3 Stocks Slammed By Labor Shortages

Hey Trader,

With all of the fuss about the Evergrande fiasco, the Fed, and booster shots, you may or may not have noticed this week’s unexpected uptick in jobless claims …

It seems that even with the COVID-contingent benefits being taken away, not as many people are getting back to work as one might expect …

Which means the recent labor shortages we’re seeing may not be going away anytime soon.

This is definitely a bummer on many levels, but it does create some opportunities for trading …

Here’s 3 names that could feel the impact of the labor shortage.


FedEx (Ticker: FDX)

After a concerning earnings report this week, shipping stock FedEx (Ticker: FDX) is undoubtedly feeling the labor shortage pinch all the way down the line.

FedEx’s turn at the earnings confessional this week saw the shares gap drastically lower, hitting a new 52-week low by the time the week was said and done.

Stock courtesy of StockCharts

FDX not only missed its Q1 earnings consensus, but also lowered guidance for the rest of the year. It cited costs associated with labor shortages – which are in turn causing higher wage rates, network inefficiencies, and increased expenses – as responsible for its $450 million year-over-year cost increase.

FDX’s share price isn’t the only thing that hit an annual low this week … in the options pits, FDX options are extra cheap, with the 30-day at-the-money implied volatility (ATM IV) hitting its lowest point in the last year (while FDX’s 10-day historical volatility surged …).

That might explain why FDX pits were popping on Friday, with 266% of their usual total volume, and with FDX open interest at an annual high. 

Not only is FDX up against general labor shortages, rising costs, and supply chain woes, but the company is increasingly feeling pressure from Amazon (Ticker: AMZN) who is largely handling its own shipping.

With labor shortages not only impacting FedEx’s ability to load and unload at ports, as well as staff stores and delivery vehicles, it is also impacting retailers’ access to merchandise and staffing. This could push shoppers online, and a busy holiday season for AMZN doesn’t bode well for FDX.

I would be looking for a cheap put play on FDX, and right now the January 2022 term seems favorably priced (although like I said, FDX IV is at an annual low, which means options are as ‘on sale’ as we’ve seen them). FDX will step up to the earnings mic again before those options expire, however, so be sure to monitor your position closely.

United Parcel Service (Ticker: UPS)

Now, before you say that listing FDX and UPS in the same list is a cop-out … hear me out.

United Parcel Service (Ticker: UPS) took a sympathy swoon after FDX earnings …

Stock courtesy StockCharts

But its CEO was quick to correct the misconception that UPS and FDX are essentially one and the same, saying UPS had already baked in rising labor costs to its current earnings forecast, and planned to hire 100,000 additional workers headed into the holiday season.

However, she did admit that the current shipping supply chain bottlenecks wouldn’t be resolved in the immediate future.

UPS has overall outperformed its rival, with a net gain of approximately 14% so far in 2021 (by contrast, FDX is in negative territory for the year, down about 12%).

But of course, I’m more interested in what’s going on in the UPS pits …

And right now, it looks like traders are more put-skewed than usual, with UPS’s put/call ratio of 1.15 in the 95th percentile of its annual range.

It’s 30-day ATM IV sits lower than 80% of all other readings taken in the last year, which isn’t quite as low as FDX’s, but still indicates UPS options are actually a good buy right now.

With UPS apparently set to out-deliver FDX in more ways than one (in both its services and its earnings), I would take the opposite stance on UPS, and find a low-cost call play with some time baked in — the standard expiration November and December terms are fairly priced, although UPS is slated to report earnings on October 25.

 Hasbro (Ticker: HAS)

Toymakers are definitely feeling a labor-shortage-squeeze … notably from their overseas manufacturing.

Toy company executives have said they are anticipating shipping delays and manufacturing shortages to hurt in-store sales in the coming holiday season …

But toy maker Hasbro (Ticker: HAS) is perhaps the most dominant name in the industry, which might mean they have an advantage. As one of the biggest toy names on the planet, HAS has more control over the supply chain than its smaller rivals.

This could lead to HAS products being more available for flustered holiday-shopping parents, and HAS cannibalizing sales of its smaller rivals.

HAS has pulled back since gapping higher after earnings in July, and but I don’t think it’s out of the question for the shares to climb higher yet again.

Chart courtesy StockCharts

In the options pits, put open interest is more than double call open interest — though in general, HAS pits tend to be relatively low volume.

Cheap calls with a bit of time baked in might not be a bad way to play this name — or even a call spread, if you find an upside option that seems exceptionally expensive (they’re out there). Standard expiration November and January 2022 expiration look to currently be the best bargains right now, in terms of implied volatility being priced into the contracts. However, HAS reports Q2 earnings on October 25, so be mindful of holding through that event.

Your Only Option,

Mark Sebastian


2 Big Money Miner Moves

Hey Traders,

Every day, I watch the market for Big Money moves … because a lot of the time, Big Money = Smart Money.

I mean, if traders are willing to plunk down millions of dollars to support their trading ‘opinion’ … there’s usually a good chance they know something we don’t.

