Can VIX Break 16?

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Yo Pit Crazies,

 

Stocks have caught fire.

 

You want something else that is on fire? Check out Mark on Tuesday night when he reveals Big Money’s Big Secret — and how you can stack gains behind it.

 

Register now at no-cost. (And make sure you’re there to receive a free Big Money trade.)

 

Now that I got you hot and bothered, 16 VIX is the Line of Death, the Maginot Line, the Level That Shall Not Be Named for 2021.

 

There is a reason VIX won’t go down.

 

Skew Is the Reason

 

All option contracts have a degree of skew. From a purely operational point of view, skew is the difference between at-the-money implied volatility and out-of-the-money implied volatility. 

 

The Black-Scholes Model wants a constant volatility to expiration.

 

Wait — what’s the Black-Scholes Model?

It’s an option-pricing model that generates an option’s theoretical value by factoring in:

 

      • The underlying price
      • The option’s strike price
      • The amount of time left until the option expires
      • The current level of interest rates
      • Dividends
      • Forward volatility (implied vol) of the underlying security 

 

As I said, Black-Scholes wants a constant volatility to expiration. The problem is, the market does not provide that type of volatility in the short term. So, the vol markets’ answer is to adjust volatility per strike.

 

I could go into the major statistics, but what you need to know is that larger skew prices are short-term effects and tend to flatten out, IVs per strike, as expirations get very long term. In other words, skew flattens out long term. 

 

In our Edge Hunter butterfly sheets, we have a SKEW INDICATOR that measures ATM IV to the 25 delta IV.

 

Except for the Friday, Monday and Wednesday expiries, these vol skews are in the upper 85% of the standard deviation. That means with VIX this high, these OTM are very high.

 

 

That is why the VIX will stay above 16.  If I see the blue go away here, things are changing.

 

These skews are persistent lately, COVID, etc, and they don’t go away.  When they do, look out for Zone 1 (9-12 range) again!

 

The Rundown

Capitol Gains 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.

      • Our Exxon Mobil Inc. (Ticker: XOM) trade is back up 21% and I am letting it run here. Looking for XOM to break out to $60. Goal is another 50%.

 

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. 

 

The Pro Room sentiment is still bearish VIX/VXX/UVXY.

 

      • Ken A going yard again in the screenshot below:

 

 

Sharp Bets:

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

 

      • Mark rang up an MGM Inc. (Ticker: MGM) calls for 50% gains as he pieces out the wins.

 

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.

 

      • I added some retail in Dollar Tree Inc. (Ticker: DLTR), which is bouncing nicely.

 

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 will most likely turn red with a VIX run back to 16.

 

      • VTC Trade No. 263 is up 10% as of now with both sides still open.

 

      • 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,

 

AG

Guns, Germs and Steel

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Yo Pit Crazies,

 

The FOMC gave what I thought was a hawkish view on rates and stimulus yesterday, as Jerome Powell said the Fed could be done buying bonds by summer 2022. 

 

Stocks took it well and it would appear the FOMC, at least, is looking past COVID. 

 

That seems to me to be bullish generally and bearish VIX.

 

So, how about some bargains now?

 

The markets heading into the end of the year have me thinking of the title of the Pulitzer Prize-winning book book by Jared Diamond, Guns, Germs and Steel. 

 

I think it has a lot to do with how the rest of the year will play out in equity markets, especially in Capital Gains, the program that essentially allows subscribers to run their own hedge fund with Frank Gregory and I as the staff.

 

Guns

 

I think the gun part is easy.

 

Take a look at Smith and Wesson Brands Inc (Ticker: SWBI). The current political climate is  not getting less polarized and SWBI is a way to play that. Implied vol is low and, amazingly, SWBI is a value stock at these levels. I like the 20-strike calls on a six-month time frame.

 

One-year price and volatility for SWBI

 

Germs

 

Germs is another easy one.

 

Anything Covid related still looks good. I continue to like Pfizer (Ticker: PFE) and Regeneron Inc. (Ticker: REGN). PFE call spreads to the end of the year look very good, say 44/48 strikes, but watch around the dividend date.

 

Steel

Steel is a commodity play like VALE SA (VALE) or Cleveland Cliffs Inc (CLF) or Freeport McMoRan Inc (FCX), especially copper or silver for EV.

 

VALE recently declared a $1.54 dividend and that is a pretty high confidence test for commodity prices going forward.

 

I like just at-the-money call spreads in these names going into the end of the year as, with all the inflation talk, the markets have wiped out all the gains for 2021 in many commodities stocks.

