Liquidity, liquidity, liquidity.
Option Pit’s Bill Griffo will dive in on Thursday (and I’ll be there!), and he thinks we could see a mess related to new gold rules and its impacts on the U.S. dollar.
I agree.
I’ll give you a taste of it today …
Liquidity refreshment, if you will.
Just look at what a Bitcoin drop and a meme pop can do to the markets.
Liquidity got sapped up.
The secret is … there’s only so much to go around.
Lost in the Sauce
When you go to McDonald’s, you don’t know what’s in the secret sauce on the Big Mac.
They call it a secret sauce because the marketing folks want to keep the Average Joe guessing.
When it comes to trading and liquidity, traders are not sure what other institutions, funds or banks are holding. They don’t know what’s in the current Market Sauce, as it were.
Right now Bitcoin/crypto and the meme stocks like AMC Entertainment (Ticker: AMC) are causing big dislocations because no one is sure what the leverage is behind these names.
Two-week VIX with one-day candles.
Note from yesterday, once Bitcoin started falling again and the meme stocks took off, VIX started to rise again in a mostly up market.
Remember: VIX moving in an up equity market is a sign of short term stress.
The move could just be temporary, but it is still a move the wrong way for VIX. The issue is uncertainty — and that moved VIX higher, or at least stopped the freefall.
A VIX headed to 15 has stopped for now as the market assesses the fallout from BTC rout and the meme pop. (Meme Pop: The Trader’s Cola of Choice!)
Look for this liquidity subject on Thursday when Griff ties it all together with Big Daddy Dollar — and gold!
Make sure you register to attend!
The Lesson: Liquidity in one market can affect the liquidity of another. That’s kind of how liquid works in general.
The Rundown
Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Radar to find order flow in active names.
Mark still has the mojo rolling with the tweaks he made to the Robinhood Radar.
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- Blackberry (Ticker: BB) is still producing, with gains of 113% in Memeland . Wendy’s (Ticker: WEN) popped up in Memeland on the Gamma Radar yesterday, so Mark is looking there.
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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.
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- Ford (Ticker: F) stalled and I closed all of my long calls. Looking at 50% returns and more there. I do have some 13 puts that I will sell some puts against if F drops.
- I am still riding the Ark Innovation ETF (Ticker: ARKK) strangle with the ARKK June 18 116-strike calls for ARKK to match last week’s highs.
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Sharp Bets:
Mark Sebastian runs our marquee long option strategy for a once-per-week trade. SB specializes in low-implied volatility calls and puts, and managing trade size for a risk-adjusted options portfolio.
Mark added a buy of Energy Transfer LP (Ticker: ET) July 23 11-strike calls for $.45. Nice-risk reward here.
Pro Trading Room:
This 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 tone was mostly cautious into Tuesday’s close.
Some ideas from around the room:
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- Buy WEN July 28-35 call spread for $.95. This trade was closed same day up 58%.
- STO DraftKings (Ticker: DKNG) Nov. 40/25 puts at $2.15
- STO Energy Transfer Partners (Ticker: ET) Jan. 22 9/5 puts. BTO July 23 11-strike calls for a $.05 credit
- Workhorse (Ticker: WKHS) is getting in on the (meme) party too, I guess. Traders are looking at more upside in there.
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Volatility Edge/Volatility Trading Club:
The Option Pit VIX Light is still red, and the Cboe S&P 500 9-Day Volatility Index (VIX9D) made COVID-era lows. I am still learning short VIX delta here.
Mark closed trade #No. 93 for a 20% and No. 83 for a 35% gain this week. At this point Vol Edge is red and leaning short delta, but he does own a few cheap upside call spreads in VIX.
For the Volatility Trading Club, I added a VXX strangle (long a call spread and long a put) in the July 02 cycle, leaning short deltas. I have some puts I can close in VIX June 16 19-strike series, but VIX has just been hanging at the current levels due to the issues I outlined above.
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!
To Your Trading Success,
AG