Not to mention, spotting these trades can give me the perfect ‘inspiration’ for piggyback trades of my own …

That’s why I always keep an eye on where the Big Money is flowing …

While the S&P 500 (Ticker: SPX) certainly had a rough go at the beginning of the week, there were plenty of Big Money traders ready to pounce on “bargain priced” equities …

The options pits were definitely busy, and two miners in particular caught my eye, as Big Money trades targeted these tickers for (moderately) bullish bets.

Let’s dig into these two Big Money miner trades.

More Yellow Cake

One of my favorite tickers from the past few weeks has been uranium name Cameco Corp (Ticker: CCJ), who, until recently, was having a heck of a rally:

Chart courtesy StockCharts

Earlier this month, we went over a couple Big Money trades betting that the miner’s upward momentum would actually stall out, and the shares would wind sideways in the weeks ahead … 

And that particular trader was probably quite pleased to see CCJ drop along with the S&P 500 this week (assuming they’re still holding their position).

But there’s plenty more Smart Money moves zeroing in on the uranium name, and on Monday there was a spread I found particularly interesting …

This trader bought-to-open 10,000 contracts of the CCJ December 25-strike calls for $1.46, while simultaneously selling 20,000 contracts of the December 32-strike calls for $0.60.

Trade details courtesy Trade-Alert

That means this trader only paid a net cost of $0.26 to own the 25-strike calls – and should all of their contracts expire worthless, they’ll only lose their cost paid of $260,000.

Currently the 25-strike represents nearly a 19% premium on CCJ’s Tuesday close of $21.08 …

However, if CCJ manages to recover and resume trading near the 10-year highs it notched just over a week ago …

This trader could see a hefty payday.

Keep in mind that these trades have plenty of time left to expiration — which could work both for and against this Smart Money move.

Because this ratio spread involved selling twice as many of the 32-strike puts, should CCJ have another monster rally, this trader could find themselves in a pinch. While the purchased 25-strike calls would manage to contain their potential losses on half of their sold put position, the other 10,000 contracts could present a problem if the trader keeps them open, and they start to get out of hand.

Interestingly, while the Big Money trades we looked at last time were specifically banking on CCJ to remain above $21 but below $24/$25 through December, this time around we’re seeing the Smart Money bet specifically that CCJ is moving above the $25 mark.

Could this be a revised play by the same trader, or is are the two Smart Money movers simply at odds with what they expect out of the uranium miner?

Freeport-McRoarin’ Higher?

CCJ wasn’t the only miner who dug itself into a hole on Monday.

Freeport-McMoRan (Ticker: FCX) has been hit especially hard by the latest stock slide, with prices of materials such as iron ore and copper feeling the headwinds from worries surrounding Chinese developer Evergrande Group, and FCX nearly hit a six-month low on Tuesday.

Chart courtesy StockCharts

In spite of FCX’s recent slide (and general downtrend over the last several months), one Smart Money trader seems to think there will be some recovery in the works for the mining shares.

This trader purchased 16,000 December 33-strike calls for $1.97, while selling the same number of the December 40-strike calls for $0.52, bringing their net purchase price down to $1.45 for the long calls.

Essentially, this is a smart money bet that FCX will be able to close its early-week gap back above $33 (or really, the breakeven mark of $34.45) while remaining below $40. The closer to $40 FCX can manage to get before December expiration (without a significant breakout above), the more profit this trader stands to make – with a maximum potential gain of $8,880,000 (($40 high strike – $30 low strike – $1.45 purchase price) * 100 shares per contract * 16,000 contracts).

Of course, should FCX get a little too rowdy, and head above the $40 mark, this trader could feel the sting, with the maximum loss being their initial outlay of $2,320,000.

Personally, I see FCX as ready to bounce higher, and I saw some pretty hot bargains in the FCX pits today as well – although I was looking a bit more near-term than the trader above. The October standard expiration 33-strike calls were trading for around $1, and I could see them doubling pretty easily, especially if FCX manages to close its early-week gap lower.

It can literally pay to piggyback Smart Money. Keep an eye out — I’ll be breaking open Big Money secrets in a special live event next week. Details coming soon …

Your Only Option,

Mark Sebastian


2 Big Money Miner Moves

Hey Traders,

Every day, I watch the market for Big Money moves … because a lot of the time, Big Money = Smart Money.

I mean, if traders are willing to plunk down millions of dollars to support their trading ‘opinion’ … there’s usually a good chance they know something we don’t.

Not to mention, spotting these trades can give me the perfect ‘inspiration’ for piggyback trades of my own …

That’s why I always keep an eye on where the Big Money is flowing …

While the S&P 500 (Ticker: SPX) certainly had a rough go at the beginning of the week, there were plenty of Big Money traders ready to pounce on “bargain priced” equities …

The options pits were definitely busy, and two miners in particular caught my eye, as Big Money trades targeted these tickers for (moderately) bullish bets.

Let’s dig into these two Big Money miner trades.

