What to Do When Your Vol Trade Doesn’t Work

Yo Pit Crazies,

VIX is stuck at the 16 handle and it will not break through.

For traders like me who are big VIX guys (and gals), it stinks.

VIX should be moving — and I will lay out the reasons why.

And I’ll also show why it’s not moving.

Also, don’t forget to join me, Mark Sebastian and Bill Griffo live today at 11:30 a.m. EST for a most excellent mentoring moment. Click here to register.

Meanwhile, let’s talk VIX …

Gravity of the Situation

Ah, volatility gravity

Mark and I didn’t invent the idea, but we did coin the phrase some years ago and it’s all over our  VIX Made Easy and VXX Made Easy classes in the Option Pit educational library.

I’ll explain it here, starting with this picture of the S&P 500 term structure …

Note some key volatilities:

      • HV10 is 9.03%, so 10-day volatility in the SPX close-to-close is just running over .5% per day.
      • HV30 is ever lower or 8.78%.

Yet the VIX is 16.33 — so something is not right.

Basically, no one is selling downside puts anymore …

All big players are holding longs and rolling puts up. This a big indicator of the Covid-era for VIX, and I don’t see it changing anytime soon.

That’s why I think the big vol opportunity now is in single names.

I’ll hit that topic with Mark and Griff today LIVE at 11:30 a.m. EST.  Be there!

The Lesson: Vol gravity is important and constant, but liquidity, buyers and sellers, can hold decay up for a while.

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 bought five Palantir: (Ticker: PLTR) Jul23/Aug06 23/21 diagonals for $1.50 each.  What I want is a cheap call going into earnings.

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. 

Some noise in the Pro Room yesterday on a Cathy Wood’s Ark Funds selloff. 

      • Sold Coinbase (COIN) 200/195 puts for Jul 30 at $.45 and about 60% IV. 
      • Alibaba Holding Group (BABA) … we had some call fly buying, and they were closed for 60% gains Wednesday a.m. BABA — like iShares China Large-Cap ETF (Ticker: FXI) — could be a rebound China play.
      • Roomie DD added an Amazon (Ticker: AMZN) Jul23 3800/3950/4100 call fly for $16.95 this week to play the earnings momentum and closed that for a nice gain.

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

      • AMC Entertainment (Ticker: AMC) puts were closed for a 50% gain yesterday.
      • Virgin Galactic Holding (Ticker: SPCE) puts are on tap next.

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.
      • In the FXI Aug. 20 45-strike put and 46-strike call strangle, I closed the put side with a 45% net gain and we still own the calls. FXI made a huge bounce and the change in rates there could create a nice little upside run.
      • Fastly (Ticker: FSLY) — sold the last puts and just have the upside calls for near nothing.

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.

Good earnings could be the straw that breaks the VIX and gets us to a 14 handle this week.  So far, not the case.

VXX relative decay is $.26 per day, the biggest so far this year.  Normally that does not bode well for the ETN.

For the Volatility Trading Club …

      • I like the 27 VXX calendars for new trade. VIX stuck at 16 gives us little to close.
      • I have Trade No. 248 looking for a 15 VIX this week.

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!

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, which are limping. But we did take in 40% gain on the calls but oil is slumping with the China/Iran deal..
      • The Uber (Ticker: UBER) calls are just hanging on here, but we think UBER wins in the battle with Didi (Ticker: DIDI).
      • We added Southwest Airlines (Ticker: LUV) Sept. 17 52.5-strike calls on Friday.

To Your Trading Success,


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