Yo Pit Crazies,
Trade development is a bit of an art and science.
Sometimes it just hits you in the face … but other times it’s trial-and-error.
It’s sort of like fixing a carburetor in a lawnmower. The first time is a mystery, the third time less so.
Trading is about finding repeatable patterns. Investing is about finding potential gains and holding on as long as possible.
Option Pit has services to help in both areas.
SNAP Inc. (Ticker: SNAP) might be a bit of both.
SNAP, for reasons that are debatable, has caught some fire. It could be TikTok’s issues or just time for social media companies to get off the mat.
Or it may be because they said the magic letters: AI.
Both Alphabet Inc. (Ticker: GOOGL) and Meta Platforms Inc. (Ticker: META) made strong moves, too. Part of it had to do with Big Tech being oversold from recent highs.
Regardless of the reason, SNAP sparked a little, and that is usually newsworthy.
There is a story in the option term structure …
Let’s see what it is …
Does Massive Volume Lead to Follow Through?
The question is do large volume and volatility spikes lead to bigger jumps in price.
To be honest, it could or it could not.
From a game theory perspective, the game has changed with so many bets on the table willing to pay big dough.
One way to trade it would be to just buy a strangle, which is a call and a put, and see what happens.
The term structure above (that is just the sigmas, or vols per term) showed a massive pump yesterday.
Volume poured in as traders bid up the calls furiously. Note the front end jumped a bit as traders still believe there is room on the upside to run.
The pattern of most of these is that the stock gets bid, the news peters out and the stock goes back to where it started …
So trading a strangle would be a two- step process:
– Ride the call side higher and close
– Hold the put for the ride down
Just make sure to close the winning side.
The Rundown
Pro Chat
Bob posted and closed a great Apple Inc. (Ticker: AAPL) trade in the chat room:
Power Income Trader
US Natural Gas Trust (Ticker: UNG) Mar17 8 puts closed for a 18% gain.
Big Money Flow
Mark hit a couple here.
– Southwest Airlines (Ticker: LUV) Mar03 35 calls closed for an 11% gain
– Nutanix Inc (Ticker: NTNX) Apr21 30 calls closed for a 53% gain
To Your Trading Success,
AG