Inflation Without Food and Energy. In What World?

Andrew Giovinazzi

Yo Pit Crazies

Inflation without food and energy was only up .3% month-over-month.

That was less than expected .5% – and about the only good news yesterday.

Yet it was enough to send stocks higher.

Full-year inflation was over 8.5% for a 41-year high.

I don’t know about you … but for me, living without food or energy is pretty tough.

Also, anyone who grocery shops knows their basket of groceries are up 30% year over year.

In short, the news is still poor.

Guess what? You can trade that.

Stocks Down, VIX Down

Note below that stocks are weak and the VIX is weak.

I said this week that a lower VIX meant less upside bounce and it sure looks like it is coming to pass.

There simply is not much reason for stocks to rally at this point.

But that does not mean traders cannot make money.

Let me introduce you to the short side of Vol trading.

When stocks drop and volatility drops – something I keep seeing – it sets up for more trades that make money and slide downward.

That would be an iron condor.

A bit about the strategy:

Four options, with four strike prices, all at the same expiration.
A short and long call + a short and long put.
The long call and put are further out of the money, while the short call and put are closer to the money.
The iron condor is delta neutral.

I don’t trade them very often lately because stocks have been in a bull market.

If Tuesday’s turnaround was any hint, there is very little reason to rally with inflation and rates going up.

I think that is a condition and one that favors iron condors – a slow grind down in stocks. I will set one up today in the Trading Legion.

The Lesson: See the condition and fit the trade.

That’s something Bill Griffo does quite well with inflation and the Fed. You should join him live today at 1 p.m. ET.

The Rundown

Big Money Flow

Mark put the oil returns with British Petroleum llc (Ticker: BP) and 70% for closed calls.

Power Income Trader

Griff closed a JP MorganChase Corp (Ticker: JPM) call spread for a 10% gain and an iShares iBoxx $ High Yield ETF (Ticker: HYG) put spread for a 94% gain.

Pro Trading Room

The Wolf is following Licia Leslie in WMT yesterday and Cat rang a couple: