When Wrong Is Right

Yo Pit Crazies,

 

There was some conversation yesterday, when SPX was down pre-open, that the recent trend of an up open and a move down throughout the day could be coming to a close.

 

I was in grumpy mode, so I thought things might go south all day.

 

Like clockwork, SPX bottomed midday and spent the rest of the day trying to get back to green.  It also looked like it could be a vol crusher, so I could flip from grumpy to happy quickly …

 

It appears I was wrong. Not the first time, of course. 

 

But, interestingly, I had a GLD trade in the Trading Legion where I managed to make a few bucks while still being dead wrong.

 

Building in an Exit

 

Every trade needs an exit. After all they are option trades.

 

The question is, are you going to make an exit plan prior to entry or after the trade is on? 

 

I would rather work the exit idea on the front end.

 

In this case, I thought the insane inflation rate would push gold higher. Implied volatility in the SPDR Gold Trust (Ticker: GLD) was very cheap, so I bought call spreads and a few puts as a hedge. I figured I would use the puts as a stop.

 

Here’s the trade

 

GLD

0915.2021 Buy to open 6 GLD Oct15 170/176 call spreads for $1.12 and buy 3 GLD Oct15 164 put for $1.20

Well, it turns out that GLD crashed yesterday. But I owned just enough puts — and sold them for $2.70 — to pay for my call loss and still have a 6% profit on the trade overall.

Not bad for being wrong!

The Lesson(s): 1. Work out the trade exit before entry. 2. Low implied volatility allows for cheap protection up or down and acts as a stop-loss.

The Rundown

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. 

 

The Pro Room is looking at next week’s 450 calls in SPY.

 

      • New Guy Chris day traded a short put in Ironnet, Inc. (Ticker: IRNT).
        • BTC IRNT Sep17 30P @ 0.55 +47%

 

Sharp Bets:

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

 

      • Mark is long some Wells Fargo (Ticker: WFC) calls in the Oct. 08 that would be six wins in a row.

 

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

      • Mark has his Robinhood Trader mojo rolling in Bank of America (Ticker: BAC).

 

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.

 

      • I closed my SPDR Gold Trust ETF (Ticker: GLD) long strangle today for a 6% gain. As I said above, I got paid to be wrong.

 

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 Stop Light is Red, and I would not be surprised to see a 16 handle in VIX Friday.

 

In VTC Trade No. 259, I closed the last SPY put fly for a 102% gain and am now running a 15% net win on the position.  I should be able to ride the VXX put I own for a decent gain out to Oct. 15.

 

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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