Does Big Volume Mean a Big Move Is Coming?

Yo Pit Crazies

 

Commodity stocks trend, and the trend for a certain stock lately has been lower.

 

On Friday, I saw massive volume, so some big upside bets are going there lately.  The recent COVID-19 lockdown news has hit oil, too,but I think it will be temporary.  

 

This is what I call an opportunity, so let’s check it out.

 

Some Stocks Run Counter to Trends

 

Two big commodity stocks, Cleveland Cliffs Inc. (Ticker: CLF) and Freeport McMoRan Inc. (Ticker: FCX) are still up near their highs.

 

VALE SA (Ticker: VALE), on the other hand, is mired in the politics of Brazil. The stock just paid a $1.60 dividend and it is trading at $11.45, pretty close to the year lows …

VALE  two-year chart with one-day candles. IV 30 is the red line.

 

Note above the VIX is very low right now, relative …

 

Below, going out to June, the 12 calls trading 1.12-1.15 6000x and the  June. 17 15/21 call spread trade .40 25000x. 

 

VALE June option volume on Friday.

 

Vale is down 50% from its highs this year.  As Frank would say, it is a volatile one, but in a land of stocks trading at crazy multiples, this does not look too bad.

 

I do own shares but am going to do a replacement strategy where I dump the shares and buy longer term calls and ramp up my delta quite a bit. Say 300 deltas for every 100 shares of stock.

 

Buckle up.

 

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.

  • I closed some SPDR Oil and Gas Explorers (Ticker: XOP) puts on Friday for a 20% gain and now I am riding my remaining call spreads for an oil pop in the CAPITOL GAINS portfolio. Check out the latest video here.  

 

Other names currently in the CAPITOL GAINS portfolio:

 

      • Regeneron Inc. (Ticker: REGN) long COVID therapies
      • Mandiant Inc. (Ticker: MNDT) long Cybersecurity
      • PetroBras SA (Ticker: PBR) long oil
      • Intel Corp (Ticker: INTC) long chip shortage
      • Powershares QQQ Trust (Ticker: QQQ) portfolio hedge
      • Canejo Corp (CCJ) long Uranium Play

 

Power Income Trader:

Power Income Trader is a systematic approach to trading inflation.  By pulling real-time data from the Fed, US Treasury and Gov’t, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill’s system puts you out in front of the most powerful money flow in the world.

 

Bill likes Alliance Resource Partners (Ticker: ARLP) as a wheel trade.

 

Remember: a wheel trade is a trade meant to capture the dividend in a stock. The routine goes: sell a put, take delivery of shares and then sell a call at the money to call away the stock at least 1 day past ex-dividend.  

 

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 Friday overall:

 

One of our best Pro members, Giovanni, had this action going Friday:

 

Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.

 

      • Big Money Flow bought calls in Nutriaen Ltd. (Ticker: NTR) this week..

 

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.

 

      • I closed all the calls on Friday inviShares Barclays 20+ year Treasury Bond ETF (Ticker: TLT) for a double on those, and will now ride the puts into expiration as we test the inflation theory.

 

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 Cboe Volatility Index VIX, iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) and ProShares Ultra S&P Short Term VIX Futures ETN (UVXY) options.

The Option Pit VIX Light Is Red into the holidays. With both SPX and VIX up, SPX usually pulls back from these levels however QQQ continues its strength. A lot of weaker stocks might get a nice bounce here.

 

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

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