Yo Pit Crazies,
A simple concept in trading is liquidity. How much trade is moving into one area at a time?
Liquidity needs willing buyers … but also needs willing sellers.
If one side of the scale is unbalanced, the underlying moves get off the charts and lead to unstable prices.
This week we have a 3% range from peak-to-trough in The SPDR S&P 500 Trust ETF (Ticker: SPY). SPY has a collection of tech, financials, oil, commodities, industrials and services. The funds are moving into solid balance sheet tech like a house on fire.
Think of funds as a herd of buffalo moving out of one area and into another, leaving a trampled path in their wake. These massive flows are pushing financials down and tech higher with commodities dead on the floor. Stocks that were “good stuff” are sold en masse to buy the shiny new object.
Let’s see how those flows ended up this week.
The SPDR Select Financials (Ticker: XLF) Made A Low for The Year
Ultimately the market cannot rally if the financials are getting smoked.
That is the blood pumping through the body of free enterprise. SPY rallied into the close for an up week on hopes of some grand plan coming out of the government once again to fix problems they helped create.
XLF 10-day chart with one-minute candles.
The thing with a herd is it will trample until it runs into a wall. Right now that wall could be yet another financial crisis. I am not ready to short the Invesco QQQ Trust (Ticker: QQQ) and buy the XLF … it’s too early.
The easiest trade is long QQQ, short SPY. That way I can follow the herd, but keep the meltdown in my back pocket. OP Mentoring and Nitro Trader will hit that on Monday and Tuesday.
Meanwhile I’m opening our Tuesday Trading Desk session for a free preview.
The Rundown: What’s Winning Around Option Pit
Power Income Trader
Griff had a power week in the iShares Silver Trust (Ticker: SLV), Apple Inc. (Ticker: AAPL), and the SPDR S&P 500 Trust (Ticker: SPY).Maybe 40 years of trading experience helps, so let Griff help you profit from the gamma flow.
SLV/AAPL Apr21/Feb17 20/21 call spread, 21/22 call diagonal, 162.5/167.5 call spread closed for a 52% gain.
SPY Mar24 396/397 call vertical spread closed for a 58% gain.
SPX 2 Mar20 3970/3975 call vertical spreads for a 100% return on credit.
SPX 4030/4040 call vertical closed 100% winner.
Big Money Flow
Lithium America Corp (Ticker: LAC) Mar17 27.5 calls closed for a 21% gain.
SPYMaster
SPY, VIX Mar17/Mar22415 calls, 395/385 put vertical, 21 puts closed for an 11% gain.
Nitro Trader
Alphabet Inc (Ticker: GOOGL) Mar17 97.5/105/112.5 call butterfly closed for an 86% gain.
Trade Desk
I closed VIX Mar22 30/42.50/55 call fly & VIX Apr21 23 puts for 11% win.
To Your Trading Success,
AG