Was That the Selloff?

Hey Pit Crazies,


The VIX hit 21.87 yesterday but you would never know it by the S&P 500 (Ticker: SPX), which closed down just .67%.


While the SPX feels a little top heavy, the big move lower yesterday was courtesy of the Invesco QQQ Trust Series 1 (Ticker: QQQ), the Nasdaq-100 ETF.


I think we are starting to get a replay of the early March QQQ selloff — and that could provide us with some valuable information.


What we’ve had for a week or so is extra-high VIX future prices. I have the VIX Jun future $4 over the cash on April 29. Check it out …


VIX term structure April 29, 2021


On Feb. 23 of this year, the Apr contract was close to $5 over VIX cash for roughly the same time period. See the chart below.


VIX term structure Feb. 23, 2021


Granted, VIX was higher in February, but the VIX futures were still priced quite high relative VIX cash.


Generally, that means a shortage of back month options sellers. It looks like that is what happened last week, too …


And when Traders don’t sell the expensive back month options, that can be a sign that all is not well.  


For now, we are close to 20 VIX and SPX ended up with only a small net change of .67% on the day yesterday. SPX should be moving closer to a 1.25 close with VIX there.


Once again we are on a knife’s edge — facing either a larger move down in SPX or just a small ripple.  


THE LESSON: Generally, expensive VIX futures lead to a selloff in SPX. We will cover this in the Volatility Trading Club TODAY at 4:30 EST.


The Rundown

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

Mark was able to close some Walmart (Ticker: WMT) May07 140 calls at 2.40 for a better than 50% gain. AT&T (Ticker: T) May21 31.5 calls moved up 35% today.

The Option Pit boss man also opened a long put position in Twitter (Ticker: TWTR) after seeing big put buyers move in.

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.

Some ideas that faded the QQQ selloff today:

      • STO TWTR May14 46/50 put spreads at .56
      • STO Apple (Ticker: AAPL) May28 118/125 put spreads at .55

In this case, the seller would roll the put spreads. That means they would close these puts spreads and sell new ones or take delivery of the stocks. At those levels, TWTR would be down $24 from recent highs and AAPL close to $20 from recent highs

Sharp Bets:
Mark Sebastian runs our marquee long option strategy. SB specializes in low-implied volatility calls and puts and managing trade size for a risk-adjusted portfolio of options. 

Mark bought British Petroleum (Ticker: BP) Jun18 25 calls last Tuesday and closed most of them for a 50% gain.

The Power Income Starting Lineup Portfolio:
Frank Gregory and I will 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 Starting Lineup
I added both Taiwan Semiconductor Manufacturing (Ticker: TSM) Jun18 120 calls for 3.10 4x and QQQ Jun18 315/330 put spreads 2x yesterday. I have the TSM calls down $138 and the QQQ put spreads up $260 so the market neutral approach is working.

My plan for Palantir (Ticker: PLTR) is to see how the week shakes out and whether I need to close my long PLTR May21 21.5 puts or the 1×2 put spread I posted. I plan to keep a longer-term long position in PLTR, so I will most likely sell a new 1×2 put with a longer duration come Friday.

Volatility Edge/Volatility Trading Club:
Vol Edge Trade No. 85 bought VXX May21 39/35 put spreads, whis is currently just down. However, if VXX turns around and goes down this could be a 50% gain — easy.

In VTC, Trade No. 239 today, I closed the last VIX calls I owned to notch a 30% gain.

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!

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.

Last week, I added an SPDR S&P 500 ETF Trust (Ticker: SPY) May21 385/400/415 put fly for 1.70 three times and one SPY May21 421/431 call spread one time. I closed one put fly at 2.45. The trade is up a bit, but the SPY drop has been underwhelming

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

To Your Trading Success,



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