 

1 Year Price Chart for VALE with daily candles.

 

The Lesson: The market reacted well to the Fed.  While the haze of history has been murky, as outlined in the book Guns, Germs and Steel, there appears to be some clarity on rates going out to June 2022. Look for the bargains.

 

The Rundown

 

Capitol Gains 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.

      • Look for some Guns, Germs and Steel adds here in the coming days. I added upside in Regeneron Inc. (REGN) this week.

 

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. 

 

The Pro Room sentiment in one snap as I cannot find one person bullish VIX/VXX/UVXY:

 

 

Sharp Bets:

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

 

      • MGM Inc. (Ticker: MGM) calls only needed a day to ring up Mark for 30% gains.
      • Anything China related is bouncing hard, for example, gambling stocks.

 

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.

 

      • I added some retail in Dollar Tree Inc. (Ticker: DLTR), as I think the supply chain issues will start to ease. This sector is down 35 to 40% from highs.

 

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 will most likely turn red today with a VIX run back to 16.

 

      • VTC Trade No. 261 notched a 21% gain with puts to sell in VIX. This is a market direction neutral gain.

 

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,

AG

Will the FOMC Kill Stocks?

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Yo Pit Crazies,

 

The Federal Open Market Committee (FOMC) will release its minutes today and provide guidance on the economy.

 

It’s almost certain that the policymaking body will have to talk taper because, well, the economy keeps growing.

 

The big question is, does the market expect it — and what will the reaction be?

 

My guess is …

 

Read on to find out.

 

(And, yes, it’s a vol trade — but some interesting things are afoot.)

 

Setting up for Today

 

A few things are interesting right now:

 

      • The S&P 500 Index (SPX) was down around 5% from the top yesterday and managed a 1% bounce, or only about 45 SPX points.
      • The FOMC is usually a catalyst up or down. A very hawkish report with VIX is Zone 4 (24 and above) will not be received well.
      • VIX implied vol is still pretty high. A sign the market is on edge. (See the chart below.)

 

VIX two-week, one-minute candles with IV graphs on the bottom.

 

What I Like

 

I think a long call spread in SPX or SPDR S&P 500 ETF Trust (SPY) AND a call spread in VIX is primed for success.

 

Why both?

 

I think one will win big and this market has a habit of going up like a rocketship.

 

If we don’t this time, you will be happy the VIX call spread is around.

 

The higher IVs makes me think a big move is likely, and that means a higher realized vol move for SPX or possible VIX.

 

I will work out the trade for the Volatility Trading Club this morning and have it ready prior to the Fed speaking. (Shoot a note to our Customer Care team to learn more.)

 

The Rundown

Capitol Gains 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.

 

      • Regeneron Inc. (Ticker: REGN) is in the news as the Fed and states fight over who gets the antibody treatment. Frank mentioned it as a good contender for the Capital Gains Portfolio and I have to think it has a nice rally to earnings. I tried to buy a call fly yesterday, but it was not filled so I will look today for something Capital Gains-worthy.

 

      • I closed my Exxon Mobil (Ticker: XOM) puts this week — a nice double — but I need a lift back to mid $56 to make some money here on the trade overall.

 

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. 

 

The Pro Room using the rally today to take profits:

 

      • Cat:
        • Closed the last piece of my NIO position +75%
      • Giovanni spotted cheap juice in Riot Blockchain Inc. (Ticker: RIOT):

 

 

Sharp Bets:

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

 

      • Looking at MGM Corp. (Ticker: MGM) for calls today. 
      • Uber (Ticker: UBER) on the list as well.

 

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

      • Mark got the mojo going on Lucid Motors Inc. (Ticker: LCID) calls with a 108% gain.

 

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.

 

      • I closed some CVS Health Corp. (Ticker: CVS) puts for a scratch, but need the big drug retailer to move back to the $87 to make some bucks.

 

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 Yellow. VVIX is still above 100 and the FOMC minutes come out today, as mentioned.

 

For VTC, I closed around 80% of the upside in VIX. To make big bucks, I need a reversion in vol down to 17 VIX or so.  

 

In VTC Trade No. 257, SPY Sept. 17 440/430 put spread and VXX 26/24/21 put flies closed with 21% gain.

 

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,

 

AG

A “Lehman Moment?”

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Yo Pit Crazies,

 

VIX was really moving on Monday.

 

Our Pro Chat room was moving, too, and inside I will highlight some of the actionable ideas that members produced throughout the course. 

