The Market That Doesn’t Sell Off

Yo Pit Crazies,

 

I’m dubbing yesterday Opposite Day.

 

All the stuff the market loves — tech, covid stocks and pharmacies — got whacked.

 

Things the market hasn’t really cared for lately, like oil, gold and commodities, got a boost.

 

Now, I have something of an eccentric play in a commodity stock that is primed to profit.

 

First, let’s start with …

 

The Three-Day Rule

 

We had the most mild three days of VIX pop ever.

 

VIX tried to hold above 21 but couldn’t do it yesterday, so I wouldn’t be surprised if this VIX rally is over.

 

Wearing a VALE

 

VALE SA (Ticker: VALE) is a diversified commodities producer out of Brazil.

 

It is a frequent suspect in the Power Moves Portfolio, but look what I found …

 

Mark does a lot of “squeeze” analysis in the Robinhood Trader, and I think it is instructive here …

 

 

If I buy a call for $.32 and sell a put for $.40 on the VALE Sept. 17 18-strike, the .08 credit ($.32 -$.40) + $18 for the combo means a $17.92 delivery price.

 

But look at the same combo in October. Buy a call, sell a put and add to the $18 strike — and get $.50-$1.56 or a $16.94 delivery price. 

 

 

Something is goofy. Sept. and Oct. delivery is $1 different.

 

Yet according to thinkorswim, VALE is not hard to borrow, it’s easy to borrow.

 

The only explanation is…

 

A special dividend sometime in October.

 

VALE has a history of dividends once per year, and with commodity prices so high a dividend seems logical. It could be as much as a buck.

 

The inflated put will deflate after the dividend is paid. That is the way. Calls go up and puts go down after the dividend.

 

The Lesson:  Understanding option mechanics helps in identifying opportunities.

 

Questions about this? Shoot me an email.

 

The Rundown

 

Capitol Gains 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.

      • I added a couple of hedges in Pfizer (Ticker: PFE) and Guggenheim Solar ETF (Ticker: TAN)

 

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. 

 

      • Ken A. flipping stock like a mad man. Selling half the Aterian Inc. (Ticker: ATER) shares he purchased on Friday  for a quick 31%.

 

Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.

 

      • Mark closed the last of the. Canejo Corp. (Ticker: CCJ) Oct. 15 23-strike calls for a 106% blast.

 

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.

 

In Volatility Trading Club Trade No. 257, I own the SPY Sept. 17 440/430 put spread for a credit. It is now back to even, so there is a nice shot here at 100% win.

 

Trade No. 259 closed another put fly for a 90% gain. We have the VXX Oct. 15 22-strike puts for nothing now and still have a SPY put fly to close if SPY tanks.

 

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

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