More Yellow Cake

One of my favorite tickers from the past few weeks has been uranium name Cameco Corp (Ticker: CCJ), who, until recently, was having a heck of a rally:

Chart courtesy StockCharts

Earlier this month, we went over a couple Big Money trades betting that the miner’s upward momentum would actually stall out, and the shares would wind sideways in the weeks ahead … 

And that particular trader was probably quite pleased to see CCJ drop along with the S&P 500 this week (assuming they’re still holding their position).

But there’s plenty more Smart Money moves zeroing in on the uranium name, and on Monday there was a spread I found particularly interesting …

This trader bought-to-open 10,000 contracts of the CCJ December 25-strike calls for $1.46, while simultaneously selling 20,000 contracts of the December 32-strike calls for $0.60.

Trade details courtesy Trade-Alert

That means this trader only paid a net cost of $0.26 to own the 25-strike calls – and should all of their contracts expire worthless, they’ll only lose their cost paid of $260,000.

Currently the 25-strike represents nearly a 19% premium on CCJ’s Tuesday close of $21.08 …

However, if CCJ manages to recover and resume trading near the 10-year highs it notched just over a week ago …

This trader could see a hefty payday.

Keep in mind that these trades have plenty of time left to expiration — which could work both for and against this Smart Money move.

Because this ratio spread involved selling twice as many of the 32-strike puts, should CCJ have another monster rally, this trader could find themselves in a pinch. While the purchased 25-strike calls would manage to contain their potential losses on half of their sold put position, the other 10,000 contracts could present a problem if the trader keeps them open, and they start to get out of hand.

Interestingly, while the Big Money trades we looked at last time were specifically banking on CCJ to remain above $21 but below $24/$25 through December, this time around we’re seeing the Smart Money bet specifically that CCJ is moving above the $25 mark.

Could this be a revised play by the same trader, or is are the two Smart Money movers simply at odds with what they expect out of the uranium miner?

Freeport-McRoarin’ Higher?

CCJ wasn’t the only miner who dug itself into a hole on Monday.

Freeport-McMoRan (Ticker: FCX) has been hit especially hard by the latest stock slide, with prices of materials such as iron ore and copper feeling the headwinds from worries surrounding Chinese developer Evergrande Group, and FCX nearly hit a six-month low on Tuesday.

Chart courtesy StockCharts

In spite of FCX’s recent slide (and general downtrend over the last several months), one Smart Money trader seems to think there will be some recovery in the works for the mining shares.

This trader purchased 16,000 December 33-strike calls for $1.97, while selling the same number of the December 40-strike calls for $0.52, bringing their net purchase price down to $1.45 for the long calls.

Essentially, this is a smart money bet that FCX will be able to close its early-week gap back above $33 (or really, the breakeven mark of $34.45) while remaining below $40. The closer to $40 FCX can manage to get before December expiration (without a significant breakout above), the more profit this trader stands to make – with a maximum potential gain of $8,880,000 (($40 high strike – $30 low strike – $1.45 purchase price) * 100 shares per contract * 16,000 contracts).

Of course, should FCX get a little too rowdy, and head above the $40 mark, this trader could feel the sting, with the maximum loss being their initial outlay of $2,320,000.

Personally, I see FCX as ready to bounce higher, and I saw some pretty hot bargains in the FCX pits today as well – although I was looking a bit more near-term than the trader above. The October standard expiration 33-strike calls were trading for around $1, and I could see them doubling pretty easily, especially if FCX manages to close its early-week gap lower.

It can literally pay to piggyback Smart Money. Keep an eye out — I’ll be breaking open Big Money secrets in a special live event next week. Details coming soon …

Your Only Option,

Mark Sebastian


A “Lehman Moment?”

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

Making Markets, Making Money

Hey Traders,

Do you ever wonder where trades come from?

Yes, you may put the order through, and pay for the options contract or stock from your account…

But how do these trades actually get filled?

Your broker isn’t magically matching perfect pairs of buyers and sellers within seconds for each transaction …

It’s actually done through a third party: a market maker.

Make Markets, Not War

These market makers “make markets” – that is, they keep markets liquid by buying or selling securities at certain prices at

You want 1000 shares of Apple (Ticker: AAPL)? No problem, a market maker will sell them to you.

You want to sell 1000 shares of AAPL? No problem, a market maker will buy them.

I actually spent much of my early career as a market maker, so I have unique insight into how market makers work.

Here’s my insight into how they operate, how they’re able to take on so much risk, and how they make their money.

Magic Markets? Not Quite.

First, let’s go through what a market maker is (and is not).

A market maker is not a magical void into which any trade, at any time, can be put in and filled.

What a market maker is is someone who will offer both the bid and the ask side of the market on a particular security for a certain amount of shares (or contracts) – they’re “making the market.”

A market maker takes the opposite side of a buy or sell order – so if you’re looking to sell your shares of a stock, or options contract, they’ll buy it at the bid price. Or if you’re looking to buy an options contract or shares of a stock, they’ll sell them to you at the ask price.

This ensures market liquidity, so traders don’t have to wait around for someone else to come take the opposite side of their trade. The market maker fills that role, allowing trades to be filled much more quickly than if each trade had to be individually matched to both a buyer and a seller.

