Dear Trader,
Last Wednesday the S&P 500 put up its best day-after-a-midterm rally in 44 years.
Twenty-four hours later it fell 4.4%, the worst second day after a midterm in nearly a century of records.
If that gave you whiplash, you’ve got company.
Tech has dropped more than 18% since the S&P’s October 6th record.
The Nasdaq slid into a correction.
By Thursday’s close, 174 stocks in the S&P 500 sat 20% or more below their highs, and the VIX had jumped from 16 to 28 in a single session.
Monday’s bounce helped. The index still sits lower than it did a month ago, and a lot of accounts carry the bruises.
I spent that same week watching the internal channel where our traders post trades they’ve closed, and I’ll admit the mood in there annoyed me a little.
It reads like a different market.
Start with Andrew Giovinazzi. On October 27th he called for an “abnormally large” move of 3% to 4% within eight or nine days. Day nine landed on November 5th, and the S&P fell 4.36%.
He traded it, too. Andrew bought VIX puts ahead of the vote and they doubled the day after, when the relief rally crushed volatility. Then he took the other side. He closed SPY puts for 66% and again for 100%, booked 180% and 160% on a pair of defense shorts, and watched Booz Allen calls he put on for $0.25 trade at $1.25.
Another of his positions closed up 450%.
Tim Colby has now won eight of his last ten in Foundation, including three in one day last week. Tim likes to say he hunts for the opposite of whatever the majority’s thinking, and a month where the most crowded trade in the market came apart suited him fine. He’ll also tell you, in his words, “September did me dirty.” No trader wins them all, and Tim won’t pretend otherwise.
Mark Sebastian closed a winner on SQQQ in Wiretap, a service he originally pitched as the one built to do well if the market cracked. It cracked, and the trade did its job. He also pulled a winning Delta Strike position off the table ahead of that night’s earnings rather than gamble on the report.
The trades above all came from people with a plan for a drop and a plan for a rip, sized so they got paid on whichever one showed up.
Last week both showed up inside 48 hours.
Plenty of people watched Thursday thinking “I wish I’d had puts on.”
Our traders had them on, and they’ll have the next one on as well.
Speaking of the next one, Anthropic is a stock Mark’s been following because, as one of the largest IPOs of all time, it’s set to have a lot of opportunities to take advantage of.
So far he’s made ten trades and won seven.
With Anthropic just announcing its IPO road show, with the listing expected next week, we’re expecting even more changes to make money off this.
Just tap this link to see how Mark’s playing this.
Charles Delvalle
Editorial Director, Option Pit