Will the FOMC Kill Stocks?

Yo Pit Crazies,


The Federal Open Market Committee (FOMC) will release its minutes today and provide guidance on the economy.


It’s almost certain that the policymaking body will have to talk taper because, well, the economy keeps growing.


The big question is, does the market expect it — and what will the reaction be?


My guess is …


Read on to find out.


(And, yes, it’s a vol trade — but some interesting things are afoot.)


Setting up for Today


A few things are interesting right now:


      • The S&P 500 Index (SPX) was down around 5% from the top yesterday and managed a 1% bounce, or only about 45 SPX points.
      • The FOMC is usually a catalyst up or down. A very hawkish report with VIX is Zone 4 (24 and above) will not be received well.
      • VIX implied vol is still pretty high. A sign the market is on edge. (See the chart below.)


VIX two-week, one-minute candles with IV graphs on the bottom.


What I Like


I think a long call spread in SPX or SPDR S&P 500 ETF Trust (SPY) AND a call spread in VIX is primed for success.


Why both?


I think one will win big and this market has a habit of going up like a rocketship.


If we don’t this time, you will be happy the VIX call spread is around.


The higher IVs makes me think a big move is likely, and that means a higher realized vol move for SPX or possible VIX.


I will work out the trade for the Volatility Trading Club this morning and have it ready prior to the Fed speaking. (Shoot a note to our Customer Care team to learn more.)


The Rundown

Capitol Gains 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.


      • Regeneron Inc. (Ticker: REGN) is in the news as the Fed and states fight over who gets the antibody treatment. Frank mentioned it as a good contender for the Capital Gains Portfolio and I have to think it has a nice rally to earnings. I tried to buy a call fly yesterday, but it was not filled so I will look today for something Capital Gains-worthy.


      • I closed my Exxon Mobil (Ticker: XOM) puts this week — a nice double — but I need a lift back to mid $56 to make some money here on the trade overall.


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 using the rally today to take profits:


      • Cat:
        • Closed the last piece of my NIO position +75%
      • Giovanni spotted cheap juice in Riot Blockchain Inc. (Ticker: RIOT):



Sharp Bets:

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


      • Looking at MGM Corp. (Ticker: MGM) for calls today. 
      • Uber (Ticker: UBER) on the list as well.


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

      • Mark got the mojo going on Lucid Motors Inc. (Ticker: LCID) calls with a 108% gain.


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 some CVS Health Corp. (Ticker: CVS) puts for a scratch, but need the big drug retailer to move back to the $87 to make some bucks.


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 Yellow. VVIX is still above 100 and the FOMC minutes come out today, as mentioned.


For VTC, I closed around 80% of the upside in VIX. To make big bucks, I need a reversion in vol down to 17 VIX or so.  


In VTC Trade No. 257, SPY Sept. 17 440/430 put spread and VXX 26/24/21 put flies closed with 21% gain.


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,



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