Market Makers Make Money

Of course, the market maker makes money on each transaction they process.

During your trading, you’ve undoubtedly noticed that the prices you can buy and sell at (the ‘ask’ price and the ‘bid’ price) are different.

This is where market makers profit.

See, market makers take on a risk every time they take the opposite side of a trade. If you sell them 100 shares of Ford (Ticker: F) at $13.50, and seconds later, before the market maker can sell the shares, F plunges to $12, the market maker is now stuck holding those shares, unable to sell them for the price they purchased them for.

So, to make up for situations like this, and ensure they come out ahead overall, they earn money on every transaction through the bid-ask spread.

Let’s go back to that hypothetical Ford trade. Say F shares are currently worth $13.50.

The market maker might offer to buy F for $13.45 – the bid price, which is the price you would be selling at.

On the other side, if someone is looking to buy F, the market maker might offer an ask price of $13.55.

When the market maker successfully buys and sells F at this bid-ask spread, they’ve locked in $0.10 of profit simply for facilitating the trade, and taking on the risk that comes with being the middleman.

It may not sound like much, but these market makers are doing this thousands and thousands of times each day.

In reality, you would likely see a much tighter bid-ask spread on a high-volume stock like F – think more along the lines of $0.02:

The actual bid-ask spread on F

However, for a low-volume (and therefore higher risk for the market maker, as they will have a more difficult time finding someone to take the opposite side of the trade) you’ll likely see a larger bid-ask spread.

Fulgent Genetics (Ticker: FLGT) has a fairly wide bid-ask spread.

A market maker can also move markets – that is, change the bid-ask spread based on the supply, demand, and current price of the equity.

Now – making markets for stocks and making markets for options are quite different beasts.

So Many Options

When you are making a market for a stock, you are tracking the fair value of the underlying.

But when you are making a market for options, you have hundreds (or even thousands!) of quotes to keep track of; think of all of the different terms and strikes available to trade on a single equity!

So how are they able to do this?

Rather than basing the bid-ask spread on the price of the underlying, the market maker sets their prices based on a pricing model that takes into account the strike price, time to expiration, price of the underlying, cost of carry, and implied volatility.

So the options market maker does not simply arbitrarily move the whole price of the option around. Rather, they move the ‘volatility’ piece of the equation around to determine their pricing and make markets.

For example, the options market maker may set the ‘fair value’ IV of an option at 50 IV points. Therefore, his or her bid prices will be based on a lower volatility, such as 49.8 IV points, and his or her ask prices will be based on a higher volatility — in this example, maybe 50.2 IV points.

So if the ‘fair’ price of an option, according to the pricing model, is $2.00, then the market maker would adjust the implied volatility piece of the pricing model to reflect their ‘bid’ and ‘ask’ volatilities – so, for example, the bid price of the option may be $1.98, while the ask price may be $2.02.

Market makers can also move these volatilities around, based on the demand for certain options (since it is inferred that higher demand for options signals traders are expecting movement, therefore higher IV). 

We could get really into the weeds with this, but hopefully this gives you some idea of how market makers make their money. The more you know about pricing, the more informed you can be when it comes to choosing your own trades.

Your Only Option,

Mark Sebastian

3 Reddit Favorites On My Radar

Hey Traders,

The retail crowd has certainly not lost interest in trying to provoke short squeezes, and “stick it to the man” (“the man”  in this case being hedge funds and other institutional traders) …

While combing through WallStreetBets is more likely to give you a migraine than a viable trade idea, it doesn’t mean there are no good meme stock trades to be had … it just takes a little work (no, interpreting ‘stonks talk’ on a Reddit forum doesn’t count as ‘work’) to separate the good from the bad.

But – it can be totally worth your time, as playing meme stocks can be hugely profitable … if you know what you’re doing.

Here’s three meme stocks I’m watching (and playing!).

Palantir Technologies (Ticker: PLTR)

“Big Data” software company Palantir Technologies (Ticker: PLTR) has been a frequently-mentioned name among Reddit traders for a while now, and I’ve also been keeping an eye on the Wall Street rookie, who made its market debut just last October.

A recent partnership with vehicle data company Wejo has put Palantir in the spotlight once again, and trading activity looks to be picking up over the last several days.

Friday we saw the shares temporarily break through the $29 mark, and the stock could very well continue to surge higher.

PLTR recently bounced off its 200-day moving average, and I think a bullish momentum play may make sense on this stock. 

Chart courtesy StockCharts

In fact, I recently purchased October calls in my Robinhood Trader program – you can see the trade details here.

With PLTR’s 30-day at-the-money implied volatility (ATM IV) in just the ninth percentile of its annual range, it’s a surprisingly good time to buy options on this meme stock, as options traders are pricing in low IV, relative to what we’ve seen in the last 12 months.

