Implied Vol, Skew and Edge

 Today’s trade idea calls for a quick reminder/lesson in implied volatility.


Check out these calls in Marathon Digital (Ticker: MARA):



The slightly out of the money (but close to at the money) 55-strike calls have an implied volatility of 124.52. 


As the strike prices go further out of the money, look how the implied volatilities just go higher.


This reflects demand for these calls, meaning there are lots of buyers of these calls.


All that extra premium (higher prices) raises the implied volatility number.


According to the Option Pit Glossary, implied volatility is the interpolated volatility (or forward volatility) of a stock or option, reflected in the option’s price.


The higher implied vols of the further out of the money calls is creating skew, which is the difference in volatility per strike for an option


Once the liquidity providers begin selling these out of the money options, there are only so many they want to sell.


They do not want to go short these call units, so they need to jack up the prices to deter the buyers.


This skew makes for setting up a spread with lots of edge, which means a greater chance of profiting.


The Marathon Digital (Ticker: MARA) stock chart is showing a hammer candlestick on Thursday with confirmation of the stock trading higher on Friday:


MARA has traded down 43% just since November 9th, with a high of $83.45 and its low last Thursday of $47.41.


That’s only seven trading days! No wonder those calls are so jacked!


That hammer is signaling a rebound in MARA which I think can take it back to at least $65.


Let’s take a closer look at the calls and see how to take advantage of that skew:



 I like buying the Dec. 3 term, slightly out of the money, 55-strike calls with the IV of 124.52.


Now to choose which out of the money call to sell.


Using Friday’s closing prices, the 55/65 call spread is offered at $2.84, with an implied vol of 136.92 on the 65’s.


The 55/70 call is offered at $3.54, that’s only $0.70 for five more points, which I think is worth it.


Those 70-strike calls have an implied volatility of 144.50, quite a bit higher than the 65’s.


If MARA continues to open and trade higher tomorrow, I will be a buyer of the 55/70 calls spread and will pay around $3.45.


With Thanksgiving this week, those out of the money calls should begin to come down in price.


If the spread begins to trade below $2.50, I will take my losses.


I will let this spread ride up to the stock trading $65 again before I take my profits.


Don’t forget to make use of our Option Pit Glossary, it is a great resource.


Thanks for Reading … See You Next Tuesday.

Licia Leslie

Tasty Cranberry Sauce AND A Trade

Hi Shoppers,

 

Less week until all you cooks out there will be called upon for your very best.

 

Thanksgiving Day, one of the biggest cooking and eating days of the year

 

Yum!

 

I have two things for you today — including a trade idea.

 

But first, the most delicious cranberry sauce recipe!

 

It is a far cry from the packaged jellied cranberry that wiggled out of the can and still had the indented rings on it.

 

Make it yourself or pass it on to your favorite cook. 

 

Cranberry Pear Chutney

Serves 8-10

 

Ingredients

3 cups fresh cranberries

1 cup sugar

3 firm pears peeled and cored

1 tablespoon lemon zest

1 tablespoon fresh squeezed lemon juice

½ cup fresh squeezed orange juice

¼ cup golden raisins

¼ cup dried pitted dates coarsely chopped (about 5 dates)

 

      1. Combine cranberries and sugar in a saucepan. Cook over medium low heat until cranberries release juices, about eight minutes.
      2. Cut pears into ½ in dice. Toss in bowl with lemon zest and juice
      3. Add orange juice, raisins and dates to cranberries. Raise heat to medium high. Stir occasionally adding pears when mixture begins to bubble. Cook, stirring until mixture thickens and pears turn red and are cooked through, about ten minutes.
      4. Transfer to a bowl and let cool. Refrigerate for up to 24 hours.

 

Cooking Up a Trade

 

Could the market possibly go down today?

 

I spy a possible hanging man in the SPDR S&P 500 ETF Trust (SPY):

 

 

I will wait for a confirmation of SPY opening and trading lower this morning before I make a trade.

