short GLD and SLV derivatives and lease the physical underlying product from the BOE.

 

The actual metal never leaves the BOE, yet that initial lease can be borrowed and re-leased many times over … 

 

If this sounds familiar to you, it should. This process also supports the U.S. financing market, including Treasury repo and stock loan.

 

Once the ability to rehypothecate assets out of thin air is created, counterparty exposure is multiplied. That’s called a daisy chain — and in a crisis, when one link defaults, it causes a chain of failures.

 

However, I congratulate the BIS on removing moral hazard from the global system, and I need to show you the motivation behind the change …

The Great Reset in a Couple of Keystrokes

 

Folks, you are going to love this.

 

The original structure for the precious metal derivatives markets was facilitated by the central banks leasing underlying assets so the banks could gain leverage and manipulate the system.

 

That is one way the central banks get other banks to buy a country’s debt. However, now that the central banks want to cut out the banks and take total control of their monetary system, they are changing the rules.

 

By requiring the banks to hold 85% capital against the underlying value of their derivatives trade, they are forcing the banks to close down their operation.

 

This disconnects the physical from the derivative and creates a pure physical wholesale silver and gold market …

 

Revaluation of the Metals Will Boost Prices

 

If you are a holder of physical, derivatives or miners, you should be getting pretty excited right about now

 

The ten European banks that are London Bullion Market Association members have to unwind their unallocated derivative contracts by June 28 or put aside the 85% capital requirement against them. The capital requirement removes the economics of holding positions, so most bank positions will be closed. UBS, Julious Baer and Credit Suisse have already unwound their derivatives book.

 

Following the June 28 deadline there will be a revaluation of the physical metals. Andrew Maguire, a British commodities trader and whistleblower, is an expert on this topic. He recently shared that Tier 1 banks think it will play out this way:

      • On a Friday night, the physical and derivative market will be settled…
      • On Monday morning, the Gold market will trade on it’s own for physical delivery and revalued to $2,500. (Gold is currently trading at $1,865.)

The major central banks work closely with the BIS. In my opinion, it is highly likely this was all put together to create a facility for increasing the price of gold and devalue fiat or paper currency in preparation to launch digital currency backed by gold and silver.

A Central Bank Gold War

 

Once the physical market is revalued, which could be a 2022 event, the fight for digital currency dominance will begin.

 

Like other currency wars, the nation with the strongest currency wins. That means whoever owns the most gold wins.

According to Maguire, China holds 20,000 tonnes of gold and recently lifted its cap on imports of gold for investors.

 

20,000 tonnes, by the way, is twice the official amount of gold the U.S. holds.

 

After June 28, and after the official amount is announced, there could be a massive amount of central bank money flowing into physical gold and silver to strengthen their currencies, as well.

 

Bring It Home

 

June 28 will be here in a flash, and you can be sure there will be a lot of volatility in GLD and SLV right up to the end.

 

The banks still have the power to manipulate prices, and they will push prices down whenever they can to help them unwind positions favorably.

 

Meanwhile, I am building a diversified portfolio of miners …

 

Here is my logic: miners are already making a nice profit at current levels of gold and silver. They will be less volatile than the outrights, but they’ll also completely participate in further upside.

 

My current portfolio is listed below.

 

History is about to be made, #IncomeHunters. Let’s stay focused and make some money.

 

Until then…

 

Live and Trade With Passion My Friends,

 

Griff