Yo Pit Crazies
Stocks are on knife’s edge.
We could blow higher in the S&P 500 … or we could see a massive dip.
The conditions are perfect to profit while pairing the VIX and SPY.
It’s a market neutral trading approach that allows you to pick the risk you want to take.
So how does it work?
In the Pro Room this week I closed an ExxonMobil Corp (Ticker: XOM) strangle/VIX put trade for a 20% gain. (I produced the trade last week in the Pro Class on Monday night.)
The trade was roughly vega neutral. That means if implied volatility dropped, my position would have been insulated from a loss and possibly turned into a gain. Right now I am into my VIX puts for just .05 and they are trading .30.
I did not close the VIX puts as I figure I have a good chance to close them over the next 4 months for better than .05.
Ah, the ability to tip toe out of a trade.
Risk It and Biscuits
When I set up a trade I like to pick the risk I want to take.
It’s like making a menu selection …
Pick the dish you want to eat … and don’t order the dishes you don’t want to eat.
Simple enough.
The risk I wanted to take in the XOM trade was that it would move … and I leaned long.
The risk I wanted to hedge for was the market doing anything for an extended period of time.
So, if XOM dropped a little bit I did not care that much because I owned the strangle. I took the easy close for a win on the big pop this week.
Now the market is signaling more CPI nonsense for next week – which is an opportunity.
The key here is to pick the risk you want to take, and hedge for the risk you don’t.
Yet Another 100-point Move Is in the Offing This Week
It’s hard to believe the market still cares about CPI numbers, but it does.
I can discount or accept it, and after 30 years of trading I find it better to accept what I see in front of me. Traders think we will move big off of the CPI number on the 14th.
Happy Valentine’s Day with a 100-point SPX ripper!
That is perfect for my SPYMaster strategy that uses a combination of VIX and SPY.
I want to score on larger moves but be flat vol exposure in case VIX drops post-CPI.
I will close a few SPY put spreads I have on into the number release if the weakness picks up steam in SPY.
The Rundown: What’s Trading Around OP
Option Shopper
Licia grabbed an Uber Technologies Inc. (Ticker: UBER) puts for a quick 106% gain!
To Your Trading Success,
AG