Everyone is looking for an edge.
My boy Phil Mickelson found an edge last week at nearly 51 years old.
Good, old-fashioned hard work and fitness. (And maybe some fancy coffee beans.)
But how do you get in shape for trading options?
Answer: Trade for what you see.
The next question, then, is what are you seeing?
Is the way you’re looking at an option trade helping you to become successful — or are you just seeing what you want to see?
Let’s check out your vision.
Open Your Eyes
What helps option trading is pricing what you see.
Say you say to yourself, “Self, I think that stock is going up.”
Well, what is the catalyst? Is it bouncing of support, coiling around a tight range, breaking through resistance?
It can be just about anything, but the gist is that there is a touchpoint for the trade decision.
Options generally have three actively moving parts:
- Stock price
So ask yourself, “Self, what am I trading? Time, volatility, underlying price — or combination of the three?”
The best thing about options is there are keys to tell what the market is giving you.
Low volatility generates very low option prices that are more resistant to the passage of time.
Because an option that costs $1 with a 30-day hold will decay less than a $2 option with a 30 day hold. Price matters and will make the option more resilient if the price direction moves the wrong way.
Edge Hunter (EH) Vol Buy Sell (VBS) for Palantir (Ticker: PLTR) June 18 cycle realized volatility study
What my EH sheet tells me is that intraday volatility is very high — at 114% over the last several weeks — but option volatility is quite inexpensive, upper red circle, is relatively inexpensive at 52% volatility.
In this case the option prices are cheap relative to recent movement. While I probably won’t see 7% intraday moves on average the sheet tells me the calls are cheap enough to easily make money on a rally. Read below for my current PLTR position in PowerMoves Starting Lineup.
The Lesson: When trading options, if you can make a relative comparison for something, that helps define what it is worth.
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.
Of the last four Sharp Bets trades, we’ve seen wins of 61%, 36% and 46%, with one loss. Mark opened CSX July 02 100-strike calls yesterday.
Mark TOTALLY closed Advanced Micro Devices (Ticker: AMD) June 18 77.5-strike calls for $2.05 and sold them at $3.10 for a 50% return.
Jumping into a weak market is one of Mark’s specialities, as is picking very low priced calls.
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 did close four of five CurrencyShares Euro Trust ETF (Ticker: FXE) calls for a 100% gain yesterday but still need to work out of the FXE June 18 113-strike puts.
My Petroleo Brasileiro SA (Ticker: PBR) strangle calls came in for a 25% gain, but the puts are limping.
My ARK Innovation ETF (Ticker: ARKK) strangle is just holding on, as I got a decent rally. Overall we were leaning short, so no positive dollars yet. Volatility is dropping in here which is generally bullish. Another $4 in rally and I can close the calls and keep the put spreads for a credit.
The Power Income Portfolio:
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. We are aiming for positive theta trades and using that income to buy calls is the big growth opportunity.
Here’s the latest …
The steel play looks alive and well, and Frank identified a stock that once was the darling of the industry … Cleveland-Cliffs (Ticker: CLF).
- I filled the CLF June 18 17.5/July 16 15-call diagonal for $2.25. I am weighted a bit long commodity stocks here. The break-even on this trade is 16.75 on June expiration.
- Ford (Ticker: F): We’re long five F July 02 11-strike calls and short five June 18 13-strike calls. Up around 15% and still open
- General Electric (GE): I own GE June 4 14-strike calls for a $.16 credit, or up 15% net.
- Vale S.A. (Ticker: VALE): We’re long five VALE June 18 22-strike calls and long 2 20-strike puts we own for $1.60. This is down quite a bit from being up dollars last week. The 22 calls are dead with four weeks to go, so I will just close the puts for a profit here and see if the commodity stocks bounce.
- Taiwan Semiconductor (Ticker: TSM): We own four TSM June 18 120-strike calls for $3.10 and one TSM June 18 100-strike put for 1.95. The net cost on the calls was just around $1.75, so we have a shot here, but TSM has made three trips down to $108 and back to $114
- Palantir (Ticker: PLTR) I own 200 shares and the four PLTR June 18 17-strike puts and the trade is now back to even. I will probably swap the stock for some cheap longer-term calls today to try and gain some upside leverage. Note the Edge Hunter snap from The Lesson above that calls are getting very cheap. If I sell the stock and move to calls, I am adding leverage and the June puts provide a stock for the next three weeks.
The Option Pit VIX Light is still yellow. Volatility is still very bouncy, so the yellow light remains amarillo. We also have some BIG news coming soon on the UVXY reverse split. So stay tuned there.
- I bought another strangle, VTC Trade No. 247, this time buying the VIX June 16 19-strike puts for $1.25 and the VIX June 16 23/33.5 call spread for $1. I saw this as a cheap price relative to the two-week range of 27 high and 16.25 low for VIX. Overall VIX has been slow to drop lower, so while it appears vol traders are looking for another drop in S&P 500 (Ticker: SPX), it has yet to materialize.
- I own five VIX June 16 30/45/60-strike call butterflies and three VIX June 16 20-strike puts. This position is up around 10% and still waiting for a bit more move.
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!
Option Pit CEO Mark Sebastian uses the Robinhood Radar to find order flow in active names.
Look for ways to use the Gamma Radar in Thursday’s Turbo Trades session with me and Mark at 3 p.m. EST. That’s exclusive to RHT annual members.
- We closed our Boeing (Ticker: BA) call yesterday for a 52% dinger.
- Mark is still riding some ExxonMobil (XOM) and American Airlines Inc (AAL) calls.
- The Gamma Radar was screaming fade in Virgin Galactic (Ticker: SPCE) yesterday, so Mark jumped in with another put.
Questions or comments? Drop them below!
To Your Trading Success,