 

If you want money-making idea flow, the latest market conditions, real-time breakdowns of special situations and even old-fashioned, solid buy-write insights — all in a community trading setting — the Option Pro Chat Room is the place for you. Call our Customer Care team at 1-888-872-3301 to get in.

 

So, China said they might let a property company with $300 billion in liabilities go under.

 

I saw “Lehman Moment” bandied about on Twitter.

 

The sky is falling, and we’ll make heads or tails of it.

 

I don’t keep the TV on during the day, as I prefer just to look at price and vol action. 

 

My favorite thing to watch in times like these is this …

 

The Vol of Vol 

 

Take a gander at this chart you will see what I mean …

 

VIX 5 day chart with one-minute candles and vol of vol on bottom. Oct IV for VIX is red.

 

Note the persistent bid for implied volatility (IV) in the VIX. The demand for options steadily increased all Monday. That is generally bullish VIX and IV in general.

 

M1-M2-M3

 

No, it’s not a Tom Cruise action movie franchise.

 

It is my next favorite signal, the VIX curve.

 

When the short-term futures are above the longer-term futures (as in the chart below), VIX is usually going higher.  Note this does not extend to every VIX future.  Only the first three futures are upward sloping.

 

      • M1 is Oct VIX
      • M2 is Nov VIX
      • M3 is Dec VIX

 

Note below that the back month is still above the rest of the futures, which is normal. Full backwardation is when all the futures are higher than the future just one term later in expiration.

 

VIX futures curve for Sept. 20.

 

As we went into the close on Monday, I saw a partial signal. Namely, that VIX was going up, but not with the velocity of a plus-30 selloff (at least as of late yesterday). This was a good time to take upside VIX call profits. 

 

If I see the VIX curve start to get into full backwardation, we could see 4,100 or lower in the SPX this week.  

The Lesson: Volatility is a great signal for short-term traders and helps long-term traders make good entry points. You can pick that up in our Pro Room, where our community makes sure you never have to trade alone.

 

The Rundown

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. 

 

The Pro Room was mostly looking at new setups with higher volatility. Mark’s AAPL idea from Friday is a good sample:

 

      • Jason F. with ideas coming in today:
        • sto $dkng oct 55 p for 1.71
        • offering out some $F 12.5 for 0.51, no takers yet
        • filled $uvxy 24sept/1oct 23/21 for 0.03

 

      • Cat opened this trade into the close:
        • BTO $HOOD Oct1 39p for 1.45 

 

      • Ken A. has a play on realized vol in china:
        • BTO Oct FXI 42 calls paired with 38/32 put verticals on 2:1 ratio $1.50 per combo

 

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 Stop Light Is Yellow, and VIX could well be north of 30 by Tuesday afternoon.

 

I closed parts of two Volatility Trading Club trades yesterday, but I’m looking for a bit more upside overall in VIX. I sold some SPY Oct. 01 440/430/420 puts for a 75% average return and looking to close the VIX puts for similar returns on a move back to 17 VIX. 

 

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,

AG

How to Make Money Trading VIX

Posted on

Yo Pit Crazies,

 

I am excited. VIX is finally moving — and that means opportunities to profit.

 

Specifically, the index is moving above one of my four key zones (I’ll explain those inside), and usually when that happens, I expect a continued bout of selling in the S&P 500. Now, that does not mean I am a grumpy old bear, but rather that’s the time when stocks get cheaper … and cheap stuff is better to buy. 

 

So, VIX is moving — but do you fully understand what that movement means and how to harness its power for maximum gains (while smartly managing risk)?

 

We created an entire system to identify when VIX was ready to move. 

 

Let’s see why …

 

Key VIX Areas

 

The Cboe Volatility Index (VIX) is about levels.

 

VIX is a “mean reverting” product, so it does not go up forever or go down forever.

 

In other words, it does not trade like Apple (Ticker: AAPL).

 

Look at the two charts below. 

 

AAPL is up roughly 50% this last year …

 

AAPL one-year chart with daily candles.

 

VIX,von the other hand, has had several spikes up 50-80% or more, then quickly dropped back down to where it came from. During February and March of 2020, VIX was up five-fold!

 

VIX 1 year chart with daily candles

 

That is the nature of VIX, which is a 30-day forward moving average for volatility in the S&P 500. It’s a different beast and there are different tools to tame it.

 

You can learn those tools every week in Mark Sebastian’s Volatility Edge program — starting with a special monthly subscription available through Monday.

 

And when it comes down to it, volatility is the only truly non-correlated financial asset so on Friday when most stocks were dropping VIX was going up.

