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?
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.
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.?)
- 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,