Harder to Buy A Vowel or Get a Selloff?

Yo Pit Crazies,

So I ask you, can we get a selloff?

Now, I’m generally a bull …

I’ve been in the stock and options market for 30-plus years — and America usually works. 

When I started out, the Dow Jones Industrial Average was 2,300.

Heck, the S&P 500 broke 500 in the mid-90s.

Today, I feel like I’m solving a Wheel of Fortune puzzle and I just need to buy a vowel to get there…

I spin the wheel one last time …

And goose egg. 

I got close to ringing the cash register big time with some of the financed contracts I own but it did not get there on Thursday. (Although I DID close Alibaba Group (Ticker: BABA) puts I posted in the Pro Chat for a 1000%-plus gain.)

Regardless, I don’t think yesterday was enough blood letting …. and MOSTLY VIX has been waiting for this.

Today is big, so let’s see how they price it.

If you want to see my cool Palantir (Ticker: PLTR) 1×3 call spread in the Turbo Trade Session, read on.

Turbo Trader

Check out the snap from Livevol Pro on the daily option activity for the SPDR S&P 500 ETF Trust (Ticker: SPY) July 16 430-strike …

Normally when a stock or index moves to a new at-the-money, there is some compression of that strike. 

Right now, we have had very high skew (I’ll have more on that this weekend), so I would expect some compression in implied volatility as what was once an OUT-OF-THE-MONEY  option becomes an AT-THE-MONEY option.

I don’t see that.

The bid for SPY/SPX volatility was still firm going into the close yesterday …

So liquidity providers were content to leave options prices higher for one more day — at least — heading into the weekend.

I told you earlier in the week the LPs like to make those option prices cheaper …

But they are not doing that, and today’s action could be quite interesting.

THE LESSON: If the bid for volatility remains level or goes higher, expect more action the following day. If liquidity providers kill that short term vol, expect the S&P 500 to move higher.

The Rundown

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.

I closed two Taiwan Semiconductor (Ticker: TSM) July 23 116-strike puts for a $2.33 average price — or a 50% gain over cost.  Now I can work on the calls.  

Sharp Bets:

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 oil trimmed the loss yesterday.
      • The Uber (Ticker: UBER) calls are just hanging on here, but we think UBER wins in the battle with Didi (Ticker: DIDI).

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. 

      • My Alibaba Group (Ticker: BABA) July 09 200-strike puts killed it. Bought at $.25 and sold at $3.13. Massive.
      • One of our best Roomie traders, Susan R., bought VXX July 23 31-strike puts. I do expect VXX to be lower in 2 weeks from now.

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.

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.

      • iShares China Big Cap ETF (FXI) Aug. 20 45-strike put and 46-strike call strangle closed the put side with a 30% net gain and still own the calls.
      • Fastly Inc. (Ticker: FSLY) closed some July 16 50-strike puts at $.75. That gives us a chance at a free upside call

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 Is Yellow with VIX getting jiggy thanks largely to Chinese action.

At this point, VIX pops into the middle of Zone  (18 to 23) and the old saw of “VIX dollars don’t come until over 20 or under 16” was never more true.

Mark bought a July 21-strike VIX strangle for Vol Edge today.

For the Volatility Trading Club …

      • In Trade No. 252, I sold 40% of my VIX Aug. 18 21/30 call spreads at $1.50 after trying to sell them at $1.70.  Without the press above 20 we got OK-but-not-great prices. Still, we it’s 33% gain on call cost and likely super-cheap puts going into Aug.
      • In my other VIX trade, No. #248, again I just sold some of my VIX call spreads for a slight loss but closed some long delta, which needed doing.  If VIX gets back to 15, I will have a huge win (and I have two weeks).  If I did get a nice launch in VIX into the mid 20s, I would have all my puts for credit. There is still time.

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!

And don’t forget to join us for the Option All Hands at 11 a.m. today!

To Your Trading Success,

AG 

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