Hey There Income Hunter,
Zero days to expiry (0DTE) options traded over 1 million calls on Friday, which certainly added fuel to the rally.
The 3890, 3895 and 3900 strikes traded nearly 250k contracts alone.
Call volume was 59% of the total, which may be a record.
The question is does this mean we head back down this week?
Today, we’ll take a look at the stocks to watch and trades I put on today to fade this move.
Rally Fuel
The dollar drop also fueled the rally as Apple Inc. (Ticker: AAPL) and Nvidia Corp (Ticker: NVDA) both were up nearly 4%. They benefit from a weaker dollar for their business abroad.
Invesco DB US Dollar Index ETF (Ticker: UUP)
UUP was down 1.3%, which is a big move in a day, although volume was average. It continues to consolidate between 27.80 and 28.20. We could see a move to 26.90 if it breaks lower from here.
iShares 25+ Treasury Bond ETF (Ticker: TLT)
TLT went up and filled a gap above to 105 and closed above it.
This week, the Treasury issues $40 billion in 3-years on Tuesday, $32 billion in 10-years on Wednesday and $18 billion in 30 years on Thursday. So, near 105 I executed a 1/3/2 104.5/101.5/98.5 put fly.
The trade cost $.35 and if TLT is in between 100.75 and 105.25 on Wednesday, I win. Around 104 it returns 100% – and with all the supply it seems like a decent bet.
S&P 500 Index ETF (Ticker: SPY)
SPY almost made it to the 390 level on Friday but traded off into the close.
Here I also purchased an unbalanced 1/3/2 put fly around the 380/370/360 strikes. The cool thing about executing the 1/3/2 is early on you have room to the upside …
I was actually up 30% on the trade at the close even though I put it on at SPY 385. The real money will be made if SPY heads back down near 380 closer to the JAN20 expiration when I can make 300%.
Option butterflies are great because you don’t get killed on decay, and when the market moves in your favor you get paid to hold the trade.
Bring It Home
Until this market breaks above 3900 I think we stay in consolidation. I did not see much in the way of positive option deltas aside from the 0DTE, so the market should settle back.
The bond auctions early in the week should be interesting, and then CPI will be big on Thursday.
OpEx on Jan. 20 will also play a big part in trends that should develop in the weeks ahead. I track the delta-hedged position changes and shifts in the positioning that can give you a huge edge in the markets.
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Live and Trade With Passion My Friend,
Griff