 

If SPY does trade lower, I like going for a quick, inexpensive shot, so I will be a buyer of the Nov. 19 469-strike puts.

 

These will expire by the end of the day, so they will need to be closely watched.

 

 

I will pay up to $.80 for the Nov. 19 469-strike puts. Expiring this afternoon, these options will be decaying every minute of the day today.

 

So if SPY doesn’t follow through and trade lower, I will bail out of these right away.

 

I will hang on to these as long as the market continues to move lower and sell them by the end of the day.

 

Thanks for Reading … See You Next Tuesday!

 

Licia Leslie

A Treat for You, A Treat for Me

Hi Shoppers,

 

I have a treat for you and me TODAY!

 

That’s right …

 

You are cordially invited to join our very own Andrew Giovinazzi (the best educator in this business, for my money) AND our Washington DC insider Frank Gregory (who gets the K Street deets before anyone else).

 

Andrew and Frank are going live today at 2 PM EST, to discuss all the happenings that are currently going on in our federal government — and how YOU can profit.

 

I’m talking about …

 

      • Infrastructure bill passage
      • The Congressional Budget Office findings coming out on Friday
      • Some VERY interesting thoughts on lithium
      • Oh, and how everyone’s favorite — INFLATION — plays a role.

 

 

Now, while that will be incredible, I cannot invite you in on my treat because it is my and my husband, Scott’s, anniversary!

 

That’s right, 26 years of wedded bliss.

Feels like fifteen minutes … underwater!

 

Hahaha! Sorry, that is one of my favorite jokes.

 

After you sign up for Andrew and Frank, go here to view MY prediction on where the market is going in the near future.

 

SPY Games

 

As I’m looking at the SPDR S&P 500 ETF Trust (Ticker: SPY)  chart, I believe yesterday’s candle could be bullish engulfing:

 

 

I will wait for a confirmation this morning with the SPY opening and trading higher, and then I will go for a quick, inexpensive shot with the Nov. 19 calls.

 

 

After a confirmation, I like buying the Nov. 19 — expiring Friday — 470 calls for $1.35 or less.

 

Be sure you have a confirmation before buying these.

 

I will take profits quickly as they are expiring around $2.25 and I will take losses just as quickly, below $.95.

 

Trade Review

 

      • Monday morning I bought the Draftkings (Ticker: DKNG) Nov. 19 41-strike  calls. I got caught up in a bull trap as the stock opened higher and traded higher before it decided to make a complete reversal lower.

 

I still own the calls and will try and squeeze something out of them by Friday.

 

      • On Friday, I bought the Freeport McMoran (Ticker: FCX) Nov.19 41-strike calls. I paid $1.18 and the stock traded higher until yesterday when it traded down more than a dollar but it is still holding that support line at $39.50.
      • I am long the Coca Cola (Ticker: KO) Nov. 19 56.50-strike puts which are down a bit, but I still think KO is heading lower to $54.70.
      • I am long the Nov. 19 30/50 call spread in Greenidge Generation (Ticker: GREE). The stock seemed to be holding a bullish flag but has completely fallen out of bed yesterday. 

 

Don’t forget to sign up for this afternoon’s event with Andrew and Frank.

Thanks for Reading … See You Soon!

Licia Leslie

Beer, Chips and Gaming

Hi Shoppers,

 

Hi Shoppers,

 

My trade idea for Monday is in Draftkings (Ticker: DKNG).

 

That got me thinking of Dave Portnoy of Barstool Sports, which is owned by Penn National Gaming (Ticker: PENN).

 

Portnoy was in the news this week and I considered writing about the controversy currently surrounding hime, but thought I better not. 

 

I will say, though, if there wasn’t any claim of wrongdoing what is the purpose of the recent piece written by Business Insider?

 

I thought we were in an age of “anything goes.” 

 

My Faves

 

Instead of a deep-dive on Portnoy, I’d like to introduce you to two of my most favorite things.

 

When I like to splurge, which is more often than I should, my first go-to is french fries. 

