I Win, You Lose?

Dear Trader,

After the bell last Friday, the FOMC made a major announcement: The banks are again allowed to buy back shares.

A lot of traders are afraid to buy options in today’s half day.

Why?  

Because they think their options are going to decay over the 3 ½ days the market is closed for the holiday.

Here’s a little secret though:

By the open of business this morning, all of the extra time was already out of long options.

Markets are efficient,  and there are VERY smart people working on the desks of the big banks.

Do you think the traders at Goldman Sachs are able to figure out that the risks associated with a 3 ½ day weekend are pretty similar to the risk associated with a standard weekend?

The answer is yes.

Looking at this week traders on upstairs desks,  and market makers in response began lowering the prices options,  on Tuesday and even more on Wednesday.

(If you don’t believe me,  look at the way the VIX got ANNIHILATED on Wednesday, on a day the NDX was down and the SPX went from up 20 to flat.

That VIX drop was weekend decay coming out of SPX options).

By this morning, all but the standard overnight decay that all options have will be out of options.

Often, in the mornings before a long weekend,  less sophisticated traders will step in and start SLAMMING options.

I LOVE when this happens, because it creates rare opportunities.

Why?

Because these traders are selling options that already have most of the long weekend taken out of them.

When this happens options get completely oversold.

The next thing I know is I am buying options that are WAY too cheap given the weekend risk.

Now,  instead of worrying about how much my options might lose over the weekend,  I end up sitting back on some long options positions that have no decay to them.

A lot of times,  the big upstairs desks see the same thing,  the next thing you know I am long options where the implied volatility is going UP.

Moral of the story is… I make money, regular options sellers lose.

I don’t want that to be you.

I’m biased, but I like you, and I’d rather help you learn how to make money than take yours.

The lesson here is this:

If you think you have an edge selling options the day before a long weekend…you do not.

The big market players are too smart for that.

You CAN get an edge though realizing that the big market players aren’t selling, they are BUYING options.

So as we head into Christmas weekend, my gift to me will be buying options that are probably way too cheap…

..thus giving myself an edge.

Your Only Option,

Mark Sebastian

PS – Yes, there is a way to take advantage of these events. Yes, in 2021 I will be helping you dive into it to make money. 😉 Stay Tuned for an event we’re hosting next week…


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