BY ANDREW GIOVINAZZI
December 19, 2023
Yo Pit Crazies,
Calendar trades can make calls or put prices cheaper. Right now the market is in rally ho, ho, ho mode and we have a full week to run until the 22nd. The chart below is the S&P 500 stock index (Ticker: SPX). I assume it backs up at some point but it is not doing that right now.
SPX 10 day chart
We ran a nice trade in our weekly Ticker Show for the Pit Report, free to all, of a SPDR S&P 500 Trust ETF (Ticker: SPY) strangle last week with the call struck at 470 which is in the rear view mirror now. That is what brings me to a calendar.
SPX did not even sniff 4700 on its way to 4750. I think the SPX 4800 calendar is cheap.
Here is why
The 3 day weekend is getting decayed out
The liquidity provider, that is the person you trade the options with, tries to decay options as fast as they can because they end up buying them. As a trade, I wait until some of this premium is out then go in and make calendar trades.
That gives me a low cost entry. The SPX Dec26/Dec22 4800 call calendar is around $1.60 at the close on Monday. I bet they trade higher by Friday and give a cheap, post-Christmas rally to 4800 and beyond on the 26th.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
See what's hot at option pit
CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain
The VIX future pop was good old supply and demand. Is the VIX call buyer right? Time will tell but my Weekly Profit Cycles strategy does not care because I am always holding market downside protections via VIX calls or SPY puts.
If this market gives you the jitters, take a look at what non-correlated market returns can do for your portfolio.
To Your Trading Success,