 

I love fries. The skinny but potatoey, not-too-crispy ones.

 

I like beer, too — the stronger-tasting hoppy beers. Love heffeweizens and IPA’s.

 

I can’t drink as many as I used to simply because they are just too filling. 

 

So, generally, just one, sometimes two.

 

One of my favorite beers is a gluten-free IPA called Glutenberg.

Served in a frosty mug with a lime wedge … yummm.

 

At 320 calories per sixteen ounce can, it is definitely a splurge.

And anytime I have a Glutenberg, I HAVE TO HAVE …

       

  

Of course they HAVE to be salt and ginegar.

 

 Super crunchy with that sour vinegary taste that makes your        mouth water.

 

   Hey! They are organic.

Have I made you thirsty yet?

 

My idea in DKNG will quench your thirst for a trade …

 

On Draft (Kings)

 

Check out the doji in Draftkings (Ticker: DKNG):

 

 

DKNG has traded down from $64.49 on Sept. 10, closing at $40.48 on Friday.

 

Looking at the chart, I believe DKNG will trade back to $48.

 

I like buying the near term Nov. 19 calls that only have a week to go.

 

 

      • If DKNG opens and trades higher on Monday, I will pay up to $1.06 for the Nov. 19 41-strike calls.
      • I will bail on these if they trade down to $.75 and take my money off the table over $2.

 

Trade Review

 

      • On Friday, I bought the Freeport McMoran (Ticker:  FCX) Nov.19 41-strike calls. I paid $1.18 and they are up slightly.

 

      • I am still long the Coca Cola (Ticker: KO) Nov. 19 56.50-strike puts and still think KO is heading lower to $54.70.

 

      • I am still long the Nov. 19 30/50 call spread in Greenidge Generation (Ticker: GREE) and I think it still has the capacity to trade higher.

 

You may want to wait until this afternoon for that beer and chips.

 

But, hey, anything goes!

 

Thanks for Reading …. See You Next Tuesday!

Licia Leslie

GO GRIFF!

Hi Shoppers,

 

I have a HUGE shout out again to our Head Income Trade Bill Griffo!

 

WOO HOO …

 

 

As I noted yesterday, thanks to Griff, I had a 100% winner within a three-hour time frame this week

 

That’s what happened with my Ishares Barclays 20 Year Treasury (Ticker:  TLT) trade I recommended Wednesday morning.

 

Having Griff on the OP team has been an invaluable asset.

 

He really knows his macro stuff!

 

Griff notifies us when there is a bond auction and how this has a major impact on supply.

 

Also, a little tidbit I bet not everyone knows, but as Griff pointed out, the Fed is not allowed to purchase treasuries during these auctions. Good to know!

 

After Griff’s presentation, I looked up the TLT chart and I saw a shooting star candle formation, which can signal a change in an uptrend.

 

I paid $1.60 for the Nov. 19 150.50 puts and in less than three hours, I was able to sell them at $3.20. 

 

That’s 100% pure profit. 

 

That much in that short of a time frame … I will gladly take the money. Thanks. Griff!

 

You can actually witness Griff’s market prowess TODAY. That’s right, TODAY AT 12 EST, Griff will be talking inflation and all the current macro economic factors affecting the market.

 

He has such great insight he can tell us which sectors are hot and which are not. Join him free-of-charge today — and receive a trade pick, too.

 

Now, onto my trade idea …

 

I’m McTrading This

 

I am looking at the Freeport-McMoran (TIcker: FCX) stock chart:

 

 

FCX made a huge (9%) move up yesterday, breaking out of the trading range and above the upper resistance line closing at $40.90.

 

I think it is going to trade higher, possibly back up to $45.

 

Looking at the options, I like to go for a quick, inexpensive shot, so that would be the Nov. 19 expiring next Friday.

 

 

      • If FCX opens and trades higher today, I will be a buyer of the Nov.19 41-strike calls and I will pay up to $1.19.
      • I will take profits on these around $2.50 and exit if they trade lower than $.85.

