How to Execute a Trade

 

Yo Pit Crazies,

 

The three-day rule is one of my favorites.

 

I talked about it last week in the Trading Legion and to just about anyone who would listen.

 

But it was sneaky this time.

 

You see, vol trends in VIX take three days.

 

Why three days, you ask?

 

Remember, volatility goes up when traders buy options.  Options decay every day so they have to want them more than the day before.  After three days? Well, read on …

 

On the Third Day 

 

Here’s a little secret … 

 

I made up the three-day rule!

 

After trading options for 30 years you pick up a trick or two.

 

This week was tricky, as Thursday was a flat day …

 

VIX was down fractionally on Thursday, but the VIX futures were up. So, I will add a corollary to the three-day rule.

 

As long as the VIX does not retreat, the three-day rule is in effect.

 

3 Day VIX futures chart. Up every day.

 

Thursday was really an up day. Why? Because the bid for VIX futures was still there and up.

 

Why add this to my three-day rule? Because flat vol day means the net sellers are not there that day. Flat volatility means the buyers and sellers are in relative equilibrium so the bid is still there.

 

Mark and I picked this up on Friday in the OP Markets Show. You can pick up the OP Markets show as a Pro or Trading Legion member. 

 

Here is a freebie view from Friday.

 

Mark liked a straddle in SPX and I tried, all day, to pay $1.05 for the VIX Sept. 15 20/26 call spread and 18-strike put. The VIX trade closed $1.43 and was bid to the close.

 

I am looking for a wild week.

 

The Lesson: Vol trends need a change in sentiment to keep going.  Stay tuned this week if the bull market takes a breather.

 

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 two Kroger (Ticker: KR) puts for a 38% gain and the position has a shot to be profitable overall. 
      • I will have some positions to add for Monday, most likely in the Global X Uranium ETF (Ticker: URA). I also own some puts in FireEye Inc. (Ticker: FEYE) that should start to spring to life.

 

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. 

 

      • Queen of the Candlesticks Licia Leslie posted a big-money show from the SPX
        • “Paper buys 15,000 SPX Sept. 3700 puts (and) pays $2.20 ON THE CLOSE FRIDAY.”

 

Sharp Bets:

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

 

      • Mark is using his new volume tool to great effect lately. Canejo Corp. (Ticker: CCJ) Oct. 15 23-strike calls generated a new 100%.

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.

 

      • No new closing in the Trading Legion, but I have puts I want to sell in Walgreens (Ticker: WBA) and CVS Corp. (Ticker: CVS) and we might get a shot this week.

 

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, but VIX is above 20 and I expect a yellow Monday.

 

In Trade No. 257, I own the SPY Sept. 17 440/430 put spread for a credit. It is now back to even, so there is nice shot here at 100% win

 

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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