Yo Pit Crazies,
Friday’s All-Hands on Deck event was an extravaganza of trade ideas thanks to Mark, Griff … and myself, your humble Option Pit Exclusive scribe.
We also have to thank the Chinese Communist Party (CCP) for the inspiration and rip that pushed the S&P 500 to all-time highs …
Much like you can’t fight the Fed, and you cannot fight the CCP when it cuts rates 50 basis points.
I guess the CCP saw the Fed’s parlor trick of keeping the market propped up, looked at the lagging Chinese equity market and ~*poof*~ created magic! (Check out our Trading Legion trade here.)
I’ve included a few of the trade ideas from Friday’s sessions below …
And I’ll take one of them apart and discuss the proper use of portfolio margin.
He bought some SPX July 09 4365/4370/4375 call flies for $.80 and probably finished selling them on his phone for $4.60 while eating a hot dog at Wrigley Field.
He did call 4370 during the 11:30 a.m. session and I will be darned if it did not get there. Well, almost — 4369.50.
Look at a PM trade in the Pro Session: Long one SPX July 19 4350-strike call and short one SPX July 30 4380-strike call for a $1.50 credit. More on this in a second.
- Buy VanEck Vectors Junior Gold Miners ETF (Ticker: GDXJ) and/or Jan. 2022 call spreads.
- There were some small miner stocks as well, Canagold (Ticker: CRCUF) and Liberty Gold (Ticker: LDGTF). I bought some GDXJ stock and July 30 45-strike puts myself.
- Buy iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) July 30 146-strike puts looking for a quick pullback. The puts provide good risk/reward.
- Buy VXX July 23/Aug. 13 27-strike put calendars (around the decaying low for VXX to July 23.
- Buy AAPL Aug. 20 155-strike calls and 130-strike puts. Mark and I agree AAPL goes to $150 prior to earnings.
Using Portfolio Margin
The biggest thing here is risk vs. margin.
They are not the same thing.
Firms will give you margin — a lot of it, if you have a large account …
YOU CAN RISK ALL YOUR MONEY AND MORE.
But just because you have the money for margin, it is not the same risk. Risk is what you can lose.
For most traders, I recommend staying away from portfolio margin.
It is like giving a 5-year-old an unlimited amount of Hershey bars. (No offense.)
It might end badly.
Notice the diagonal calendar below
Long one SPX July 19 4350-strike call and short one SPX July 30 4380-strike call for a $1.50 credit.
This is a technique I teach to Pro Students who want to learn how to use margin correctly …
SPX Diagonal Calendar Trade from the All Hands on Deck Pro Session
The PM on this trade is a fraction of $800K shown above.
As you can see, it is not near the RISK of $800K as long as both legs are opened and closed together.
The real risk is much less than the margin.
The fun part of this trade is that it is short vega, which benefits from a drop in volatility … so a move higher will accelerate the earning potential, outperforming a call vertical spread.
If SPX pulls back, it will lose dollars, but not near as much as a conventional call vertical spread.
I will caution that this is a trade for traders with experience and PM.
It’s really a lesson for the difference between risk and margin.
Remember: Knowing the difference between risk and margin is crucial if you’re going to use PM. Option Pit Pro is a great place to learn.
Power Moves Portfolio 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.
The live trade log is here, and I’ll have a full recap for you every Wednesday.
- Up 25% so far in Taiwan Semiconductor (Ticker: TSM) and looking for my TSM July 23 124-strike calls to pay big.
- The Coinbase (Ticker: COIN) Aug. 20 250/270/290 call flies are up 20% each so far. COIN is moving well and seems to be powering through Chinese unhappiness with crypto.
Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.
- Still riding the Marathon Oil Corp (Ticker: MRO) calls, which are limping. But we did take in 40% gain so far and the whole trade is even again.
- The Uber (Ticker: UBER) calls are just hanging on here, but we think UBER wins in the battle with Didi (Ticker: DIDI).
- We added Southwest Airlines (Ticker: LUV) Sept. 17 52.5-strike calls on Friday.
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.
- Roomie Ken L. pumped out a call fly: Alaska Air Group (Ticker: ALK) Aug. 20 60/70/80 BF call long from $1.77. Some airline love overall on Friday.
- One of our best Roomie traders, Susan R., bought VXX July 23 31-strike puts on Thursday and she scored 40% gains in these Friday.
- Roomie MLV followed Mark Sebastian into SPX flies and had this to say, “SPX butter the 65-75 call fly expiring today is starting to rock. Thanks guys.”
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names..
- AMC Entertainment (Ticker: AMC) puts were up double Thursday morning, but Mark is trying to ride them for a bigger gain.
- Looking to the Palantir (Ticker: PLTR) July 30 23-strike calls to spice things up.
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.
- iShares China Big Cap ETF (FXI) Aug. 20 45-strike put and 46-strike call strangle closed the put side with a 45% net gain and still own the calls. FXI made a huge bounce and the change in rates there could create a nice little upside run.
- SPDR S&P 500 ETF Trust (Ticker: SPY) I sold the calls out for a 50% win, but not enough to pay for the puts … so I took a small loss here. I was 2 points away from a SPY downdraft for nice money, but it did not materialize.
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 as China blinked and reversed course …
We might set up for the 14 handle for VIX this week.
Mark bought a July 21-strike VIX strangle for Vol Edge on Friday. And there are a slew of puts looking for the 15 handle in VIX for a nice pay day come the 21st.
For the Volatility Trading Club …
- I bought more VIX Aug. 18 17-strike puts for $.85 on Friday and paired them with a SPY July 30 410/420/430 put fly.
- No. 251 was a 30% loser because I did not take all the money available to me for both my VXX puts and SPY put flies. was looking for more follow through and did not get it, so a small loss was the trade off for a huge potential 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,