Trade Review

 

      • On Wednesday, I bought the iShares 20 Plus Year Treasury Bond ETF (Ticker:  LT) Nov.19 150.50-strike puts and paid $1.60. After the bond auction these fell out of bed and I sold them for $3.20 up 100%. (Thanks, Griff!)
      • In Coca Cola (Ticker: KO), I still have the Nov. 19 56.50-strike puts and still think KO is heading lower to $54.70.
      • In Alcoa (Ticker: AA), I paid $1.69 for the Nov. 19 48/53 call spread on Nov. 3 and sold it yesterday at $276 for a 63% profit.
      • I am still long the Nov. 19 30/50 call spread in Greenidge Generation (Ticker: GREE) and I think it still has the capacity to trade higher.

 

Don’t forget to see Griff TODAY AT 12 EST, you will learn a lot.

 

Thanks for Reading … See you at noon!

 

Licia Leslie

The Shooting Star

Hi Shoppers,

 

I have a quick candlestick lesson for you today.

 

The Shooting Star is a Japanese candle formation found at the top of an uptrend.

 

It looks like this:


The Shooting Star has a long upper shadow — or wick — with a small real body at the lower end of the formation (or lower prices of the trading session).

 

The real body can be red or green.

 

The long upper shadow shows that the bulls took charge after the opening and during the session but the bears came in and overtook them by closing near the lows of the day.

 

Read on to see I plan to play a shooting star I’m gazing at …

 

A Big Star

 

Look at this perfect specimen of a shooting star in iShares 20 Plus Year Treasury Bond ETF.

 

 

Yesterday’s shooting star candle formation in TLT could be signaling a pullback from the run-up that began on Oct. 22, taking it from $142.23 up to $151.77.

 

I think TLT can trade back to $147.85.

 

Looking at the options, I like buying the near term Nov. 19 expiration puts:

 

 

      • If TLT opens and trades lower today, I will be a buyer of the Nov. 19 151-strike puts and I will pay up to $1.70.
      • I am buying these outright because there really isn’t any meat on the further out-of-the-money puts.
      • I will take my loss if these trade down to the $1.20 area and begin profit taking at the $2.75 area.

Trade Review

 

      • I ended up buying the Coca Cola (Ticker: KO) Nov. 19 56.50-strike puts paying $.58. I still think KO is heading lower to $54.70.
      • I am still in my Alcoa (Ticker: AA) Nov. 19 48/53 call spread. It traded lower yesterday; I will have a close eye on this today.
      • I am still long the Nov. 19 30/50 call spread in Greenidge Generation (Ticker: GREE) and I think it is going to trade up to $40.

Thanks for Reading … See You Next Tuesday!

Licia Leslie

Inflation, Fed: What Do I Do?

Hi Shoppers,

 

Inflation, inflation, inflation.

 

Fed, Fed, Fed.

 

Isn’t that all we are hearing about these days?

 

It can be so confusing and difficult to figure out how you and your portfolio will be affected by it all.

 

Which are the sectors to buy?

 

Which to sell?

 

Here at Option Pit we are fortunate enough to have just the man to guide you through all these market changes and confusion.

 

That’s right, our very own Bill Griffo Head Income Trader has the answers.

 

He’s been involved in the fixed income and commodities markets for his entire 40-year career.

 

While working at Bear Stearns, he had a trading year during which he generated $60 million in profits.

 

You can check out his recent trading record below. He is killing it!

 

 

With Griff, you get the real deal. The man knows his macroeconomic stuff and how to profit from it before anyone else does.

 

It’s also, as you can note, short hold times, and the trades are low-risk.

 

Meet Bill Griffo Tuesday at 8 PM EST during his special live, free-of-charge event where he will reveal his EXACT trading method and how to profit from the Fed and inflation.

 

Plus, he will be giving attendees a free actionable trade idea.

