Hello Pit Crazies,
Before I say anything else, know you are missing out if you’re not reading Option Pit’s Queen of Candlesticks Licia Leslie’s Profit in Pumps letter.
Just start doing that and thank me later.
I am using Profits in Pumps as my ‘me’ setup today, because Licia likes bargains when she shops for options.
VIX is printing the 15 handle (or whole number) — 15.78 as I write this — so we have the potential of a new market … and a new zone for VIX.
But a market and a stock are two different things, so read on.
I have a rap I did with OP’s Power Income Bill “Macro” Griff on the upheavals in Gold coming. Check out the replay here.
Note in the chart below, the Advanced Micro Devices, Inc (Ticker: AMD) implied volatility in the red line.
That’s a TWO YEAR LOW!
CHIP SHORTAGE, INFLATION, COVID, HACKERS!
No one cares. IV is super-cheap, and that means it’s time to go shopping!
Note the VIX is making a post-COVID low this week, but it’s not an ABSOLUTE LOW.
AMD, however, is making an absolute low.
AMD 30-Day Vol in red. 90-day realized in purple.
Bargain volatility helps, so I want to buy as much TIME as I can.
That means extending the duration of the trade. I have been watching AMD all week (probably should have used it for my Trading Legion trade this week), but pulled the trigger for a long call spread in the RobinHood Turbo Trade idea yesterday, buying the AMD July 23 84.5-/90-strike call spread.
I will look at AMD August vol for the OP Markets Show today.
VanEck Vectors Gold Miners ETF (GDX) 30-day vol in red 90-day realized in purple
Griff and I did a presentation yesterday on a paradigm shift for the dollar/yuan/Russians and gold. It sounds like a Frederick Forsyth novel! Griff’s idea was to buy GDX Jan. 22 cycle calls — and I cannot blame him.
If you look at the vol chart above, the market is totally shrugging off inflation and any upheavals in gold or currencies. That is like buying a whole six months, and the market says “nothing is going to happen.”
I don’t believe it. Sometimes luck is where opportunity meets preparation.
That time is now.
The Lesson: When IV gets very low, increase duration. This is very hard to do for beginners, but give it a look.
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.
I am really pleased with the Power Moves Starting Lineup so far, up $1,900 on a $15,000 account size. That’s some good returns, and great risk-adjusted returns so far.
There were just enough puts that we could hold on to the calls when the market looked ugly. There were some longer-term options that needed to get pared back in names that were not moving up.
A QuantumScape Inc (QS) trade today should be the new add — but it is a bit risky so I want to own a put with any calls I buy.
We did sell a little out of the money premium in General Electric (GE) and Cliffs Natural Resources (CLF). See the action below.
Net we own puts in Ford (Ticker: F), Invesco QQQ Trust (Ticker: QQQ), TSM and Palantir (Ticker: PLTR).
Net we own some calls in The Global X Cybersecurity ETF (Ticker: BUG), GE, Taiwan Semiconductor Mfg. (Ticker: TSM), and PLTR.
We have some short put spreads for theta in BP Amoco (Ticker: BP), GE and CLF now.
- We are back in CLF with a sale of five CLF July 16 15/21 strike put spreads at $0.96. This is a big chunk of capital, and we will adjust with a put if we need to. The implied volatility (IV) is super high in CLF, so we’re just looking for the $20 area to get back in.
- BP seems to be moving up and sideways. This trade is up about 15%, plus we own the QQQ puts for a bonus.
- BUG is making a new high and our four BUG Sept. 17 28-strike calls for $1.25 are up $0.25, or about 20%. The stock is illiquid, but the IV in the calls are cheap, so we thought this was the best way to play the Ransomware story. We’re looking for a double on the calls.
- F stalled, so we just took the money and moved on. We own five of the F June 18 13-strike puts so if F dips we will sell into that.
- GE is a play on green energy. We own two GE Sept. 17 14-strike calls for a credit. We added a sale of two GE July 16 12/14 strike call spreads at $0.62. The idea is to help out the calls a bit in the premium area.
- We bought two TSM July 21 125-strike calls for $2.51. TSM as a stock has been tough, stalling at $119 twice. We will give it one more rally shot, or else we will close and just look for a lower, more opportunistic entry.
- PLTR stock has stalled and we have just one call here and two puts. Stock is stuck, and this trade seems dead, but we have another week to run on the puts so we will just hold this for now.
Option Pit CEO Mark Sebastian uses the Robinhood Radar to find order flow in active names.
Mark still has the mojo rolling with the tweaks he made to the Robinhood Radar:
- ProShares Ultra VIX Short term-term VIX futures ETN (UVXY) puts keep paying. 78% win on a close yesterday, and Mark bought more June 18 30-strike puts into the bell on a fresh post-pandemic low close for the VIX.
- Blackberry (Ticker: BB) is struggling with the 3rd dip but has some time.
The Trading Legion is an intermediate-level education and a long strangle trading vehicle. The goal is to teach students the best times to buy options.
The market has been kind of slow for the long vol strategy so I am looking at longer durations now.
- Rocket Mortgage (RKT) strangle got crushed in a meme vol selloff frenzy. At this point the IV is so low I will just keep it since I have a lot of time. I think they oversold the vol, and I did buy more in my personal account.
- I am still riding the Ark Innovation ETF (Ticker: ARKK) strangle with the ARKK June 18 116-strike calls for ARKK to match last week’s highs, and this trade should be in the black this week.
Mark Sebastian runs our marquee long option strategy for a once-per-week trade. SB specializes in low-implied volatility calls and puts, and managing trade size for a risk-adjusted options portfolio.
Mark added a buy of Energy Transfer LP (Ticker: ET) July 23 11-strike calls for $0.45. Nice-risk reward here. Those calls are ticking up nicely, and are around 20% already.
Pro Trading Room:
This is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session.
The tone was mostly cautious into Tuesday’s close.
Some ideas from around the room:
- Buy to open Accenture (Ticker: ACN) June 25 287.5-strike calls for $4.60 from one of our Pros Susan.
- I am looking at QuantumScape Inc (QS) Jan. 22 20/80 strike call spread 1x and long Jan. 22 15-strike put. The calls trade very cheap right now and QS was on Frank Gregory’s Power Moves list for potential upside.
The Option Pit VIX Light is still red, and the Cboe Volatility Index VIX is trading at year lows.
Mark is still long UVXY puts, with all positions profitable. The decay is killing UVXY, but that is good for us.
For the Volatility Trading Club, I have a good shot today to close a cycle with all wins. I am looking to close some VIX June 16 19-strike and 16-strike puts today, and keep my upside for credit for a week. Not a very exciting cycle, but enough to bring in 15-20% returns and upside for a credit.
Remember, a lot of vol strategies I use are market neutral. That means whether S&P 500 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,