 

Back to Levels

 

As I mentioned, VIX is all about levels. Here they are:

 

      • Zone 1 9-12 Smooth Sailing for SPX
      • Zone 2 13-17 Getting A Little Squirrely for SPX
      • Zone 3 18-23 High Anxiety for SPX
      • Zone 4 24+ Danger Zone for SPX

VIX options make good money above 20 and below 16. However, the index has not dropped below 16 due to COVID, supply chain issues, inflation, etc. That has hurt downside profitability in my own strategy.

 

But VIX closed at 20.81 on Friday and things are about to get interesting. 

 

You see, something, somewhere has to give. Either the market goes lower or VIX drops.

 

I filled a long strangle, long call spread, long put, VIX Oct. 20 25/40 call spread and 19-strike put on Friday very late into the session. It pays at 16 but really pays at 25. So we’ll see what this week brings.

 

Learning VIX futures, VVIX (the volatility of VIX), implied volatility and other key vocabulary will make you a better trader. 

 

But doing it on your own is tough.

 

The Lesson: It’s near-impossible to trade VIX with just a focus on equities. Hop on over to the Volatility Edge if you want to expand your knowledge and profit opportunities.

 

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. 

 

The Pro Room was mostly looking at new setups with higher volatility. Mark’s AAPL idea from Friday is a good sample:

 

 

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 Stop Light Is Red, but will most likely turn yellow on Monday. VIX is poised to move.

 

I closed VTC Trade No. #259 on Friday for an 8% gain. Looking for a bit more SPX downside next 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,

AG

When Wrong Is Right

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Yo Pit Crazies,

 

There was some conversation yesterday, when SPX was down pre-open, that the recent trend of an up open and a move down throughout the day could be coming to a close.

 

I was in grumpy mode, so I thought things might go south all day.

 

Like clockwork, SPX bottomed midday and spent the rest of the day trying to get back to green.  It also looked like it could be a vol crusher, so I could flip from grumpy to happy quickly …

 

It appears I was wrong. Not the first time, of course. 

 

But, interestingly, I had a GLD trade in the Trading Legion where I managed to make a few bucks while still being dead wrong.

 

Building in an Exit

 

Every trade needs an exit. After all they are option trades.

 

The question is, are you going to make an exit plan prior to entry or after the trade is on? 

 

I would rather work the exit idea on the front end.

 

In this case, I thought the insane inflation rate would push gold higher. Implied volatility in the SPDR Gold Trust (Ticker: GLD) was very cheap, so I bought call spreads and a few puts as a hedge. I figured I would use the puts as a stop.

 

Here’s the trade

 

GLD

0915.2021 Buy to open 6 GLD Oct15 170/176 call spreads for $1.12 and buy 3 GLD Oct15 164 put for $1.20

Well, it turns out that GLD crashed yesterday. But I owned just enough puts — and sold them for $2.70 — to pay for my call loss and still have a 6% profit on the trade overall.

Not bad for being wrong!

The Lesson(s): 1. Work out the trade exit before entry. 2. Low implied volatility allows for cheap protection up or down and acts as a stop-loss.

The Rundown

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. 

 

The Pro Room is looking at next week’s 450 calls in SPY.

 

      • New Guy Chris day traded a short put in Ironnet, Inc. (Ticker: IRNT).
        • BTC IRNT Sep17 30P @ 0.55 +47%

 

Sharp Bets:

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

 

      • Mark is long some Wells Fargo (Ticker: WFC) calls in the Oct. 08 that would be six wins in a row.

 

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

      • Mark has his Robinhood Trader mojo rolling in Bank of America (Ticker: BAC).

 

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.

 

      • I closed my SPDR Gold Trust ETF (Ticker: GLD) long strangle today for a 6% gain. As I said above, I got paid to be wrong.

 

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 Stop Light is Red, and I would not be surprised to see a 16 handle in VIX Friday.

 

In VTC Trade No. 259, I closed the last SPY put fly for a 102% gain and am now running a 15% net win on the position.  I should be able to ride the VXX put I own for a decent gain out to Oct. 15.

 

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,

 

AG

The Cheapest VIX Put Ever?

Posted on

Yo Pit Crazies,

 

As we alluded to on Friday’s OP Market Show (available exclusively to Trading Legion and Pro members), Mark observed consistent selloff into and after expiration.

 

Well, as of yesterday, the selloff ended for no clearly discernible reason.

 

Of course, stocks don’t need a reason to sell, but it is nice to understand why, and expiration future squeeze sure could be one.

