What a Long Year It Has Been, So Is It OK to Buy?

Yo Pit Crazies,

Happy Fourth of July!

We hit a new handle for the VIX on Friday.

By handle, I do not mean umbrella handle or door handle — or a handle of bourbon for this weekend — but the VIX’s whole number.

VIX was at 14.92 when I sat down to write this, meaning the HANDLE was 14.

Alas, VIX closed 15.07, still a new COVID-era low. (That used to be the way things were quoted; we never really said the whole number, just the fraction and later the decimal.)

So, new, lower VIX means options are cheaper.

For a call buyer that is a good thing!

Read on …

Time to Buy?

Does that mean VIX options are cheaper since VIX is so low?

Not exactly.

What usually happens is options near the money get a lot cheaper, but the out-of-the-money calls in VIX get relatively expensive.

Now, equity volatilities can get much cheaper.

For our Sharp Bets program that means more options for less money, although we did close some nice ones this week — including a 148% win in Walmart (Ticker: WMT).

Different products price volatility differently 

An example is Walgreens (Ticker: WBA), which we hit in the OP Market Show.

The WBA Aug. 20 50-strike calls are $1.09, and I  bought some.

They are decaying at $.02 per day for a stock trading $56 this year at its peak.

That is what I call a compelling price.

WBA options, rather large selling on the 50-strike on Friday.

The Lesson: To trade options in stocks you like, keep a list and wait until the prices get compelling.

The Rundown

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 added two Coinbase (Ticker: COIN) Aug. 20 250/270/290 call butterflies for $2.55. I’m spending the COIN call spread money and seeing if COIN can make a move back to the $270 level.

Sharp Bets:

Each week, Option Pit CEO Mark Sebastian looks for low-volatility, mid-term duration call buying and put buying opportunities.

      • Still riding the Marathon Oil Corp (Ticker: MRO)  calls but with a nice credit so far.

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. 

      • Roomie Jason took 48% profits on a cheap Apple (Ticker: AAPL) strangle: AAPL July 9/July 23 140-strike call for $1.20, sell-to-close AAPL July 23 130-strike put for $.36.
      • Roomines buying some — surprise! — WBA calls.
      • My iPath Series B S&P 500 VIX Short-Term Futures ETN strangle that I paid $148 fizzled. VXX got to 28.04 and the best I could do was close the puts at $.10.
      •  

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

      • Mark scratched the ProShares Trust Ultra VIX Short Term Futures (Ticker: UVXY) July 02 27-strike put, but did top-tick it.
      • He has long call trades in Ford (Ticker: F), ExxonMobil (Ticker: XOM) and Advanced Micro Devices (AMD)  which all have a good chance to be profitable. 

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.

      • The Ark Innovation ETF (Ticker: ARKK) strangles petered out with a $68 loss.  I closed the call spread last week and ARKK jumped another $10!
      • SPDR S&P 500 ETF Trust (Ticker: SPY), we took out a 150%+ gain on the SPY July 09 426-strike calls and rolled up to the July 09 433-strike. I have a “ratio strangle” left with six 418-strike puts and one 433-strike call.

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 still red, and the VIX is hovering at 15 as we spent most of Friday in the 14 handle. The market still wants to go higher.

VIX closed a COVID-era low, so any move lower would be a good time to close vol puts.

At this point, drops in VIX will likely come slower as it gets to the bottom of Zone 2 (13-18). 

For Volatility Edge …

Mark closed out the UVXY July 02 27-strike puts for a scratch on Friday. Good timing, too, as he low-ticked it.

For the Volatility Trading Club …

      • I closed most of the puts on Trade No. 251 for a 25% gain. Let’s see if vol drops or SPY drops next week.
      • I added a long VIX strangle in the Aug18 cycle. I bought puts and call spreads.

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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