Income or Cap Gains: What’s Your Bag?

Yo Pit Crazies,

 

The SPDR S&P 500 ETF (SPY) closed at an all-time high and the Invesco QQQ Trust Series 1 (QQQ) did, too.

 

Recent earnings from around the markets have been very good, if not great, considering the headwinds:

 

      • Pesky Covid
      • Inflation 
      • Supply Chain Trouble
      • Massive Spending 
      • Tapering
      • Meme Madness
      • Cypto Mania

 

In the old days, traders used to say that market’s climb a wall of worry.

 

Seems like there is plenty of worry to go around.

 

And the markets keep climbing.

 

This is, dare I say, starting to feel like 1999.

 

There was a trade for 1999, and it made the largest trading firms rich.

 

I will talk about it through the looking glass.

 

The age-old adage is: do I trade for income or cap gains? There is a trade for every market. 

 

Identify the Condition, Create the Trade

 

I teach our Option Pit Members about the need for an edge and an outlook to make an option trade.

 

You have to have both.

 

An edge is a verifiable volatility condition that we teach in every Option Pit Product. The easy way to understand the edge is to buy the cheap stuff and sell the expensive stuff.

 

An outlook is just an opinion. All of my Pro Students bring great ideas and opinions to the Pro Chat Room, our daily live forum for members and the OP team. You can’t trade an option without an opinion of where you think it will go.

 

Party Like It’s 1999

 

The trade that filled the bank accounts of the largest trading firms and made their owners 10- and 11-figure fortunes was the long strangle.

 

Retail traders were happy to sell options for income, mostly buy writes, leaving pro traders loaded with options.

 

Then, in 1999, they switched gears and started buying options. That is one reason Mark and I are hesitant when we see the big indexes rallying with implied vol rising.

 

Retail is not selling options for income, they are buying options for cap gains right now.

 

That is where we find ourselves today. QQQ rallied 90% in late 1999 to March 2000. The Fed and US government didn’t just give away $4 trillion dollars at that time, either.

 

Next week’s Fed meeting will be a seminal event for the central bank on tapering bond buying.  The VIX futures closed slightly up Friday because of it, and I will be looking for long strangles.

 

Check out Capito Gains and Trading Legion for those ideas as they most likely will come out earlier than normal.

 

Things might seem crazy — but you ain’t seen crazy yet!

 

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.

      • Regeneron Inc. (Ticker: REGN) is up $80 in a week. My Nov. call fly is coming back and has a decent chance of making money after a $70 drop two weeks ago. 

 

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 sentiment was mixed Friday, with some higher probability income ideas:

 

Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.

 

      • Mark jumped into some First Energy Corp. (Ticker: FE) calls on massive trade volume Friday.

 

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.

 

      • I sold some Vale SA (VALE) puts against the position Friday. Massive earnings and buyback was not enough to rally the stock.

 

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 and VIX should stay firm until Wednesday.

 

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!

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