Guns, Germs and Steel


Yo Pit Crazies,


The FOMC gave what I thought was a hawkish view on rates and stimulus yesterday, as Jerome Powell said the Fed could be done buying bonds by summer 2022. 


Stocks took it well and it would appear the FOMC, at least, is looking past COVID. 


That seems to me to be bullish generally and bearish VIX.


So, how about some bargains now?


The markets heading into the end of the year have me thinking of the title of the Pulitzer Prize-winning book book by Jared Diamond, Guns, Germs and Steel. 


I think it has a lot to do with how the rest of the year will play out in equity markets, especially in Capital Gains, the program that essentially allows subscribers to run their own hedge fund with Frank Gregory and I as the staff.




I think the gun part is easy.


Take a look at Smith and Wesson Brands Inc (Ticker: SWBI). The current political climate is  not getting less polarized and SWBI is a way to play that. Implied vol is low and, amazingly, SWBI is a value stock at these levels. I like the 20-strike calls on a six-month time frame.


One-year price and volatility for SWBI




Germs is another easy one.


Anything Covid related still looks good. I continue to like Pfizer (Ticker: PFE) and Regeneron Inc. (Ticker: REGN). PFE call spreads to the end of the year look very good, say 44/48 strikes, but watch around the dividend date.



Steel is a commodity play like VALE SA (VALE) or Cleveland Cliffs Inc (CLF) or Freeport McMoRan Inc (FCX), especially copper or silver for EV.


VALE recently declared a $1.54 dividend and that is a pretty high confidence test for commodity prices going forward.


I like just at-the-money call spreads in these names going into the end of the year as, with all the inflation talk, the markets have wiped out all the gains for 2021 in many commodities stocks.


1 Year Price Chart for VALE with daily candles.


The Lesson: The market reacted well to the Fed.  While the haze of history has been murky, as outlined in the book Guns, Germs and Steel, there appears to be some clarity on rates going out to June 2022. Look for the bargains.


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.

      • Look for some Guns, Germs and Steel adds here in the coming days. I added upside in Regeneron Inc. (REGN) this week.


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 sentiment in one snap as I cannot find one person bullish VIX/VXX/UVXY:



Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.


      • MGM Inc. (Ticker: MGM) calls only needed a day to ring up Mark for 30% gains.
      • Anything China related is bouncing hard, for example, gambling stocks.


Trading Legion:
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 added some retail in Dollar Tree Inc. (Ticker: DLTR), as I think the supply chain issues will start to ease. This sector is down 35 to 40% from highs.


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 Light will most likely turn red today with a VIX run back to 16.


      • VTC Trade No. 261 notched a 21% gain with puts to sell in VIX. This is a market direction neutral 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,


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