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.
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%.
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 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,