VIX Up, SPX Up: Welcome to Another Day in 2021


Yo Pit Crazies


Yes, Frank and I spoke on the Build Back Better Bill and the new Fed Chairman Pick during a live session this week.


As of now, neither of those issues has been solved.


In the former case, that’s thanks to House Minority Leader Kevin McCarthy giving 8-hour (!) speech!


The uncertainty is finding its way into the VIX and the S&P 500 (SPX).


SPX Is Up and VIX Is Up


The way things are supposed to work is that when SPX rallies, VIX falls. 


In fact, part of the VIX calculation is that with a rising SPX, VIX samples smaller volatilities around the money and that lowers the index calculation.


If SPX is rising and VIX is rising, that means volatility per strike is expanding — and that means the market is getting a little nervous.


Granted, Apple Inc. (Ticker: AAPL) just hit new highs on the news they are making a car (in 2024). And Nvidia Inc. (Ticker: NVDA) is closing on a trillion dollar market cap with 21 billion in salesThis kind of stuff is making it tough for VIX to go down.


I thought I would add a SPDR S&P 500 ETF Trust (SPY) call calendar and SPY put to the Volatility Trading Club on Thursday, but I held off as the vol kept expanding.  I really think it should be a SPY strangle with a VXX put at this point.  I will see what happens today, but some odd action for sure.


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.


Other stocks currently in the CAPITOL GAINS portfolio:


      • Regeneron Inc. (Ticker: REGN) long COVID therapies
      • Mandiant Inc. (Ticker: MNDT) long Cybersecurity
      • PetroBras SA (Ticker: PBR) long oil
      • SPDR Oil and Gas Explorers (Ticker: XOP) long oil
      • Intel Corp (Ticker: INTC) long chip shortage
      • Powershares QQQ Trust (Ticker: QQQ) portfolio hedge
      • Canejo Corp (CCJ) long Uranium Play


Power Income Trader:

Power Income Trader is a systematic approach to trading inflation.  By pulling real-time data from the Fed, US Treasury and Gov't, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill's system puts you out in front of the most powerful money flow in the world.


Bill likes Alliance Resource Partners (Ticker: ARLP) as a wheel trade.


Remember: a wheel trade is a trade meant to capture the dividend in a stock. The routine goes: sell a put, take delivery of shares and then sell a call at the money to call away the stock at least 1 day past ex-dividend.  


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 cautious yesterday overall:


Richard D traded this hedged call spread to nice effect yesterday, generating a put for a credit.


Richard D (LRD)  3:02 PM  

@Jason F – this is similar to what I did.  If huge move down would sell immediately at a profit.  If sits flat or moves up slowly would hold until the 22nd or 23rd.  I want to be more long since as AG says this market never goes down :slightly_smiling_face:  Therefore I did 15:1.

BUY +14 CALENDAR SPY 100 (Weeklys) 26 NOV 21/24 NOV 21 472 CALL @.27 LMT

BUY +1 SPY 100 (Weeklys) 26 NOV 21 465 PUT @1.29 LMT


Big Money Flow

Each week, Option Pit CEO Mark Sebastian looks at size institutional option buying with a twist.  He mostly buys calls or puts to ride the large momentum trades.


      • I added iShares MSCI Brazil Index ETF (EWZ) calls in Feb this week subbing for Mark.


Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle/calendar trading vehicle. The goal is to teach students the best times to buy options.


      • I added some long strangles here in iShares Barclays 20+ year Treasury Bond ETF (Ticker: TLT), and I will probably close the calls today if the TLT rally continues.


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 Cboe Volatility Index VIX, iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) and ProShares Ultra S&P Short Term VIX Futures ETN (UVXY) options.

The Option Pit VIX Light Is Red into the holidays. With both SPX and VIX up, SPX usually pulls back from these levels.


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,


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