Watch This Signal

Hello Pit Crazies,

Mark, Griff and I ran a webinar yesterday extolling the benefits of being mentored by professional traders.

A key piece of our teaching at Option Pit is showing students how to evaluate volatility and use it to create better trades.

Lucky for you, I am going to do that right now.

Revealed!

Let’s look at the iShares Series B S&P 500 VIX short term futures ETN (Ticker: VXX) price and vol chart below for 120-day implied volatility (IV):

Green line is VXX 120-day implied volatility 

Currently, VXX is close to all-time lows, and 120 IV is near the middle of the range.

Note that other times on the bottom for VXX, 120 IV was near the bottom of the range. …

That means there is demand for options going out to October, and it tells me traders are actively hedging at the bottom of VXX.

In other words, folks are so hedged they don’t need to dump their stocks. 

That is one reason why the sell offs are so tepid. We do have Big Tech earnings week after next, so I don’t expect any real drop in vol until early August.

The Lesson: Watch the longer term volatility of volatility in products like VXX. Once that green line starts to go lower, expect new highs for SPX.

We covered some lower name volatility opportunities in the “Three Pack” session for Trading Legion today. Keep an eye out for that replay — it’s worth checking out!

The Rundown

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.

      • Apple (Ticker: AAPL) call calendars are looking for a $150 pin for next week, and are up about 10% into the close Thursday.

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/August 06 23/21-strike diagonals for $1.50 each. What I want is a cheap call going into earnings.
      • I spent my Taiwan Semiconductor Inc (Ticker: TSM) bucks holding my July 16, 125-strike calls through the earnings Thursday. Apparently record revenue was not enough to bust the stock higher.

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. 

Pro Room today was focused on some SPX/SPY put butterflies for the stale market.

      • Roomie Ken A. closed BTC Aug. TTD 85 calls for 66% gain – holding 70-strike long puts.

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

      • Virgin Galactic Holding (Ticker: SPCE) puts are holding up.

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.

The Option Pit VIX Light Is Red as earnings season is upon us.

Big decay potential but no real movement as VIX rallies eat up the decay in the short term.

For the Volatility Trading Club …

      • I like the 27.5 VXX calendars for new trade, but did not add today as VIX rallied all day Thursday.
      • I have Trade No. 248 looking for a 15 VIX this week, which is unlikely right now. I will probably take what I can get at a 16 VIX.

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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