Yo Pit Crazies,
Sometimes the market just goes sideways.
Not really up.
Not really down.
Yesterday was one of those days.
But — good news — there’s a trade for that! Griff might even put one out next week.
VIX did move and I will explore that, too.
Trades for Days (Like This)
The trade I have in mind is a ratio put spread. That is a ….
If I add an extra put the trade, it becomes a broken wing butterfly.
Here’s an example …
This is my Power Moves Portfolio Ford (Ticker: F) Aug20 10/13/14 broken wing put fly.
F profit and loss graph for my broken wing butterfly in the Aug. 20 cycle.
My break even is $12. Below that, I have real issues losing money.
For now, concentrate on the good part …
Notice as time goes on, the purple line will drift up to the blue line. I want this trade to pay me to wait.
The broken wing of the fly is that I set the 10 put lower than the difference in the strikes of the 14/13. That made the fly cheaper.
F earnings are next week and I might even get to close the spread for a profit or roll the 10 put to the 12 strike.
Since I don’t know what will happen, I have to give myself some room. I might even buy a call to create a strangle if the price is cheap enough.
I figure I have room until the 28th before earnings.
Tools of the Trade
I need two things for a trade — outlook and edge
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- Outlook: I don’t think F does much to earnings and after earnings sags on the reality of the chip shortage.
- Edge: I have a free week to look at F since the earnings are a week away.
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The Lesson: Have an outlook and identify an edge for every trade … then allocate appropriately.
Take a look below in the VTC for VIX.
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.
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- Cleveland-Cliffs (Ticker: CLF) is one of those names from the Power Moves Portfolio that I want to buy on a solid dip.
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CLF five-day price chart with one-minute bars
I sold some CLF Aug. 20 12/17.5 put spreads at $.45 yesterday morning after earnings were reported.
I had played too close to the fire during the last cycle, selling the 21 puts, so I thought selling the 17-strike was a better area. And it was!
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- My Coinbase (Ticker: COIN) flies are in and out of profitability and they are likely to get reduced by half since there is no trend. The saving grace has been the fly has held its value on some steep $25 adverse moves.
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Sharp Bets:
Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.
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- Closed half of the SPDR Select Sectors Energy (Ticker: XLE) Aug. 20 48.5-strike calls for a 50%+ gain.
- Still riding the Marathon Oil Corp (Ticker: MRO) calls, which are limping. But we did take in a 40% gain so far, so we have a shot at a decent gain if MRO gets back to $14 next week.
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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 liked the chips yesterday. Roomies liked a short put spread in Texas Instruments (Ticker: TXN) — Aug. 06 172.50/177.50 — and pondered a post earning play for Intel (Ticker: INTC) that will most likely be bullish.
That savvy Roomie regular, Cat, liked selling a Tesla (Ticker: TSLA) July 30 720/750 call spread for a $2.32 credit. Just a quick theta burn and closed before earnings.
I like selling the Fastly (Ticker: FSLY) Aug. 20 43-strike puts at $1.
Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.
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- I added a Virgin Galactic Holdings (Ticker: SPCE) July 30 put while Mark was out.
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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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- My Carnival Corp (Ticker: CCL) call spreads and puts are just underwater. I expect CCL to be back to the high 20s by the end of this month.
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Volatility Edge & Volatility Trading Club:
Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.
The Option Pit VIX Light Is Yellow and the reason why is VVIX, the vol of VIX, is so stubbornly high. I would like to see VVIX below 100 before there is clear sailing for the S&P 500 to 4,400.
Vol products are rallying on the VIX futures going up, even as VIX drops. That’s because shorter term IV is dropping, but the back month IV is still holding up relative. The effect is called forward volatility, and that causes the VIX futures to rise.
For the Volatility Trading Club …
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- I added some 1×2 put spreads — long one, short two in VXX — with a $28 target price for next week are up about 5% but there is time here
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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