Hey Traders,

Back in another life, before marriage and kids, I belonged to a Bay Area golf club called Mira Vista (now the Berkeley Golf Club). It was in the Berkeley Hills with panoramic views of the San Francisco Bay.  I loved that place.

The only problem with the traffic, which ended up being one of the reasons I left since the Presidio golf course was down the street from me at the time. Another issue I never worried about was the San Andreas fault that ran right through the 3rd fairway.

A rift of seismic proportions with a nice sign that says, “you are standing on the San Andreas fault which runs for 100’s of miles”. I’ve played a lot of courses, but none that sat on a major fault line.

Anyway, the Invesco QQQ Trust (Ticker: QQQ) is due to rebalance a good chunk of the market cap in the USA equity market.

Like the fault line running through #3 at Mira Vista, the market is unaware of the turmoil underneath.

But you should be aware of the great trading opportunities it will create.

As always, let’s price it out.

30 Day IV is Relatively High in QQQ

QQQ has rallied sharply in the last four days, running around 15 points. This run drives down the realized vol to really low levels. That makes option volatility look expensive.

See below, the Sigmas look more expensive. Those are the volatilities per term, so up to the event on the 28th, traders are bidding up option prices.

They’re pricing a rift, even though it hasn’t happened yet.

There are many ways to play this. I just bought cheaper strangles, long calls and puts, in the SPDR S&P 500 Trust (Ticker: SPY) in my Pro Session on Thursday. I think a squeeze and dump in QQQ and SPY will happen around this time, so the squeeze up will be the head fake.  The strangle ensures I can ride both seismic waves.

Questions about that? Leave a comment below!

To Your Trading Success,

AG