 

AND you’ll get Griff’s latest special report just for registering

 

After you’ve signed up for Griff’s event, read on to see my trade idea for Monday …

 

Give Yourself A Coke

 

Check out this beauty of a doji in Coca-Cola (Ticker: KO):

 

 

Remember a doji can signal a change in trend is about to occur.

 

It is a candle formation with a long upper and lower shadow and a very small or nonexistent real body.

 

It shows how the bulls and bears are duking it out without any one side dominating.

 

This beauty in KO shows that on Friday the bulls are beginning to lose ground.

 

KO has traded up almost $6 or 11% since October 6. 

 

I think this doji (have I mentioned what a perfect specimen it is?) is signaling a pullback to $54.70 to close the gap created on October 27.

 

So that is just two bucks from Friday’s close of $56.84.

 

But I have a super-cheap and quick way to make money on that two dollar move.

 

Looking at the Nov. 19 puts:

 

 

      • The 57 strike puts, which are already $.16 in the money, are only $.63. This is a very inexpensive and quick way to perhaps double your money. They expire in two weeks.
      • If KO opens and trades lower on Monday,  will be a buyer of these paying around $.63.
      • If they trade down to $.40, I will take my losses. I will take in some profits at $1.20 and higher.

 

Trade Review

  • Alcoa (Ticker: AA) traded higher on Friday, creating a nice green bullish candle. I think AA is going to trade back towards $50, where I will sell my Nov. 19 48/53 call spread.
  • Greenidge Generation (Ticker:  GREE) made an alarming super quick run up on Friday. I am still long the Nov19 30/50 call spread and it is still in play here.

 

Thanks for Reading … I will literally “See You Tuesday” for Griff’s awesome event.

Licia Leslie

Trader Psychology

Hi Shoppers,

 

Probably the toughest part to being a successful trader is maintaining discipline.

 

To maintain our discipline, we can’t let emotions get in the way of our trading decisions.

 

 

It is human nature to “give a little” or move your stop price. Meaning, “Oh, just a few more cents and it will turn around and go my way”.

 

Next thing you know, you’re down 80% on the trade.

 

It’s called hoping and wishing and praying. 

 

When you find yourself doing any of these three things, get out of the position.

 

As traders, we can also find ourselves in “streaks” of winning or losing.

 

While in a winning streak, we tend to become a bit more cocky.

 

We will go for the 100% return when the prudent thing to do is to take the 80% sure money and move on to the next trade.

 

When we’ve had a few losing trades back to back, we may become a bit too skittish, not trusting ourselves like we usually do, and take our profits (and losses) too soon.

 

When you find yourself in a losing streak, go back and analyze your losing trades for what missteps warnings you or missed. Perhaps even trade a bit less for a while.

 

It’s possible you are doing everything right but the market is not cooperating. It does that sometimes.

 

Just remember to always be able to trade the next day — i.e. don’t blow out.

 

Every day is a new trading day.

 

Read on for my trade idea for this trading day.

 

Top of the Trading Morning

 

Check out the stock chart in MGM Resorts (Ticker: MGM):

 

 

MGM has traded up since the low of $35.72 on July 19, trading a high of $50.39 yesterday.

 

Closing at $47.40, yesterday’s candle is bearish engulfing; it completely engulfs the previous day’s candle.

 

This could signal a change in trend.

 

Looking at the options, I will be buying the Nov. 19 expiration cycle puts:

 

 

      • If MGM opens and trades lower today, I will pay up to $1.38 for the Nov.19 47 puts.
      • My stop loss price will be $.97 and I will take my profits around $2.20.

 

Trade Review

 

 

Yesterday, it traded back down to that support line. It is holding so far. If it trades lower today, I will be out of my spread.

 

 

      • I am still in my Greenidge Generation (Ticker: GREE) Nov. 19 30/50 call spreads. I think the stock chart is still in a bull flag. Today may confirm or negate that.

 

      • I closed my American Airlines (Ticker:  AAL) Nov. 19 19.50-strike calls for an 85% profit. 

