How This Trade Works

Yo Pit Crazies,

On Friday, we saw another weak market close and VIX closed in Zone 3 (18-23 range).

In recent weeks, the S&P 500 — which dropped .75% from the previous close to end this week — has bounced like a tennis ball and shrugged off waffling comments from the Fed.

It’s been down, then back up.

Can we expect more of that — and how can we trade it?

I think single-name volatility is THE opportunity of the second half of 2021.

And that’s something we’ll take full advantage of in our Trading Legion mentoring program.

Some options are getting very cheap in the long term (90 day-plus cycles) …

Let’s take a look at one of the trade ideas and how it percolated in Thursday’s session …

What’s in a Name?

Mark liked buying the Energy Select Sectors ETF (Ticker: XLE) Sept. 17 51-strike calls and 48 puts.

The trade debit was roughly $3.80 and on Friday closed $3.80 …

But XLE is now teetering on $48 and the put is ready to run if the selloff continues.

XLE one-year volatility and price. Green line on the bottom chart is IV120

As XLE slides lower, the put will gain value — and with a $1 or $2 will be worth what the entire stangle entry price. And if volatility rises — and options gain value — the XLE strangle will stop decaying 

This is the sweet spot for the trade and this strategy — grab enough move from one side of the trade to pay for another.

Now let’s see what this week brings …

More Signs of Promises

Here’s another trade from Thursday.

I added the Jumia Technologies AG  (Ticker: JMIA) Nov. 19 26/36-strike call spread and Nov. 19 17-strike puts as a long delta strangle.  The trade is down on delta, but implied vol is rising to keep it near even. 

A couple dollars lower in JMIA and I can sell the puts out easily and own the call spreads for a credit.

TOP: JMIA 1 year volatility and price. BOTTOM: Green line is IV 120.

Remember the last post on iPath Series B S&P 500 ST futures ETN (VXX)?  Note below VXX volatility made a sharp move higher all across the term structure.  Not a good look for Monday’s open.

The Lesson: Buying lower IV for longer terms really explodes in value when VIX rises.

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 bought five Palantir (Ticker: PLTR) July 23/Aug. 06 23/21-strike diagonals for $1.50 each and I bought the PLTR July 30 20-strike puts for $.35 after the 23 calls went out worthless.

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 on Friday was focused on some SPX/SPY put butterflies for the stale market.

      • Roomie Ken A. closed some SPY Jul30 410/420/430 put flies for $1.10 or a 50% gain on debit.
      • ARK Innovation ETF (Ticker: ARKK) saw big put action — bearish — this week. We may see a Trading Legion trade in it this week.

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

      • Virgin Galactic Holding (Ticker: SPCE) puts were closed for 30% gain and rolled to the July 23s.
      • Apple (Ticker: AAPL) July 23 147 puts running up 25% so far.

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.

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 Red, that could change come Monday. VIX has stopped around 20 several times over the past month. Real money in VIX is made over 20 under 16.

For the Volatility Trading Club …

      • I have Trade No. 248 looking for a 15 VIX this week and we might end up with 25 VIX as I just took what I could get for the VIX July 21 18-strike puts.
      • Several trades have a short SPY/long VIX or VXX call side that is right on the knife edge of taking off.  Hopefully there will be solid gains to report on Tuesday.

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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