 

The result now is the slowest moving market for an 18 VIX that I can remember in 30 years of trading. Expectations for VIX moving — especially moving down — are very low.

 

Good news: there is a trade for that.

 

And while it may not be the cheapest ever … it’s pretty darn cheap!

 

Note in the VIX strip below that Oct. 20 is getting close to 100% implied volatility. 

 

 

That is usually a litmus test for dropping VIX in the futures, if the IV of VIX can get below 100.

Keep an eye on it.

 

For now, the cheap options are the VIX Oct. 20 19-strike puts for $1.40. VIX cash is 18 and these puts are $.40 over parity.  A trade could be to hedge only if VIX pops above 20.  There is a decent chance those puts see $2.00 by Friday’s  close.

 

VIX was 16 last week. The fly in the ointment is the tax bill going through Congress, according to DC insider Frank Gregory

 

The Lesson: I was expecting the market to drop. It did, but not much. Trade for what you see and put the hopium pipe down.

 

The Rundown

 

Capitol Gains 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.

      • If the tax bill gets legs, I will add some SPY put spreads of flies to the portfolio.
      • My Cap Gains Portfolio is net long Vega and puts, so let’s see some action!

 

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. 

 

      • Kiran, Prince of the Meme Stocks, receives his due:

        • Jason F  8:18 AM
          good morning all. @Kiran $irnt up quite a bit in the pm. nice call on that one.  25% open

 

To Your Trading Success,

 

AG

After Another Low-Close SPX, Now What?

Posted on

Yo Pit Crazies,

 

SPX is finally selling off …

 

At a whopping .5% per day.

 

At this rate it will take us until Christmas to see 4,000 again.

 

Forgive me if I’m being grumpy. But it is slooow.

 

If you like buying stocks cheaper, it’s not grumpy. It is patient.

 

Some SPX put butterflies are starting to look tasty.

 

So let’s take a gander.

 

Edge Hunter Telling the Tale

 

The more the market or a stock grinds around, the more interesting butterflies get over short durations.

 

Notice the SPX Sept. 22 4455/4405/4305 put butterfly below. The risk/reward ratio is 5-to-1. 

 

Pay $16.55 to make $83.45 is not too bad for a debit-only risk trade.

 

 

This is a 2/3/1 put fly. The ratio of 2 long, 3 short and 1 long put helps generate the good risk reward ratio.

 

The green box in the figure above is the edge for the trade, which, granted, is skinny at .01%.  Also the cost of an ATM SPX put fly here is quite low.  

 

If the market slides around, this fly will perform great.

 

The Lesson: Fit the position to the condition. Every condition has an ideal position.

 

The Rundown

 

Capitol Gains 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.

      • I added a couple of hedges in Pfizer (Ticker: PFE) and Guggenheim Solar ETF (Ticker: TAN).
      • My Cap Gains Portfolio is net long Vega and puts, so let’s see some action!

 

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. 

 

      • Mike P. giving me props on a 100%+ FLY WIN.
      • And he’s still riding a couple more.

 

Sharp Bets:

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

 

      • Mark is hopping into some Wells Fargo (Ticker: WFC) calls.
      • A great run in Sharp Bets for the last couple of weeks, including five wins in a row and top-end gains of 106%.

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.

 

Volatility Trading Club trade No. 257 closed yesterday for a 25% win overall.  I am leaning short the QQQ and SPY, and some in the VTC.

 

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,

 

AG

The Market That Doesn’t Sell Off

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Yo Pit Crazies,

 

I’m dubbing yesterday Opposite Day.

 

All the stuff the market loves — tech, covid stocks and pharmacies — got whacked.

 

Things the market hasn’t really cared for lately, like oil, gold and commodities, got a boost.

 

Now, I have something of an eccentric play in a commodity stock that is primed to profit.

 

First, let’s start with …

 

The Three-Day Rule

 

We had the most mild three days of VIX pop ever.

 

VIX tried to hold above 21 but couldn’t do it yesterday, so I wouldn’t be surprised if this VIX rally is over.

 

Wearing a VALE

 

VALE SA (Ticker: VALE) is a diversified commodities producer out of Brazil.

 

It is a frequent suspect in the Power Moves Portfolio, but look what I found …

 

Mark does a lot of “squeeze” analysis in the Robinhood Trader, and I think it is instructive here …

 

 

If I buy a call for $.32 and sell a put for $.40 on the VALE Sept. 17 18-strike, the .08 credit ($.32 -$.40) + $18 for the combo means a $17.92 delivery price.