 

      • In Haliburton (Tocker: HAL), I prematurely closed my Nov. 19 26-strike puts for a 39% gain.

 

I say prematurely because I predicted HAL to trade down to $24 and it came within $.13 of that yesterday. But before that, it gapped up on the opening to $.57 and came back to unchanged, which I considered  a good time to get out of my puts.

 

It then proceeded to trade lower — and yesterday’s candle looks like it may trade even lower.

 

Still, though, a winner.

 

Thanks for Reading … See You Next Tuesday!

 

Licia Leslie

 

Great News!

I have great news for you!

 

You’re invited to attend a special private strategy session — the first-ever Option PIt Insider session — today at 4 p.m. EST, with Mark Sebastian, Bill Griffo AND Frank Gregory.

 

That’s right!

 

They are gathering for this special pow-wow to break down all the latest regarding the Virginia and New Jersey elections … that would be our D.C. insider Frank’s department, after all.

 

With a stunning outcome in the Commonwealth, what does this mean for the markets?

 

They’ll also bring in Bill Griffo to explain the Federal Open Market Committee’s decision on interest rates to be announced this afternoon.

 

Where does the market go once the Fed makes its announcement? Griff has all the answers. (And all the profits.)

 

And of course our very own Big Money Flow expert, Mark Sebastian himself, will be there with all his insights on market action and volatility.

 

They have decided to wrap this all up AND give you a month of Big Money Flow Membership for only $99!

 

As a member of Big Money Flow, you will receive …

 

      • 1-2 trades a week
      • 2 Live Trading Sessions a week called the Big Money Flow Show
      • Daily Big Money Flow top five and trade discussion email
      • 24/7 access to the Option Pit Members only website
      • Over 6 hours of Boot Camp educational videos AND almost 3 hours of the VIX Primer educational videos

 

The hours of educational videos are worth over $500 alone.

 

You can attend the Option Pit Insider private event strategy session and become a Big Money Flow Member for a month all for only $99.

 

That’s a steal, Shoppers!

 

As for regular programming …

 

Alcoa Revisited

 

Shoppers, on Oct. 20 I recommended buying a put spread in Alcoa (Ticker: AA) and predicted AA would trade down to $46 from $53.68.

 

Well, guess what? AA traded $46 on October 27.

 

Too bad I didn’t hang on to my spread.I took my profits up 53%, which isn’t too shabby. Had I hung on and trusted my prediction, I could have been up over 80%.

 

But that’s OK.

 

Looking at AA today, I think it is “hammering” out a base and sitting right on a support line.

 

I think AA could trade higher from here:

 

 

If AA opens higher and trades out of this coiled up area, which would be up around $48, I will be a buyer of the Nov. 19 48/53 call spread:

 

 

      • I will pay $1.50-$1.60 for this five point spread with 17 days until expiration.
      • If it trades down to a buck, I will take my losses.
      • I think AA can trade back to $51 or higher, so I will take my profits $3 and higher.

Trade Review

 

      • I ended up buying the Greenidge Generation (Ticker: GREE) Nov19 30/50 call spread yesterday. I was a bit premature and paid too much at $2.25. It is down from here, but I think the chart is forming a bull flag and will trade higher. If not, I will be out.
      • My American Airlines (TIcker: AAL) Nov. 19 19.50-strike calls are up 14% here and I think AAL will make another leg up.
      • In Haliburton (Ticker: HAL), my Nov. 19 26-strike puts are up 9% and have traded higher. I still think HAL has another buck and half lower to go.

 

REMINDER: DO NOT MISS THIS AFTERNOON’S PRIVATE EVENT FEATURING OUR SOME OF OUR TOP ANALYSTS AND TRADERS! SEE YOU THERE!

 

Thanks for Reading,

 

Licia Leslie

Halloween Memories

Happy Halloween Shoppers!

 

It is amazing how fast the time goes.

 

I know that is so cliche, but when you have kids, you can actually track it.