And if you read my recent primer on using vol to pick options, here’s a little something to help you understand why I like the standard October expiration term (Oct15):

Clover Health Investments (Ticker: CLOV)

Clover Health Investments (Ticker: CLOV) saw a huge blast-off in early June, but the shares have slowly given back pretty much all of their meme-fuelled gains in the months since, and CLOV is currently battling it out with its 50-day moving average.

Chart courtesy StockCharts

Wall Street seems to be largely holding a bearish sentiment towards CLOV, so it isn’t out of the question we could see more short sellers creep into the stock – although with 15% of its float already sold short, we don’t necessarily need to see a big influx of short sellers to see a short squeeze.

With Reddit still on the prowl for a CLOV short squeeze, I think there could be real upside in store. The stock is looking similar to fellow meme stocks Support.com (Ticker: SPRT) and Vinco Ventures (Ticker: BBIG) before their short squeezes last month. If the borrow rate goes up further, I think these shares could run as high as $20.

AMC Entertainment (Ticker: AMC)

AMC Entertainment (Ticker: AMC) is, of course, one of the original meme stocks … and for as many times as I’ve expected it to finally fade away, it continues to chug along.

Chart courtesy StockCharts

The stock is still considered hard to borrow (HTB) – so there is high demand and low supply, which is helping AMC hold onto its upside. 

With the shares already fading after their most recent pop higher, I think AMC will continue to drag down – I’m anticipating a drop to the $40 mark (or even lower).

Though AMC currently has a relatively low 30-day ATM IV, the options I am interested in are still a bit too expensive for my liking. For example, 40-strike puts are priced over $3.00 – that requires a move down to $37 to even start to be in the money, and I’m not liking the risk/reward ratio considering the price to get in the trade.

However, I will be continuing to watch this stock, as I think there will eventually be some significant downside to be had – I just don’t want to pay too much for it right now.

Remember, these are volatile meme stocks; proceed with caution. Always have a trade plan, and practice strict money management guidelines when trading.

Your Only Option,

Mark Sebastian


A $9M Big Bank Straddle (And My Piggback)

Hey Traders,

Once again, Wells Fargo & Co (Ticker: WFC) is making headlines …

And not in a good way (surprise surprise).

This time, however, it isn’t anything the banking and investment giant has done itself, per say …

But rather a letter sent to the Federal Trade Commission (FTC) from Massachusetts Senator Elizabeth Warren, calling for the breakup of WFC by separating its banking and non-banking activities.

Without directly addressing the Senator’s demands, WFC issued a statement essentially saying it has cleaned up its act in recent years, and is “a different bank today” than five years ago.

All Bark, No Bite

Frankly, Sen. Warren’s letter is unlikely to result in any real actions taken …

But WFC’s earnings report on October 14 could have real-world ramifications …

And one big-volume trader in WFC’s pits looks to be expecting a move …

Here’s how they’re playing it, and here’s a few hints about my own “piggyback.”

A Big Bank Straddle

Scandal-plagued WFC has certainly been under quite a bit of scrutiny in recent years …

Although you wouldn’t necessarily be able to tell it from its chart.

The shares are still a fair ways off their 2018 all-time high of $57.93, but they’ve recovered significantly from their COVID lows near $20, and a recent $250 million fine for “unsafe” practices in its home lending loss-mitigation program actually helped stem some of the uncertainty among investors, giving the banking stock a counterintuitive boost.

Chart courtesy of StockCharts

WFC is now sitting just below its 50-day moving average, which has recently served as a ceiling on several occasions, and could pose as resistance in the days ahead.

However, the Big Money trader in WFC’s pits yesterday won’t necessarily mind if it does … so long as WFC shares trend in the opposite direction …

Shortly after the open yesterday, someone with some very deep pockets purchased a very large WFC October-dated straddle, buying 22,0000 45-strike call contracts for $2.69, and simultaneously purchasing 22,000 45-strike puts for $1.24.

For those of you keeping track, that’s a hefty $8,646,000 outlay betting on WFC to “do something!”

This trade will be in-the-money once WFC hits either $48.93 or $41.07, representing either a 6% move higher or 11% move lower from Tuesday’s close of $46.05.

For those of you who watched Sunday’s video on delta hedging and how market makers can “pin” a stock, you might be interested to know this was tied to a delta hedge sale of 754,800 shares at $46.80.

What do the rest of WFC’s pits think?

While put open interest is significantly higher than usual (in the 98th percentile of its annual range), in general, options traders still seem to be more call-skewed, with both call volume and call open interest outpacing puts.

Looking at the October-dated contracts, in addition to the 45-strike this straddle-buyer seems to really like, the 47-strike and 50-strike calls are also seeing exceptional volume crossing the tape.

Now, like I mentioned, I liked this trade so much I decided to “piggyback” this trade … with a few adjustments, of course.

While this trader purchased their contracts for standard options expiration, I have very little interest in holding onto my contracts through WFC’s earnings call slated for the morning of October 14.

Therefore, I decided to make my own trade ahead of earnings, purchasing the October 8 expiration term.

Additionally, rather than making my move at the same 45-strike, I found a nearby strike that seemed to be more favorably priced. I was able to purchase my calls for about $1.45, and spent less than $900 total on six contracts.

