Yo Pit Crazies,
Something happened last week I never thought would.
Two separate forces joined together in an unprecedented way …
Wall Street and K Street …
New York and Washington D.C. …
Now like peanut butter and jelly!
Trading and investing will never be the same!
What do I mean?
I’m partnering with Option Pit DC and Wall Street Insider Frank Gregory to make money running a book of option trades using long term spending trends in Washington DC.
Attendees at last week’s Option Pit Round Robin mentoring event got a first peek at the new portfolio and you can catch up on those here …
Volatility trends will inform which stocks from a “Starting Lineup” that I move into and the type of positions I take …
I want our students to be able to manage a book of option trades and learn the use of different types of trades.
Our first two trade ideas are in the Rundown below …
And here is the Starting Lineup of names we’re monitoring:
Types of Trades
There are two types of trades in our Power Income Portfolio: Income and Capital Gain.
Income Trades: Selling options and spreads generates a credit to take in as income. The maximum gain is the credit dollar received when the position is opened. The most common type of Income Trade is a “buy-write.”
Capital Gain: Buying options looking for the value of the options to grow. The gains can be quite large if the underlying stock moves enough. Loss is limited to the dollars spent.
Have a list of stocks to get familiar with. In time, each stock will present an opportunity.
The Starting LIneup: 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.
Right now I am going to follow all of the trades here in The Rundown each week as we get going. So you have to tune in to keep up!
CHART: Freeport-McMoRan Inc. (Ticker: FCX) 1-year 60-day implied volatility (yellow line) and price action (top candlestick).
Freeport-McMoRan Inc. (Ticker: FCX) is a copper mining company with various businesses around the globe and should pick from rising prices. Note 60-day implied volatility is at one-year lows and we just saw a solid earning report. I picked an income debit trade that has the opportunity for capital gains. FCX does not move as much, so I went with the income strategy to start.
I bought 4 FCX Jun18 32 calls and sold 4 FCX May21 36 calls for a $3.20 debit.
My goal is to collect .80 at least once. The trade makes money if FCX stays above $34 by expiration. If the trade debit gets to $2, I will just close it and look for a new income trade as I would like FCX to become a longer-term bet on copper and inflation. Historically on higher copper prices, FCX can get to the $60 area at its pick.
Volatility Edge/Volatility Trading Club: Vol Edge is showing that the proprietary Option Pit VIX Light Is Red, which means Cboe Volatility Index (VIX) futures are in contango (futures price is higher than the spot price).
VIX is in Zone 2 — the 13-17 range. We got close to a yellow light but VIX stopped going up, as explained up above.
This is the best time in my view to own May VIX puts with an upside hedge. No change there as that is my outlook for the last few weeks.
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.
Petróleo Brasileiro SA (Ticker:PBR) was as high as 11.9 at the beginning of the year and looks set to breakout. I bought the 6 PBR Jun18 9 call for .41 and 3 PBR Jun18 8 puts for .40. I am looking for PBR to get back to highs with rising oil prices.
I was able to close the puts in Desktop Metal (Ticker: DM) for an 80% gain, the calls we own on the strangle close .40 so a 25% gain overall right now.
We own Vaneck Vectors Gold Miners ETF (Ticker: GDX) call butterflies and puts looking for a 10% up move in GDX. The trade is up around 50% with 4 of 5 call butterflies closed. I still like the long gold trade.
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 is currently riding four positions: up in Coca Cola (Ticker: KO), ViacomCBS (Ticker: VIAC), Nordstrom (Ticker: JWN) and down a bit in Nike (Ticker: NKE).
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.
The Pro Room produces about 30 actionable ideas per week. These were a couple of my favorites from the Roomies …
- Buy to open VIX May19 15 puts for .07
- Buy to open First Majestic Silver Corp (AG) Jun18 16c @1.69
- Buy to open Biogen Inc. (BIIB) Jan2022 265 calls for $40.0 Alzhemiers drug review at the beginning of June.
To Your Trading Success,