So You Want To Run A Hedge Fund

Yo Pit Crazies,

Did you see the bid for VIX on Friday?

Why did it rally into the weekend?

Why did the CDC kill all the travel and leisure stocks?

My Pro students are acting like pros. Oh, the beauty of it! And those secrets and mysteries will be revealed today.

Speaking of secrets, check out the goodies Frank Gregory revealed on Thursday. It was past my bedtime, but we delivered!

Sinking (Cruise) Ships

On Thursday, the Centers for Disease Control (CDC) did something the markets did not like.

They told vaccinated people they can spread the virus and need to again wear masks. 

The big catalyst was from a party on Cape Cod in P-Town (Provincetown for non-Codders) that spread the Delta variant to nearby Barnstable.

I think it was the first time ever a P-town party caused a national ruckus — and P-Town does like a good party.

The resulting turmoil did not sit well with the markets.

As you might be able to tell from my slightly illegible and slightly famous VolMan scrawl on the two-day VIX chart below, the demise of VIX ended abruptly, as did the rally in all travel and leisure stocks. (See my Carnival Cruise Lines (Ticker: CCL) position below in the Trading Legion.)

VIX 2 DAY chart with upper line price move, bottom red line Aug IV of VIX

The CDC announcement stopped the VIX crash cold in its tracks. That is a symptom of the VIX during the age of Covid, in that any change in policy is a set back …

It’s also why folks buy puts in SPX and VIX has a 16 handle for a floor. 

The good news is that, last year when this happened, VIX went to 35 and stocks sold off 10% — so the downside potential is real.

Friday’s move was pretty mild in comparison, and I am reading the weekend tea leaves to see if this new policy is toned down a bit.

There is some uncertainty here as to whether the administration walks things back. An about-face would make for an interesting week. I talk about the trade in the sections below.

The Lesson: Trading VIX is trading the news. Once you think of it that way, it’s a lot easier to manage. (Having a trading partner with Deep Information is even easier.)

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.

Check out the Secrets of Hedge Fund traders here.

The live Power Moves Portfolio trade log is here.

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark Sebastian and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

The Pro Room was using the rally Friday to take profits, and Jason F was making pro moves. From the chat:

      • “STC 20% of $CCL Aug. 20 puts for $.55. had to take something off the table. This was the right thing to do, take some profits and see what happens.”

“Take some profits and see what happens.” Just beautiful.

I sold -to-open World Wrestling Entertainment (Ticker: WWE) Oct. 40-strike puts at $.95. 

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.

      • Mark is keeping it going with a Tilray Inc. (Ticker: TLRY) sell-to-close 2/3 Aug. 20 16-strike puts at $2.20 for a 33% return so far.

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.

      • My Carnival Cruise Lines (Ticker: CCL) strangle is the right idea but the stock breakout got axed by the CDC and the swoon down is just lighting up puts up.

I mentioned above in the Pro Chat that taking some of the position was prudent. Remember: you don’t go broke taking part of a win off.  It is likely I will exit the puts side Monday if there is no real continuation.

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 Red. VVIX is still above 100, but gave a little more back this week as J-Pow chose growth over inflation.

      • VIX rallied on the CDC about-face into the weekend, so there is considerable uncertainty for next week.  If i don’t see a real spike in VIX on Monday this is likely a short term high for VIX.

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,



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