Fitch Sinks the QQQ (For Now)

BY ANDREW GIOVINAZZI

August 3, 2023

Yo Pit Crazies,

Yesterday, we discussed favorable conditions for a put calendar in the SPDR S&P 500 Trust (Ticker: SPY) at $453.

Well surprise, surprise … SPY opened $453 and my put calendar was up 50%, so I took the profits.

That was the start of a day riding my SPY put spreads down in Weekly Profit Cycles and other puts I had rolling in several of my services. I sold about 20% total of what I had overall, and it will likely be a lot more today.

If you hold positions overnight, you never know what can happen. Like, say, a surprise downgrade from Fitch Ratings, which I must admit Congress and POTUS deserved. It’s eerily reminiscent of 2011 when S&P did the same thing. That led to the near-collapse of the Euro and wild four months of trading that drove the SPX 500 index to 1100.

The chart below shows a few things…

Two-day SPY chart with sigma vols at the bottom

Here’s what it’s telling us …

VIX Remained Up (For the Most Part)

This is the biggest tell. Now, the index did drop a bit into the end of the day but it did hold up.

The Realized Move in SPX Was the Biggest Close Down in Several Months
The fact that August volatility jumped from 10% to 13% should not be too big of a surprise given the realized move in SPX was 28%+ volatility, so implied vol is still relatively cheap.

Aug. IV (The Red Line) Did Not Go Backward
That means it did not jump over Sept. and Oct. Usually if traders are really spooked, short-term IV will spike over the back terms. We had a normal vol move for the SPX; we got some movement, but nothing crazy.

Today, the market will struggle with direction as it waits for Apple (Ticker: AAPL) earnings tonight. Nothing the US government is doing is helping either, as Janet Yellen sets up to make a historic bond sale to fund “Bidenomics.” Those sales should be enough to keep SPX from jumping today. I will continue to close SPY put spreads where I can, but I expect implied vol to stay up near this level until the close when AAPL reports.

If there are no real fireworks by Friday, Wednesday’s VIX action suggests the index’s rally will be short-lived.

The Rundown: What’s Trading (and Winning) Around Option Pit

Option Shopper

Mini SPX Index (Ticker: XSP) Aug. 2 452 puts closed for 133%

Win the Week

Bill ran with an Invesco QQQ Trust (Ticker: QQQ) Aug. 18 376/375 put vertical spread for a 72% gain

Easy Trade Button

I closed a 16% win in IBM Wednesday on an IBM Sept. 15 145/135 strangle. I was leaning long and wrong but the IV jumped so much the strangle paid. I took it.

Make the Call/OP Mentoring Div+

I had two dings, one in Generac Inc. (Ticker: GNRC) and the other in Scotts Miracle-Gro Inc. (Ticker: SMG). My GNRC call spread got smoked on an earnings hit and SMG was the same when I was riding a modest gain in the Div+. That does put a dent in my second-half earnings thesis, although those were dark spots in a mostly good earnings cycle. The good news is there is time to repair those trades but I will let things cool for a day or two.

To Your Trading Success,