Multiple issues popped off on Monday …
- Market freaked out about the Delta variant
- Oil prices tumbled
- Bond yields collapsed
- US government told Facebook (Ticker: FB) to censor its platform
- All travel and leisure stocks got crushed
Each one of those could raise a significant concern on its own, but, wow, five big market negatives.
Mark and I have been going on about the skew and how the expensive options in the S&P 500 downside kept VIX stuck at 16 …
Now we know why.
Here is what to do …
Let’s evaluate how big the VIX move really was.
Note below what I would call, in a very technical term, a “skewy option” …
The SPXW 4255 puts jumped from $50 to $95, so the put holders were very happy with the double:
SPXW Aug. 20 4255 put vol and price for last 3 days
Now, implied volatility on the strike only went from 15.99 to 17.38 …
That is not a big move when VIX was up a full 4.05 points to 22.50 and briefly hopped into Zone 4 of 24%-plus.
As I have been saying for a while, traders were already long put protection and they were waiting for the drop.
I would be surprised with the tepid move in per- strike volatility if SPX sells off again today.
The Lesson: Volatility per strike is a great signal indicator that anyone can learn in the Option Pit Pro program.
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.
The live trade log is here, and I’ll have a full recap for you every Wednesday.
- I bought five Palantir (Ticker: PLTR) July 23/Aug. 06 23/21-strike diagonals for $1.50 each and I bought the PLTR July 30 20-strike puts for $.35 after the 23 calls went to $.08.
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.
The Pro Room was a bit quieter yesterday, as most closed some SPY July 30 410/420/430 put flies for $1.65 or better for 90% returns.
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active names.
- Apple (Ticker: AAPL) July 23 147 puts closed 17% today.
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.
- AAPL call calendars saw $149.75, but not quite enough $$ for a close. The calendars also have an AAPL July 23 143-strike put hedge and I had the pair down just $100 today. Note to self (and you), keep the trade plan and close calendars when they get to the strike. You don’t always get the dollar you want, but a win is a win.
- Not a Trading Legion member? This special price is GONE after today.
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 Yellow, but we would need to see some heavy SPX downside followthrough for a change to green.
For the Volatility Trading Club …
- Several trades have a short SPY/long VIX or VXX call side that is right on the knife edge of taking off and the trades paid.
- Closed Trade No. 254 VXX call butterflies for a 80% return, Trade No. 253 SPY put flies for a 90% return and Trade 253 VIX call spreads for a 25% return.
- I will own a passel of VIX and VXX puts for credits at this pace and a move down to 16 VIX or $28 VXX could generate 100% or more total returns here.
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,