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Looking for a Big SPX Mov on Friday? Where Do You Look?

Yo Pit Crazies,

 

The amount of shenanigans going on in Washington DC over a $1.5 trillion infrastructure bill and $3.5 trillion spending package reminds me of the Obamacare legislation …

 

You have to pass it to see what’s in it!

 

Nothing has changed over the years

 

While the passage looks unlikely (currently) — more from Frank Gregory on that this weekend —  it does have some repercussions for the S&P 500.

 

Is there any edge built into the market to reflect this?

 

Let’s take a look!

 

Using Edge Hunter to Find Some Edge

 

Note the green boxes in the screenshot below. That is where the volatility edge is in the butterflies …

 


Edge Hunter Butterfly sheet showing butterflies ATM and lower.  

 

What that means is when a customer trades the butterfly, long the tails and short the options in the middle, they have a volatility credit to do that.

 

Volatility credits tend to decay faster.  

 

Note the gray highlighted box above is the at-the-money butterfly. Since the ATM options are more expensive, remember selling them higher, the liquidity provider shows the options they are most interested in buying. Namely the ATM options.  

 

Usually that means they expect the underlying — SPX in this case — to move. (Need further clarification? Check out some OP Pro content here on skew and butterflies.

 

So, a relief rally after the government shutdown or a selloff on the spending bill?

 

We shall see today.

 

The Rundown

 

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 was looking at gold and silver miners most of the day on the downward action for SPDR S&P 500 ETF Trust (Ticker: SPY)

 

Ken A. cashed in some options:

 

Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.

 

      • Mark added some International Game Technology (Ticker: IGT) calls this week.

 

Also, look for a new program name and upgraded features here. Goodbye, Sharp Bets. Hello, Big Money Flow!

 

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

 

      • I closed some short Walgreens (Ticker: WBA) puts this week and will look to reopen. Nearly have the calls for free out to Jan. 2022.
      • I had a Dollar Tree (Ticker: DLTR) call calendar blow up. I closed half for a small loss, but it is drifting back and might be able to squeak out a win.

 

To Your Trading Success,

 

AG

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