Patience Is A Virtue, But…

 

Yo Pit Crazies,

 

Yes, patience is a virtue. Why? Probably because so few people use it.

 

By the way, we’re finishing up Part Two of our Short Squeeze series here at Option Pit. Today we’re taking a look at squeezes from the institutional side of things, with K-Street expert Frank Gregory and hedge fund manager Josh Hawes.

 

They’re going live at 11 am EST, and you can click here for direct access.

 

If you don’t have patience … you can check out Part One of the short squeeze series with Mark and I if you click here. Mark also put together an AMC Entertainment (AMC) trade in the Turbo Session here. We didn't quite get to the trade in the webinar but Mark as usual made quick work of it later Thursday  afternoon.

 

The Fed threw the Inflation Crew for a loop this week and produced some Hawk-Lite jawboning on rates and asset purchases. The algos bought it, and sold every commodity under the sun. I think this is an opportunity … but don't be too patient.

 

I think SPDR Gold Trust (Ticker: GLD) is down around 8% over the last four days, from just under $180 to $166. While the Cboe Volatility Index (Ticker: VIX) is lower, it did not totally hit the lows we saw last week in the 15 range. This adds more fuel to the algo theory of just selling everything commodity related. The VIX is still waiting to drop off, and I think this has all of the makings of a pump-and-dump scheme to throw some cold water on commodity prices in the short term.

 

An interesting trade noted in the Pro Chat Room for GLD was the Aug. 20 175/190-strike call spread for a bit over $1 (paper buying the spread). If GLD moves back to where it was Monday, the trade is set to triple. 

 

I think a reasonable hedge is buying GLD Aug. 20 158-strike puts. There is nothing stopping algo-related selling from pushing GLD down a bit more before it goes back up.

 

The Lesson:  Being patient makes for good entries, but hedging makes for an easier night’s sleep.

 

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 Trader Gamma Radar. 

      • Ford Motor Company (Ticker: F) July 02/July 23 17-strike call spread went up $0.17 in the Turbo Trade session today.  This has a great risk/reward profile, as F got sold with all the other industrial stocks today.

 

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.

 

      • Fastly Inc (Ticker: FSLY) long strangle is up about 5% today, as FSLY looks like it is ready to take a run at $60.
      • I closed my CurrencyShares Euro Trust (Ticker: FXE) strangle this week for a 22% gain.

 

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.

Sharp Bets was quiet for the week, as Mark Sebastian was out.

 

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 of Pro was MOSTLY fading the drop in gold.

 

Some ideas from around the room:

Newmont Corp. (Ticker: NEM) and selling some Aug. 20 60-strike puts 

I tried to sell the Albemarle Corp (Ticker: ALB) Jul16 125/150-strike put spreads at $2.00.

 

Volatility Edge/Volatility Trading Club:

The Option Pit VIX Light is still red, and the Cboe Volatility Index (Ticker: VIX) is hovering around 18. This is a make-or-break scenario, and we’ll be watching to see if the VIX moves higher into Zone 3 (18-23) or starts its trip back into Zone 2 (13-17).

 

For the Volatility Trading Club, I closed Trade #246 and #247 for 19% and 4% respectively this week, to hold onto VIX upside for the duration of the cycle. I am up 11 of the last 13 trades, with six wins in a row currently.

 

My new idea is buying the iPath Series B S&P 500 VIX Short-Term Futures ETN (Ticker: VXX) June 25/July 02 30-strike put spreads for $0.45 with a call hedge.   

 

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

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