Of course, I can’t tell you the full details of this trade … but I did send everything to my SharpBets subscribers, including a full video breakdown of the trade.

I’m hoping this trade will put my recent trade record to 6/6 wins … but I’ll have to wait and see.

If you’d like to receive my next SharpBets pick … you can still join me right here (but don’t spread this link around, we closed this quarterly offer to the general public a few days ago, and I’m only re-opening it until midnight!).

Whether you have $900 or nearly $9,000,000 on the line … I’m sure plenty of us will be keeping an eye on WFC to see if the banking behemoth will make any sudden moves over the weeks ahead!

Your Only Option,

Mark Sebastian

Headed For A Sell-Off Or A Bounce Back?

The Option Pit VIX Light Is Yellow: Volatility Is Going To Move.


Hey Traders,


The Option Pit VIX Traffic Light switched to yellow, as the market continued its selling from Friday.


We are now coming into a Quadruple-Witching Expiration Week …


Now the question is…


Is it different this time?


Is the market going to keep selling off, or will it bounce back like it has for several months?


The VIX index is now over 20 again.


I have to admit I am a bit surprised it got this far, but it has.


The VIX itself has moved strongly …


The VIX futures curve? Not so much.


Why? Remember how we have been talking about the giant spread between the VIX cash and the VIX futures


That spread gave the futures a lot of cushion. We are only going to see VIX futures move if we get continuation today.



Despite the run in VIX, VIX futures are still trading at a healthy premium to spot VIX, excluding September.


But the little jump of VIX cash over the September future, along with a pop in the VVIX (the VIX of the VIX), VIX volatility, and a little change in VIX/S&P 500 (Ticker: SPX) correlation was enough to turn the Option Pit VIX Traffic Light yellow.


So what does this mean?


We are at a big inflection point:



The question is, will the pattern from the previous five expirations continue?


We will know if we get a bounce either Monday afternoon, or Tuesday.


I would LOVE to see us open down, and then pop.


Every morning jump so far has faded. My guess is that the opposite would lead to a rally.


For now, I am looking at short dated (September) calls to play a potential explosion in VIX Tuesday morning.


This would be a really short day trade, but could pay nicely.


Your Only Option,


Mark Sebastian

Why You Need A Trade Team

Hey Traders,

If you’ve been around here a while, you’ve probably heard me talk quite a bit about the importance of having a “trading mentor” – or at the very least, a handful of other traders that you talk to.

I’m pretty adamant that any trader who wants to truly trade like a professional needs to have a network of other traders to work with – if you were a trendy millennial, you might call it a “trading tribe,” or if you’re like me, you might simply think of them as “mentors” and “colleagues.”

But whatever you want to call it, there’s multiple reasons why I suggest having other people around you, and not just going it alone.

Today I’ll explain to you my experience with creating a trading “inner circle” as a pro trader, and how it can be beneficial to your trading.

The Boys Club

Now, if you were to talk to Licia Leslie (Option Pit’s own Queen of the Candlesticks) about her time working in the pits, it’s not unlikely she would use the term “boys club” at one point or another.

And it’s true. Props to Licia for breaking into the club and smashing glass ceilings during her time trading; I’m sure it wasn’t easy, but she’s a tough cookie.

However, the “boys club” isn’t entirely a bad thing – the “club” part at least.

See, professional traders start crafting their “inner circle” from the very first day they show up to work. It’s part of the job.

As a rookie, you’ll be assigned a mentor to show you the ropes, and hopefully keep you from making any mistakes that are too big, or too stupid.

My mentor was taught by his mentor (who just so happened to be our very own Andrew Giovinazzi), who was taught by his mentor, and so on.

There’s a sort of “passing down” of knowledge – and it isn’t the kind you get from just reading a book. It’s the kind you get from making mistakes, and being successful.

Not only that, but rookie traders are obviously going to network with other traders – of all experience levels.

This helps make the sometimes frantic, and sometimes cutthroat, atmosphere on the trading floor a little more manageable (everyone likes having a friendly face around) but it also helps you learn from other traders.

They’ll tell you about trades they’re making, going to make, didn’t make, or shouldn’t have made.

So on top of being schooled by your mentor, you’re also being schooled by your peers!

And this is a good thing.

It helps you become a better trader faster than if you were sitting in a room alone, learning from a book, and only learning from your own trades or mistakes.

And this doesn’t stop as you move up the ranks, either.

You’ll always have a mentor, and a network of trading friends for as long as you’re on the floor.

“Well that’s great,” you might be thinking, “but I’m never going to have a trading floor mentor, so how does this apply to me?”

I’m simply saying this to set the stage, and explain that professional traders are building their “inner circle” from Day 1. It is the first thing they do, and they never stop doing it throughout their careers.

Why Can’t We Be Friends?

Of course, not every “professional” trader starts out on the floor. In fact, probably most don’t (especially these days).

But the same concept of “learning from your circle” applies.