 

You only have so many Halloweens that your kid will dress up and trick or treat with you.

 

There aren’t very many.

 

We were still in the city during those grade school days when our whole family would dress up.

 

Every family got in on the action.

 

There were several blocks closed off in the neighborhood where no cars were allowed.

 

Everyone was in costume: kids, parents, grandparents, pets.

 

Half the fun was figuring out our costumes.

 

No matter what the weather was — rain, snow, or sleet (and we experienced all those) we were out there.

 

Some of my best memories of Grant’s childhood were trick-or-treating in the city.

 

Then of course, the kids get a bit older and don’t want anything to do with you.

 

That’s around middle school age.

 

They are still in costume trick-or-treating but no parents are allowed.

 

Now it is a high school costume party with the most ridiculous costumes.

 

The more shocking the better.

 

I won’t even get into that.

 

Enjoy them while you can … those were some fun times!

 

Read on, if you dare, to see my new trade idea …

 

A Treat of a Trade 


One of the greatest advantages of being an Option Pit Pro Member is our chat room.

 

We have some of the best traders (led by Mark Sebastian and Andrew Giovinazzi) sharing ideas, observations and general market discussion.

 

On Friday, one of our members, who is actually clear across the globe in Cyprus, pointed out a stock that was new to most of us, Greenidge Generation (Ticker: GREE), which had some very unusual activity.

 

For one, the stock was up 33% and the options were trading like crazy, with massive volumes and the call skew was insane.

 

Call (or put) skew is the comparison of in-the-money, at-the-money and out -of-the-money options implied volatilities.

 

In this case, the further out the money the calls were, the higher the implied volatility.

 

So, of course, several people chimed in on how to create a trade around that and make some money …

 

Which is awesome because there were all kinds of great ideas shared and all had the potential to be profitable.

 

First of all, let’s look at the GREE stock chart:

 

 

It was just listed on Sept. 15 of this year and opened up at $57.

 

GREE has since traded down to a low of $19.50 just last Wednesday.

 

Looking at Friday’s candle, closing up almost seven dollars at $27.19, looks bullish to me.

 

I think GREE is going to trade higher from here.

 

Let’s look at the options. Note the call skew and the volumes:

 

 

The 25 calls, which are slightly in the money, have an implied vol of 160.57, while the next strike — the 30s — have an IV of 176.89.

 

And the further out-of-the-money you go, the higher the implied volatilities.

 

That is some steep call skew!

 

That is telling us the liquidity providers do not want to be short those out-of-the-money call options.

 

The high volumes are telling us that people want those options and are paying up for them.

 

So, how can we play this?

 

One way is my favorite spread: the vertical spread.

 

      • If GREE opens and trades higher on Monday, I will be a buyer of the Nov. 19 30 calls with an implied vol of 160.57 and a seller of the Nov19 50 calls with an IV of 212.38.
      • I will pay up to $2.20 for this 20-point spread with 20 days until expiration.
      • If this spread trades down to $1.50, I will take my losses and I will begin to take profits in the $4 range.
      • I think this stock could run.

 

Trade Review

 

      • I took my losses on my SPDR S7P 500 (Ticker:  SPY) Nov. 05 453/446 put spread down 41%. There is no stopping this market.
      •  
      • In Taiwan Semiconductor (Ticker:  TSM) I did the same. The stock traded up over two bucks on Thursday,changing the look of the chart.

I took my loss on the Nov19 114/109 put spread down 28%. Of course, TSM traded down almost three dollars on Friday, bringing my put spread back to even, but hey — it happens. And you have to get used to it. Onto the next trade. The key is more larger winners and smaller losers.

 

      • In Haliburton (Ticker: HAL), I still have my Nov. 19 26-strike puts and they are up 35%, as of Friday. I am looking for one more leg down on these. If that doesn’t happen on Monday, I will take my profit.

 

Have a Happy Halloween! I can’t wait to see the kids come to our door.

 

Thanks for Reading … See You Next Tuesday!

 

Licia Leslie