The Market Gets Nervous

Yo Pit Crazies


The market got really nervous yesterday. Traders hated every Invesco QQQ Trust (Ticker: QQQ) stock in the morning.


(If you want to see the stocks Mark Sebastian loves to hate, register for tonight’s LIVE webinar here. Those names are going down — Mark’s account is going up.)


Traders did not like the ARK funds either.  


ABOVE: Ark ETF Tr/Innovation ETF(Ticker: ARKK) 30 day-performance.

BELOW: ARKK implied volatility.


Is this the end of the selloff?


Well, note above that implied volatility in the ARK Innovation ETF (Ticker: ARKK) — the flagship ARK fund — is up quite a bit from five days ago when May volatility was trading 42%. In fact, it spiked to 66% on Tuesday morning — that is quite a vol rally!



On May 3, the ARKK May21 117 straddle was 9.40 bid. Yesterday the ARKK May21 106 straddle was 8.10 …


So the at-the-money straddle decayed 1.30 — or .16 — per day over the last eight days. That’s almost nothing for time decay, especially considering there are only 10 days to go and the straddle is still priced at 8.10. 


To recap, there was 1.30-worth of decay over the last eight days … and the straddle has to decay by 8.10 in the next 10 days.


That seems a little lopsided doesn’t it?


The short answer is that the liquidity provider is still looking for a lot of movement in ARKK.


At this stage of the game, I don’t think that’s going to be up 


On the flipside, commodities were very strong and I am long Petrobras S.A. (Ticker: PBR) and Vale S.A. (Ticker: VALE) in two of my products.  I think this is more a rotation out of things than a broad selloff so far.


THE LESSON: Liquidity providers can effectively freeze time decay, increasing the volatility in the option prices. Remember, constant volatility is a model assumption but rarely happens.


The Rundown

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.

I was able to close another SPY May21 415/400/385 put fly for 2.70. The trade is up 15% overall, but there’s a real chance for a home run — 100% gain — if SPY sees 400 again.

My PBR Jun18 9/8 strangle is up about 15% with IV running higher.

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 all during the trading session.

Trades from yesterday:

      • Mark liked the Apple (Ticker: AAPL) May21 125/130/135 call fly for $1 and was trading $1.40 on the close — so a nice 40% gainer.
      • Also from Mark: Long ARKK May21 100 put vs long QQQ May24 325-335 call spread — $7.40 for the package.

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 portfolio of options. 

      • Mark bought some Palantir (Ticker: PLTR) Jun18 20 calls for $1.60 they were up around 10% on the close.
      • A nice close in Walgreens (Ticker: WBA), with Jun16 55 calls up 36%.

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 option expertise.

The Power Moves Portfolio Starting Lineup
Uber (Ticker: UBER) is on the radar for a short delta trade. I am currently pricing the June options and should have an idea out in the PitStop tomorrow. You can read up on the why here from Frank’s blog.

Here are the current open positions …

Volatility Edge/Volatility Trading Club:

The Option Pit VIX Light is still yellow and Mark did not see any reason to change that.

In the Vol Trade Club, Trade No. 245 is up 10% and I was able to close my VXX May21 38 call for a 100% gain and roll up to the May21 43.5 call. The trade is up 20% with a great chance for a home run in either direction for VXX.

Remember, a lot of vol strategies I use are market neutral. That means if 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!

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

Mark closed the Twitter (Ticker: TWTR) May21 53 puts for an 80% gain.

Back on the winning track there! 

Like what you’re seeing? Have more questions? Drop a comment below!

To Your Trading Success,



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