 

But look at the same combo in October. Buy a call, sell a put and add to the $18 strike — and get $.50-$1.56 or a $16.94 delivery price. 

 

 

Something is goofy. Sept. and Oct. delivery is $1 different.

 

Yet according to thinkorswim, VALE is not hard to borrow, it’s easy to borrow.

 

The only explanation is…

 

A special dividend sometime in October.

 

VALE has a history of dividends once per year, and with commodity prices so high a dividend seems logical. It could be as much as a buck.

 

The inflated put will deflate after the dividend is paid. That is the way. Calls go up and puts go down after the dividend.

 

The Lesson:  Understanding option mechanics helps in identifying opportunities.

 

Questions about this? Shoot me an email.

 

The Rundown

 

Capitol Gains 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.

      • I added a couple of hedges in Pfizer (Ticker: PFE) and Guggenheim Solar ETF (Ticker: TAN)

 

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. 

 

      • Ken A. flipping stock like a mad man. Selling half the Aterian Inc. (Ticker: ATER) shares he purchased on Friday  for a quick 31%.

 

Sharp Bets:

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

 

      • Mark closed the last of the. Canejo Corp. (Ticker: CCJ) Oct. 15 23-strike calls for a 106% blast.

 

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.

 

In Volatility Trading Club Trade No. 257, I own the SPY Sept. 17 440/430 put spread for a credit. It is now back to even, so there is a nice shot here at 100% win.

 

Trade No. 259 closed another put fly for a 90% gain. We have the VXX Oct. 15 22-strike puts for nothing now and still have a SPY put fly to close if SPY tanks.

 

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,

 

AG

How to Execute a Trade

Posted on

 

Yo Pit Crazies,

 

The three-day rule is one of my favorites.

 

I talked about it last week in the Trading Legion and to just about anyone who would listen.

 

But it was sneaky this time.

 

You see, vol trends in VIX take three days.

 

Why three days, you ask?

 

Remember, volatility goes up when traders buy options.  Options decay every day so they have to want them more than the day before.  After three days? Well, read on …

 

On the Third Day 

 

Here’s a little secret … 

 

I made up the three-day rule!

 

After trading options for 30 years you pick up a trick or two.

 

This week was tricky, as Thursday was a flat day …

 

VIX was down fractionally on Thursday, but the VIX futures were up. So, I will add a corollary to the three-day rule.

 

As long as the VIX does not retreat, the three-day rule is in effect.

 

3 Day VIX futures chart. Up every day.

 

Thursday was really an up day. Why? Because the bid for VIX futures was still there and up.

 

Why add this to my three-day rule? Because flat vol day means the net sellers are not there that day. Flat volatility means the buyers and sellers are in relative equilibrium so the bid is still there.

 

Mark and I picked this up on Friday in the OP Markets Show. You can pick up the OP Markets show as a Pro or Trading Legion member. 

 

Here is a freebie view from Friday.

 

Mark liked a straddle in SPX and I tried, all day, to pay $1.05 for the VIX Sept. 15 20/26 call spread and 18-strike put. The VIX trade closed $1.43 and was bid to the close.

 

I am looking for a wild week.

 

The Lesson: Vol trends need a change in sentiment to keep going.  Stay tuned this week if the bull market takes a breather.

 

The Rundown

 

Capitol Gains 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.

      • I closed two Kroger (Ticker: KR) puts for a 38% gain and the position has a shot to be profitable overall. 
      • I will have some positions to add for Monday, most likely in the Global X Uranium ETF (Ticker: URA). I also own some puts in FireEye Inc. (Ticker: FEYE) that should start to spring to life.

 

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. 

 

      • Queen of the Candlesticks Licia Leslie posted a big-money show from the SPX
        • “Paper buys 15,000 SPX Sept. 3700 puts (and) pays $2.20 ON THE CLOSE FRIDAY.”

 

Sharp Bets:

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

 

      • Mark is using his new volume tool to great effect lately. Canejo Corp. (Ticker: CCJ) Oct. 15 23-strike calls generated a new 100%.

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.

 

      • No new closing in the Trading Legion, but I have puts I want to sell in Walgreens (Ticker: WBA) and CVS Corp. (Ticker: CVS) and we might get a shot this week.

 

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, but VIX is above 20 and I expect a yellow Monday.

 

In Trade No. 257, I own the SPY Sept. 17 440/430 put spread for a credit. It is now back to even, so there is nice shot here at 100% win

 

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,

 

AG