BY ANDREW GIOVINAZZI

July 21, 2023

Yo Pit Crazies,

We at Option Pit have been writing about a rift in stocks as the Invesco QQQ Trust (Ticker: QQQ) sets to pullback on the Big Tech winners. Into that news, banks and traders squeezed the early shorts up near $20 in QQQ. Add some good AI headlines and traders were caught flatfooted and short.

On the chart below, the squeeze was the first pop arrow as shorts early on sold what they thought was easy money. They could be right (I think they will), but dang, the short term pain was rough.

The first circle on the left was when I posted a strangle to the Trading Desk.

How’d it turn out?

The Key to Strangle Trading Is …

Not being afraid to lose something. 

That’s true of most trades, but when you own calls and puts you are trading two things: momentum and range.

Here was the trade idea I posted for Trading Desk folks on Friday. I bought the QQQ Jul21 377 put and 387 strangle, long call and put, for 3.50.

I figured there is no way QQQ does not move at least 1% by Wednesday the 20th. And I was dead wrong, for a while. I think I was down $500 on Monday, and it didn’t get better by Tuesday, but it didn’t get worse.

Then the momentum picked up and QQQ started to regain the rally, so I could exit the calls at $2.45, leaving me with $1.05 of risk or about $500. $500 is the limit I want to bet on a trade like this, so it just sat there with my near worthless puts Wednesday on the close.

By the close on Thursday, I closed the puts at $2.00 or $4.45 on the strangle I paid $3.50 on. I did hold 1 QQQ put since the momentum looked south and the big rebalance should make folks nervous today.

If you have a number you are willing to lose, trade around that number. Option buyers want to try and stay in as long as you can, but don’t overstay. That’s where the wins come from.

I’ll talk more about range and momentum this weekend.

The Rundown

Easy Trade Button

Bank of America Corp (Ticker:  BAC) Dec15 26/31 Strangles closed for a 31% gain 

Nitro Trader

Dow Jones Industrial Average ETF (Ticker: DIA), Nvidia Corp (Ticker: NVDA) Aug4 352 calls, 345 calls, 425/400/375 put fly closed for an 11% gain 

DIA, SPY Aug4 351 calls, 454 puts closed for a 33% gain 

Power Income Trader

SPDR Select Technology ETF (Ticker:  XLK), MicroSectors FANG ETN (Ticker: FNGS) Jul28, Aug18/Jul21 173/171 put vertical spread, 34 put calendar closed for a 7% gain 

To Your Trading Success,

AG