The FXI Is Starting to Look Like Mao’s Great Leap Forward

Yo Pit Crazies,

The Great Leap Forward was Chairman Mao’s Big Idea …

The Communist system at work, if you will.

It didn’t end so well.

I believe President Xi is trying something similar, at least in terms of grand scale, except this ends with all big companies Chinese becoming state owned.

With apologies to Shakespeare, I believe something is rotten in the state of Shenzhen.

But it’s not all doom and gloom!

I have a bonus weekend effect post for the brave.

Read on!

Power Play

Reading the tea leaves (no pun intended), it appears that China is trying to exert more control over businesses as they move toward the Yuan as a new reserve currency pegged to gold.  

And Chinese stocks don’t look so good all of a sudden.

Note the action in the iShares Large Cap ETF (FXI) … 

It is falling out of bed but the implied volatility is still somewhat affordable:

One-year chart of FXI on top, 30 day IV (red) and 90 day realized vol (purple) on the bottom

FXI Aug. 20 options

I think the FXI Aug. 20 45-strike put and 46-strike call strangle looks inexpensive as a trade.

FXI is showing the kind of steady and unabated selling that can turn into something much worse.

Didi Group (DIDI) — the Uber of China — had their IPO last week and went from $18 to $12.50 on some strong-arm CCP “regulation.”

Meanwhile, as Amazon (Ticker: AMZN) makes one-year highs, Alibaba Group Holdings (Ticker: BABA) is hitting year lows and sniffing $200.

In DIDI and BABA, we have two marquee names getting clobbered when I would think they would be soaring.

Something is amiss.

The Lesson: When a market or stock is doing something it shouldn’t — like selloff, in this instance –there is usually a reason for it.

The Rundown

We are light on The Rundown today, Just the Power Moves update below,  from the 3 day weekend so I thought I would follow up on the Weekend Effect to see if I was right.  Guess what?

The Weekend Effect Pt. II

I wrote about the Weekend Effect yesterday, so I thought I’d follow up to see if I was right.

Guess what? 

Note below the SPY July 06 433-strike straddle …


SPDR S&P 500 ETF Trust (SPY) opening Monday’s quotes expiring July 06.

It opened $1.33 yesterday and traded over $4.00! The net decay was only $.30 from Friday’s trade date, so in truth about ¾ of a day in normal decay.

Also note the implied volatility on the 433’s went from 5.55 on Friday to 12.22 today.

The magic is the risk in the trade was $.39 for a potential Monday home run on a move in SPY.

This is also called “buying the weekend,” as most of the dollar risk in the straddle is reduced by the liquidity providers.

Recall this was Friday’s close below:


SPDR S&P 500 ETF Trust (SPY) closing Friday quotes expiring July 06.

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.

Wednesday means a Power Moves Portfolio update …

Nearly $2,000 in profits for the last six weeks here. The live trade log is here.

      • I closed our Cleveland-Cliffs (Ticker: CLF) July 16 21-strike puts for $.77. Small gain on those puts and I still own the CLF July 16 16-strike puts from the spreads.  There will probably be a better reentry point. CLF is not holding a bid for any length of time.
      • I added two Coinbase (Ticker: COIN) Aug. 20 250/270/290 call butterflies for $2.55. I’m spending the COIN call spread money and seeing if the stock can make a move back to the $270 level.
      • Palantir (Ticker: PLTR) is moving back up the list for call buy.  Stay tuned. 
      • Cross pollination as the Taiwan Semiconductor (Ticker: TSM) was a Trading Legion idea but the trade fit my overplan so I am adding it to the Power Moves Portfolio.  I want the put calendars to pay the decay for my calls as TSM powers up to earnings.  The stock looks poised to break out and the two big semiconductor makers — Advanced Micro Devices (Ticker: AMD) and nVidia Corp (Ticker: NVDA) — are showing crazy momentum that should help TSM.
      • Buy-to-open two TSM July 23/July 09 116-strike put calendars; pay $1.36. Buy-to-open two TSM July23 124-strike calls; pay $1.80. … Filled at  $1.35 and $1.75, respectively.

By the way, look for big Power Moves Portfolio news coming soon …

      • Net, we own calls in BWX Technologies (Ticker: BWXT), General Electric (Ticker: GE) and TSM.
      • We own two SPY puts around 400-strike expired
      • I filled BWXT July 15 6-strike calls and they are toast. This name is intriguing because of the nuclear nature of its tech. Damned if I can make an option trade here, though.  Sometimes liquidity and movement dictate what is possible.
      • Just left with five CLF July 16 15-strike put spreads at $0.96. 
      • GE is a play on green energy.  We own two GE Sept. 17 14-strike calls for a credit. 
      • We bought two TSM July 16 125-strike calls for $2.51. TSM as a stock has been tough, stalling at $119 twice. TSM is rallying and I created the breakout trade above, in addition to what we have, but will close the July 16s on a run since time is running out there.

To Your Trading Success,

AG

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