It applied to me when I changed employers, and it was something I kept in mind when I started my own hedge fund, Karman Line Capital, and it was a consideration when I was building up my crew here at Option Pit.

That’s why we have such a variety of specialists here.

We’ve got myself and Andrew, who are both seasoned volatility and options traders (Andrew’s got 8 million contracts under his belt).

Then we have Bill Griffo, our “Income Hunter.” He traded in the Treasury Bond pits back in the wild inflation trading 1970s, and his specialties include commodities, bonds, and currencies.

I’ve already mentioned Licia Leslie, who is a chart reading whiz. She’s “Queen of the Candlesticks” and can spot a chart pattern like few I’ve ever met. I’m not much for technical analysis myself, but she makes it work, and her track record is outstanding.

Last, but certainly not least, we’ve got Frank Gregory. Frank grew up in Washington DC, networking with the Capitol’s elite from an early age (we’re talking Supreme Court Justices in his living room) before making a name for himself as a lawyer for some of the who’s who in DC. He then went on to work as an executive at a multi-billion-dollar Wall Street firm, so his specialty is “K-Street” – or where Washington and Wall Street meet.

You can see I’m not just stacking the deck to favor one specialty or another.

And there’s a reason for this.

It’s because it increases the idea flow here at Option Pit – and means I have a wider variety of information and trade ideas coming in, which in turn improves how and why I’m trading myself.

This is where a lot of retail traders get stuck – if you aren’t looking outside your “normal” realm, you’re really limiting your potential.

I don’t know the intricacies of how Wall Street and Washington interact, but I sure as heck can make a trade out of one of Frank’s ideas! (That’s actually what our Capitol Gains program is about – using Frank’s ideas and Andrew’s options expertise to trade. See? We practice what we preach!)

Another huge benefit is having other traders to work as a “second set of eyes” on your trades. I can’t tell you how many times Andrew has talked me down from the ledge, and prevented me from making what would have been, in hindsight, a terrible trade.

It’s unavoidable we’re going to get emotional about our trades. It’s the nature of the game, no matter how rational you try to be – nobody is perfect.

But it sure helps when you can bounce ideas off of someone that doesn’t have a horse in the race, and can offer an objective opinion.

So what can you do to avoid getting stuck in the “one trader rut”?

Expand Your Horizons

At this point, I think the answer is obvious: find other traders and start networking. Pick their brains. Find out what is working or not working for them.

But where?

It’s easy to build a network when you’re working around other traders on the floor, or building a company specifically for trading.

But for “normal” traders out there, there are other ways to get the job done – now more than ever, thanks to the huge number of online trading communities popping up.

However, I caution you very strongly over jumping into the first crew you find.

As I’m sure you know, all traders are not created equal.

And finding the first guru who pops up as a targeted ad on your Facebook feed is NOT the best way to find your own mentor.

Don’t even get me started on getting your trading advice from Reddit. Yeah, you might get lucky, but for the most part, finding actual good ideas and wisdom on there is like finding a needle in a haystack.

It’s also not a great idea to join the first Discord or chat group you find, and immediately start following other trader’s advice.

Plenty of people like to think they know what they’re talking about … but in my experience, few actually do.

So what should you do?

First, I recommend narrowing down your focus – what do you want to trade? Options? Penny stocks? Are you more of a day trader, swing trader, or buy-and-hold?

Then, take your time. Look around, and do some research and reading, and notice names that pop up time and time again.

See where they’re available, or who they network with. Who do they learn from, where do they get and share their ideas?

Follow that trail.

Or … I can save you that work and just tell you to join us here at Option Pit.

Our Pro program offers daily live access to the mentors here at Option Pit, and 24/7 access to other members through our live chat group. Plus, you have access to all the trade recommendations from our full line-up of services.

You can find out more about Pro right here, but I recommend calling  888-872-3301 to talk with our Customer Service Team to answer all of your questions (and probably give you a discount). They can be reached Monday through Friday from 9 a.m. to 5 p.m., but you might be able to catch someone at the office if you call on the weekend …

We’ve also got plenty of other services to choose from.

And here’s the thing – every service we offer includes LIVE access to an Option Pit pro.

There is a reason for that.

It’s because having access to mentors – like the team here at Option Pit – is really key to trading success.

I told you how I’ve had mentors since Day 1 on the trading floor, and to this day I still use the folks here at Option Pit, and in our Pro chat, to bounce trade ideas off of, learn from, and get trading inspiration from.

That’s why I’m adamant about being sure all of our members have access to live trading and interaction.

Because it gets better results.

Of course, I’m not telling you all of this just to shill my own program.

I’m telling you this because I am showing you I practice what I preach, and I like sharing these same advantages with you.

And if you aren’t into the crew here at Option Pit? Hey, that’s fine. (I mean, sort of …)

Read our free content, and do your due diligence to find a mentor that is experienced and proven for you to learn from and follow.

And don’t be a hermit; find some trading friends. It makes the whole journey a lot more fun (and hopefully more profitable) — I promise.

