Yo Pit Crazies,
For folks that follow my daily posts in the OP Newsletter and Vol Man on the weekends, you’ll notice I have liked VIX puts lately even though the market has been going steadily up.
A quote from my Sunday Vol Man piece:
“All 3 vol events recently ended up with positive SPX outcomes.”
Most of 2023 has been 10 top stocks. There is a massive amount of value in the rest of the market. There is a massive amount of value in the rest of the stocks traded in the SPX.
I spent most of Friday rolling puts down to lower strikes in VIX. I think we hit the 13 handle or lower by mid-June and SPX will kiss 4400. Now that rates are higher, with stocks higher, traders have accepted higher rates and stocks can rally.”
Everyone is waiting for Nvidia Corp (Ticker: NVDA) to crash or Microsoft Corp (Ticker: MSFT) to crash, and they very well could.
But I don’t think they will today. Both stocks can give back 10% and it is a drop in the bucket.
But VIX getting to a level always means something.
VIX 3 Month chart
And you can succeed just like these traders.
How?
I can share a clue here. And yes, it has something to do with volatility.
An Option Trade Needs Two Things
You need an opinion and an edge. Now both of those things have a broad, dare I say infinite, variation. But there’s one place where the option market consistently tells you what it thinks going forward.
That place is volatility.
Traders bet with their dollars to push option prices around in both directions. Remember, efficient option markets are not one way, but two ways for volatility, meaning there has to be rough agreement with buyers and sellers at any time. The market maker lives in the middle.
How do I know this? Well, I did it for a living!
I spent 15 years as a market maker and 10 years as a teacher here at Option Pit as a market taker. In the old days I was the market, and now I pick the spots to enter.
Right now traders are willing to buy and sell VIX sub-14. That is a big development. “It is what it is,” as one of my Group One bosses used to say.
Traders are willing to sell a 30 day straddle in VIX for about $100. I’ve seen it as high as $400 in the last 3 years. That’s information. That informs all the trades I do and why I roll my VIX puts lower.
The Rundown
Option Shopper
Johnson and Johnson Corp (Ticker: JNJ) Jun09 157.5 calls closed for a 58% gain
Delta Airlines Corp (Ticker: DAL) Jun02 36.5 calls closed for a 41% gain
Easy Button
Carnival Corp (Ticker: CCL) Jun30 10/12 strangle closed for a 18% gain
Win the Week
Paypal Inc (Ticker: PYPL) Jun16 62/62.5 call vertical spread closed for a 88% gain
Baidu Inc (Ticker: BIDU) Jun16 136/140 call verticals spread closed for a 47% gain
Power Income Trader
Walt Disney Corp (Ticker: DIS) Jun16 89/90 call vertical spread closed for a 64% gain
Invesco QQQ Trust (Ticker: QQQ) 2/6/4 Jun09 352/344/336 put butterfly closed for a 12% gain
Netflix Inc (Ticker: NFLX) Jun09 407.5/405 put vertical spread closed for a 65% gain
SPDR S&P 500 Trust (Ticker: SPY) Jun09 426/425 put vertical spread closed for a 36% gain
PYPL Jun16 64/65 call vertical spread closed for a 77% gain
Big Money Flow
US Steel Corp (Ticker: X) Jul21 21 calls closed for a 53% gain
To Your Trading Success,
AG