Low Decay, High Pay

Yo Pit Crazies,

My skew call from the Trading Legion event/OP Markets Show yesterday was pretty, pretty good.

Here it is for those who missed it:

      • Buy 3 VIX Aug. 18 19-strike puts for $1.15 (now trading $1.50, up $105 this side).
      • Buy 2 VIX Aug.18 22/30/37 $.5-strike call butterflies for $0.95 (now trading $0.75, down $40 this side).

It’s already up 10% and I expect the Aug. 18 19-strike puts to trade $2 by the end of the week, which should be an easy 25% return.

Meanwhile, VIX is collapsing as I write this and all of a sudden tech earnings are coming. 

This is a sign of good expectations and a move up for tech stocks en masse into earnings, with a drop in VIX post-earnings.

Sometimes I see an idea I like and want to change it a little bit and try to reduce the directional delta.  

Instead of just holding the direction, I want to manage a RANGE!  A little up now with a drop in vol later.

Trade Goodies

Check out some of our trade ideas from the Trading Legion session/OP Markets Show yesterday: 

Mark: Buy VIX July 21 19-strike puts for $4.10 as a cheap flyer into VIX expiration.

Mark: Buy NVDA Aug. 13 135/155/175 put flies for $2.55.

Mark: Buy XLE Aug. 20 48.5-strike calls for $1.61.

Mark: Buy RCL Sept. 17 75/90 call spreads for $3.60.

One of Mark’s ideas really got me going — and I cheated a bit …

I had my Edge Hunter VBS sheets handy, and off camera I took a peek at the Aug. 13 cycle for a long gamma hold.

The fly was so cheap I figured I could buy some stock and the flies — this was one of my students’ ideas, actually — and just trade the gamma/range for a few days:

      • Buy NVDA Aug. 13 135/155/175 put flies for $2.55.
      • Buy 80 shares of NVDA for $184.94.

The numbers look like this:

Edge Hunter VBS sheet looking at NVDA straddles for the Aug. 13 cycle.

Note the straddle value on Tuesday was $15.40. 

I can hold that straddle for four days at the current realized vol and the full straddle should just break even.

However if NVDA moves more like the intra-day range ATR (average true range), in the top circle, I should have an easy close for money.  

This became a “Pro Trade” because I bought shares against the butterfly on an 80 shares-to-five butterfly ratio.

I used a little margin and there is risk below $135, but that seems an OK risk …

I would have plenty of time to dump the shares by then AND THE FLIES WILL KILL IT.

I like the thesis on NVDA selling off after the split, but the market rally had me spooked short term. 

The Lesson: You can trade direction, the range — or both. 

The Rundown

Power Moves Portfolio 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.

The live Power Moves Portfolio trade log is here.

Ford (Ticker: F) just bounced off of $13 like a rubber biscuit.  I am looking at selling five F Aug. 20 11/13.5 put spreads at $.45 or better.  

F is down from $16 and I still like the green energy play, which remains on the front pages. F is cheap enough with our dollars to make a nice wheel trade should we have to. If F rips into earnings we can close the puts early.

With the current selloff I am looking to sell a bit away from the market and lean on the puts we have in Palantir (Ticker: PLTR) in case the selloff continues, though I think it will be short lived.

I made a small adjustment to my PLTR trade idea …

The July 23 23-strike calls went to $.10, so I closed my short leg for $.10. I took the credit from those calls and bought five PLTR July 30 20-strike puts for .32. 

My plan if the market sells off is to close the puts.  PLTR can have steep drawdowns and I want to be ready.  If PLTR rockets, I am naked long the Aug. 06 21-strike calls. Those calls are almost back to even.

Sen. Elizabeth Warren (D-Mass.) is talking about regulating crypto exchanges, which has been weighing on C.  At best, we were up about .70 per butterfly and now I am down .70 each.  I might cut the position in half or close if COIN does not bounce.

Expiration Updates …

      • Net we own some calls in GE, Coinbase (Ticker: COIN) and the above PLTR position.
      • I added two COIN Aug. 20 250/270/290 call butterflies for $2.55. Right now I am down around $80 per fly as COIN is off $25 from the time we put this on.
      • GE is a play on green energy. We own two GE Sept. 17 14-strike calls for a credit. 

To Your Trading Success,

AG

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