Your Only Option,

Mark Sebastian


How This ETF Can Practically Print Profits

Hey Traders,

Lately I’ve been scoring some big wins on large caps, of all things …

It isn’t every day that big-dollar stocks lend themselves to beautiful options trades …

But my SharpBets program has been knocking it out of the park, with wins like +62% on Walgreens-Boots Alliance (Ticker: WBA), +75% on Walmart (Ticker: WMT), +71% on Macy’s (Ticker: M) … I could go on.

If you want in on this win streak, click right here. I’ll tell you more about my winning system for picking trades — and how you can apply it to your own portfolio …

Now, as great as these large-cap slam-dunks have been … as you probably know, I’m really a “vol guy.”

I can’t help it – volatility is what I love, and there’s so much money to be made from it once you know the ins and outs!

For example, I recently scored an 81% win on the volatility derivative “ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY).” 

Before you let the name get you freaked out … relax.

I’m going to walk you through this volatility ETF.

I’ll explain what it is, and how, with the right timing, I can practically print money trading it!

(Seriously, you’re going to want to read this.)

Ready? Let’s dive in!

UVXY, You Ain’t Got No Alibi

Now, to understand ProShares Ultra VIX Short Term Futures ETF (Ticker: UVXY), you need to have a basic grasp of the VIX and VIX futures.

The CBOE Volatility Index (Ticker: VIX), as you probably know, is a measure of implied volatility of S&P 500 (Ticker: SPX) options.

It’s referred to as the market “fear gauge” because when traders are anxious about what’s to come in the market, they like to hedge with SPX options.

This hedging increases the demand for SPX options, and increases the implied volatility priced into SPX options.

Which, in turn, causes the VIX to rise.

I was actually in the room for the “birth” of the VIX, and I could go into way, way more detail … but I’ll save that for another day! (Or subscribe to my free VIX Edge newsletter and I’ll send you a rundown of the VIX every trading day!) 

Thinking About The Futures

VIX futures, just like any other futures contract, allow traders to speculate on where the VIX will be at a specific time in the future.

So, for example, if the VIX is currently trading at 18, and you think there will be more volatility by VIX futures expiration, you could purchase a VIX future at 20.

Here’s where things get interesting.

VIX futures MUST be equal to cash (or spot) VIX by the time they expire.

(By the way, VIX futures expire on one Wednesday morning each month, and expiration is based on the Tuesday close. This Wednesday is September VIX expiration.)

However, going into expiration, we often see futures trading above or below the actual VIX.

This is actually great, because if I see VIX futures are trading $2 above VIX spot price a week before expiration, I know these futures must drop to meet the VIX within the next week (unless, of course, the VIX rises).

Of course, if the opposite were true, and VIX futures were trading $2 below VIX spot, I’d expect to see either the VIX fall or futures rise.

I track VIX futures relative to VIX spot by looking at the VIX futures curve.

The green line is VIX spot, and you can see each futures contract trading increasingly higher above spot VIX.

This is called a contango.

(If futures were trading below VIX spot, this would be backwardation. It is less common than contango, but it does happen.)

Now, this brings me to UVXY (finally, right?).

UVXY provides 1.5 times leveraged exposure to the S&P 500 VIX Short-Term Futures Index, which tracks the near-term VIX futures contracts.

Essentially, UVXY is long 1.5 times the VIX futures contract that is 30 days from expiration.

So, if we know that VIX futures are in a contango (higher than the VIX) …

And must be equal to the VIX by expiration …

Then we know that UVXY, which tracks these futures, will also fall.

Now, of course, don’t get me wrong – the VIX can and does unexpectedly spike (like we saw Friday), so making a bet on UVXY to fall isn’t a “sure thing.”

Plus, of course, sometimes the pricing of UVXY options will make it difficult to trade this phenomenon profitably.

However …

In general …

Chart courtesy StockCharts

You can see that UVXY certainly isn’t a “buy and hold” type of investment … to say the least.

Just a few months ago, UVXY underwent a 10-to-1 reverse split that took its share price from $4 to $40.

Now, it’s already sitting back in the lower $20s, and I wouldn’t be surprised to see the ETF near $10 in the next few weeks.

Of course, just like with anything else, it’s easy to get over confident and get burned on UVXY. I do it all the time.

But with a little bit of skill, and a little bit of luck, this ETF can be used to practically print money!

Lately, we’ve been seeing an extra-wide gap between VIX spot and futures as we near expiration.

(I wrote all about it in VIX Edge last month.)

This is great news, because it gives me plenty of opportunities to profit by playing VIX derivatives like UVXY, and VXX (which also tracks VIX futures).

But of course, you need to always use caution, because days like we saw yesterday can obliterate otherwise well-played UVXY trades.

If you want to learn more about how to trade UVXY, and the VIX more broadly, I recommend subscribing to my VIX Edge newsletter. It’s free, and it isn’t uncommon for me to call out specific contracts I’m trading, and what I’m watching with volatility every day.

But if you take nothing else out of this article, please just remember this: do NOT try to buy and hold UVXY.

I can all but guarantee it will end badly.

Your Only Option,

Mark Sebastian