Yo Pit Crazies,
We got a lot of action Tuesday. The lofty tech valuations got smacked and there was a good bit of rotation going on from tech to oil, retail and banking.
The question I am sure on everyone’s mind is, did VIX cover the move. (And now your question might be: what does that mean?)
Let’s take a look
5-Day Volatility and 30-Day Volatility
Note the curve below is in Contango. That means the near term futures are lower than the long term futures. What is really important is that it means short-term implied volatility (IV) is still cheaper than long-term IV.
From VIXCentral.com
A contango curve also means realized volatility (RV) expectations are less in the short term. Note, I flipped from one volatility to another volatility. The option price informs the expected move.
During the OP Markets Show yesterday, Mark asked me what the Oct. 01 straddle was pricing in the S&P 500. I guessed about $80. It happens I was right, as my trick is to look at the move on the day and that usually will be mirrored in the very near term options. SPX was down 2%, so I estimated a little less than a 2% SPX value.
That is an old floor trader trick. Notice I did not guess a whole lot more than that. That is a new trick (in the last 10 years, or so) because VIX futures still did not break out of the contango curve even as VIX cash rose.
Estimating movement is a dance between VIX cash and VIX futures. With the debt ceiling event and recent reprice of Big Tech, there are two legs of a big vol event with bond yields as the catalyst. These were all known last week, so if bonds settle after the debt kerfuffle, things should settle down.
I think we need one more to get VIX over 30 or closer to 2% average daily move.
But we’re not there yet.
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.
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- I closed the last of Exxon Mobil Inc (Ticker: XOM) strangles for more than 100% gain. I do need a bounce, though, in my other names to have a great cycle. I closed the short call spread in my Regeneron (Ticker: REGN) call butterfly on the move down. A ride back up and I will make some good money.
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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 cautious yesterday but liked the short bond trade, long index puts. From Mr. Bill Griffo and Cat today:
Sharp Bets:
Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.
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- No action yesterday but Mark might cue up a Canejo Corp. (Ticker: CCJ) trade today.
- MGM Entertainment (Ticker: MGM) is still up over 50% with a call to sell.
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Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.
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- Mark closed four of eight Ford Motor Co. (Ticker: F) calls for a 95% gain yesterday morning so the balance of calls are free.
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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.
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- I closed some short Walgreens (Ticker: WBA) and will look to reopen them on a selloff..
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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.
VTC Trade No. 263 I held onto the SPY call butterflies a bit too long but still squeaked out a small profit.
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