Arrest That Decay! Those Market Makers Are Crooks

Yo Pit Crazies,

Options decay …

Sometimes it’s like wildfire. Sometimes it’s not.

There is a way to tell when the options are more likely to melt — especially around earnings time.

Plus I have to fix my Apple (Ticker: AAPL) strangle from Friday, so let’s see how to do it.

And I closed another win for Frank and myself in the Power Moves Portfolio. Read below how I’m trading the Taiwan Semiconductor Manufacturing (Ticker: TSM) position now.

Event Aftermath

Friday’s all-hands event was fun, and I enjoy doing those.

The VXX Jul23/Aug13 strangle is up, but my AAPL strangle is not.

I thought that AAPL would make a run to $150 before earnings on all of the ballyhoo lately so I bought:

AAPL Aug. 20 155-strike calls and Aug. 20 130-strike puts for $3.23. 

It closed $2.65 so that was a big thud.

What I THOUGHT I was getting was arrested decay. That is …

As we go into earnings, the options expiring after the earnings date should not decay too much because they have to maintain a fixed value until the earnings come out. Then the big move that comes prior to earning should pay nicely.

Well, I did not get it exactly right.

Friday’s action was frothy and the implied volatility pulled back some on Monday.

Generally, I don’t buy into big upticks in IV, but every Big Tech stock is running, so I figured AAPL would make the run.

Just not yesterday.

A better — and less greedy — way to play the arrested decay today on the IV downtick would be a calendar spread.

I can sell the short-term, AAPL July 23 148-strike calls and buy the AAPL July 30 148-strike calls for about $1.50. 

That should make me at least $1 by July 23 expiration and can “fix” my strangle mistake.  It will be easy enough to evaluate what to do on July 23.

I expect to see the AAPL July 23 148s for $1 evaporate into next week — or if AAPL trades 148, I’ll just close the calendar spread for a gain and I can most likely close the strangle for a gain, as well.

If AAPL tanks, I have the Aug. 20 130-strike puts.

AAPL options with earnings on July 27.

The Lesson: Options can stop decaying for various reasons, mostly related to volatility, but if you buy into an up vol day, you might have to pay a short-term penalty.

The Rundown

Power Moves Portfolio w/ Frank Gregory
Option Pit DC and Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

The live trade log is here, and I’ll have a full recap for you every Wednesday.

      • I cashed in the Taiwan Semiconductor (Ticker: TSM) July 23 124-strike calls for 40% position gain and now just hold the remaining TSM July16 125s through the earnings.  I have my all-in cost on the TSM Juy 16s down to $1.25 per contract, so I will ride those and see if some gains develop until the 15th.

Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.

      • Still riding the Marathon Oil Corp (Ticker: MRO) calls, which are limping. But we did take in 40% gain so far and the whole trade is even again.
      • The Uber (Ticker: UBER) calls are just hanging on here, but we think UBER wins in the battle with Didi (Ticker: DIDI).
      • We added Southwest Airlines (Ticker: LUV) Sept. 17 52.5-strike calls on Friday.

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

      • I filled VXX Aug 20 30/40/50 call butterflies and 26-strike puts for $2.32 total debit midday on Monday.  
      • Roomie DD added an Amazon (Ticker: AMZN) Jul23 3800/3950/4100 call fly for $16.95 to play the earnings momentum.

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.

      • UVXY is back on tap with a long July 23 put.
      • AMC Entertainment (Ticker: AMC) puts are back to even, but the meme stock looks weak.

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle trading vehicle. The goal is to teach students the best times to buy options.

      • iShares China Big Cap ETF (FXI) Aug. 20 45-strike put and 46-strike call strangle closed the put side with a 45% net gain and we still own the calls. FXI made a huge bounce and the change in rates there could create a nice little upside run.
      • Big week for Rocket Companies (Ticker: RKT) and Fastly (Ticker: FSLY) to see if I can shake some dollars out of those.

Volatility Edge/Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Light Is Red as earnings season is upon us.

Good earnings could be the straw that breaks VIX’s and gets us to a 14 handle this week.

There was a solid bid for VXX into the end of the day, but it fizzled big time.

VXX relative decay is $.26 per day, the biggest so far this year.  Normally that does not bode well for the ETN.

For the Volatility Trading Club …

      • I bought more VIX Aug. 18 17-strike puts for $.85 on Friday and paired them with a SPY July 30 410/420/430 put fly. I am looking to sell the put flies into any down draft.
      • I have Trade No. 248 looking for a 15 VIX this week..

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

To Your Trading Success,



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