Yo Pit Crazies
The Fed has spoken and they are going to stay the course.
Things are getting better … there are risks and interest rates are nea zero.
Goldilocks is knocking on the door!
Sell in May and go away or load up the boat?
What does that mean for the Cboe Volatility Index (Ticker: VIX) and for you?
VIX is still trading near 17.68% and the S&P 500 Index (Ticker: SPX) is really not moving at an 11.73 realized volatility. That equates to roughly .75% per day move in SPX.
Mark touched on this in the Pit Stop letter yesterday. Until the market can digest what the Fed says and all the big earnings are out, VIX will not do much. But the Fed spoke and VIX is inching down today.
One less unknown and down goes Frazier.
This does not mean there is not a great setup right now (see the Vol Edge and VTC trades below).
For the first time in a while iPath Series B Short term S&P 500 VIX futures ETN (VXX) has big decay …
VXX owns VIX futures. That means that the VIX futures VXX holds as an ETN (exchange traded note) have a lot of value. That value can erode quickly if the market players start to think SPX won’t move that much.
If SPX does not move, VIX usually drops. If VIX drops, VXX drops. So it goes…
So I bought some VXX puts today — the May21 38s.
Post-event is usually a good time to own puts in VXX and VIX as volatility subsides.
See how to do that in the Vol Edge or Vol Trade Club. You can join both here.
Sharp Bets: Mark Sebastian runs our marquee long option strategy. SB specializes in low-implied volatility calls and puts and managing trade size for a risk-adjusted portfolio of options.
Mark bought some BrItish Petroleum (Ticker: BP) Jun18 25 calls yesterday and they are up around 25% today.
The Power Income Portolio: Frank Gregory and I will run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K-Street knowledge and my option expertise.
For now, I’m going to follow all of the trades here in The Rundown each week as we get going. So you have to tune in to keep up!
Right now the trade I like from Frank’s list is Palantir Technologies (PLTR). This is a growth stock play on Big Data. I want to ride this trade to just before earnings and close the calls for money.
I own the PLTR May21 24 calls and 21.5 puts.
Volatility Edge/Volatility Trading Club: Vol Edge is showing that the proprietary Option Pit VIX Light Is Red, which means Cboe Volatility Index (VIX) futures are in contango (futures price is higher than the spot price).
VIX is in Zone 2 — the 13-17 range. I expect VIX to trend lower to at least 16 by the end of this week.
Vol Edge Trade No. 85 bought VXX May21 39/35 put spreads yesterday and I have them marking up 20% right now.
In VTC Trade No. 244, I bought the VIX May19 19 puts for 1.20 two times and bought one VIX May19 22 call for 1.60 1 time. I have the trade up 10% as of this writing.
Remember, a lot of vol strategies I use are market neutral. That means if 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!
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 a Standard and Poor’s 500 stock ETF (Ticker: SPY) May21 385/400/415 put fly for 1.70 three times and one SPY May21 421/431 call spread one time. This gives me a cheap look at a short-term retracement.
If SPY doesn’t do anything in a week, I can close for minimum cost. If SPY tanks, I am looking at a 50% return or better.
I was able to close the puts and some calls in Desktop Metal (Ticker: DM) so I own the remaining calls for a credit. This could be a great payout on a move up.
Pro Trading Room: This is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me all during the trading session.
The Pro Room produces about 30 actionable ideas per week. These were a couple of my favorites from the Roomies
- Buy to open PLBY May 50c @ 9.20, sell to open PLBY May 60c @ $6.00
- Sold GE May21 13 puts @ .33
- Sell to open Jun TSM 110/130 strangle, buy to open Jul TSM 110/130 strangle @ $2.25 per combo double calendar
To Your Trading Success,