Yo Pit Crazies,
My Pro and Trading Legion students often tell me they like our classes together because they learn a different approach to trading options.
Let’s call it a “flexible approach.”
That was needed this week.
On Monday, the sentiment was horrible. On Tuesday, two things happened:
- A judge stayed the mask mandate for air travel
- St. Louis Fed President Jim Bullard said rates might have to go up 100 basis points, or 1%
In the paper thin market, stocks jumped to a 10-day high.
The point of this is, as a trader, if you keep an overnight position, you need a plan – it’s a key to sustained success.
Jump on through to get one.
Be Flexible With Delta Neutral Trading
A delta is just the stock equivalent of an option. For instance, a 100 delta option offers the same performance as 100 shares of stock. To be a delta neutral trader, the initial delta is 0.
That does not mean that the delta of the positions will not get more positive or more negative.It will.
It is important to know how it will.
That’s something we teach at Option Pit.
In the Trading Legion today I will look at calendar spreads in the SPDR S&P 500 Trust ETF (Ticker: SPY) because implied volatility got slammed on Tuesday on the Bullard comments and a loosening of Covid restrictions. (It’s COVID relief rally!)
I will hedge the calendar to make it delta neutral but also have the market pay me.
Each is a step in the process brought about by the one before it. It is not random. (I’ll share the video from the class in tomorrow’s letter.)
Notice how I did not make a market call. It does not matter because the trade is delta neutral so there has to be another way to make a buck.
Stop by tomorrow for the video.
The Rundown
Capital Gains
I closed some Vale SA (Ticker: VALE) puts on Tuesday for a 57% gain, but I own some calls and I am looking for a rebound into earnings.
Power Income Trader
Better than expected housing numbers gave the market a boost on Tuesday. Housing starts and new home sales were up 4% and 7%, respectively, and I know one reason why …
The Fed actually bought $90 billion in mortgage bonds last week.
That’s right, March should have been a month of tapering, with only $20 billion of mortgage purchases, but Powell is a control freak …
Here are Fed bond purchases so far in 2020 …
Like I always say, don’t act on what the Fed says – act on what you know they’re hiding.
Right now they’re hiding how scared they are of one of their bubbles bursting and are certainly scared of hiking rates so far that they cause it …
Sell this rip in QQQs because with bonds reaching 3% today and potential poor earnings ahead, the timing is right. – Griff
Pro Trading Room
Note the more Delta Neutral/Vol Edge style here in the Pro Room:
Kiran liked the edge in a 450 call calendar Tuesday:
To Your Trading Success,
AG