Yo Pit Crazies,
Every day is still a day of improvement although my throat is dang sore.
Most of the Covid issues are slipping by and, praise be, coffee tastes OK again.
I expect to be back to normal by next week …
My students, and even general Option Pit readers, often wonder what generates a trade for me.
Well my big secret is … wait until the implied volatility does something.
This is called reactive trading.
Think of waiting for the ball to bounce and then riding the next bounce.
At Option Pit we created tools to help with “the bounce.”
Use the Volatilities You See
Note below is the Edge Hunter time spread (TS) sheet. This particular sheet reads market volatilities and tells you what the trade is priced at in tradable volatility.
AAPL using LiveVol Pro for data and the Edge Hunter time spread sheets.
What I have selected above is an Apple (Ticker: AAPL) calendar spread, same as a time spread, in which a trader only has to pay a 20.79% IV for the net volatility in the calendar. (And 20.79% is about as low as the IV has gotten in AAPL this year.
Basically, you subtract the vol you sell from the vol you buy, weighted for time. That is a skill we teach in Trading Legion.
What this generates is a cheap way to buy upside call spreads in AAPL. The trade also has a positive forward volatility price and positive theta. Since AAPL moved more than 3% yesterday — a 48% daily volatility — 20.79% looks like a small volatility risk to take with such a big underlying move.
I think AAPL trades $155 this week and the upside calendar can be had for nice prices. Thanks, Edge Hunter.
If you would like to see this kind of training, click here to check out my class from Monday morning with the trade up 20% since then.
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.
Capitol Gains membership is open again!
If you missed your chance to get in the first time around, Frank and I have opened the door for a limited time.
- The 12 50%-plus wins in 12 months guarantee remains.
- I am riding some Ford Motor (Ticker: F) and Kroger (Ticker: KR) calls, but they have not moved high enough to shift the needle to positive, just yet.
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 liking the rally yesterday:
- Susan sold Microsoft (Ticker: MSFT) Sept. 17 285/292.5 put spreads at $.52
- Mike P. is bough some Twitter (Ticker: TWTR) Sep17 65/67 bull call spreads for $.80
Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.
- Mark bought some International Game Technology (Ticker: IGT) Nov. 19 20-strike calls for $2.00 and started closing them for $3.00 this week — a 50% gain.
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.
- I am working a wheel trade in BP (Ticker: BP) to grab the dividend next week.
- 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 one day past ex-dividend.
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 with VVIX still above 100. There is still big contango in the VIX futures,which normally suggest much slower drops in VIX. We could use a little bit more of a drop in the Sept. future in VIX to potentially close five wins in vol trading land for this cycle.
Mark has three open trades in Vol Edge — Nos. 113, 114 and 115 — and is running even for all three net. VIX does look like it wants to drop to below 16 this cycle.
I have VTC Nos. 257 and 258 up 15% and down 15%, respectively. Both are leaning short VIX 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,