(Windmill) Blades of Glory

Yo Pit Crazies,

 

French fried potaters.

 

That’s what Billy Bob Thornton’s character liked in the movie “Sling Blade.”

 

This week, I like a different kind of blade …

 

Windmill blades.

 

Maybe I should have referenced Don Quixote?

 

But what windmills can mean for your trading is the real deal, not some fantastical quest …..

 

On another note, with the rollback of some COVID restrictions, VIX tanked last week and was OK until the open today. 

 

It’s spent all day rallying with just a .5% drop in the S&P 500. Mark might even flip the Option Pit VIX Light to green — which is when things are getting spicy — at this rate.

 

I would say it’s all a bit off, but since SPX is hardly moving I’m not quite ready for a big jump in VIX. So, it’s in-between land for now.

 

Money should be looking for bargains and I think I found one. It’s time to add something to The Power Moves Portfolio Starting Lineup!

 

Monday, Monday

As Monday takes shape I am looking to add TPI Composites (Ticker: TPIC). Note from the bottom chart below, TPIC options in the 120-day range are as cheap as they have been in a year.

 

Also note the price action over the last 90 days has been very severe with a $40 range over that period.

 


TOP: TPIC candlestick chart. BOTTOM: 20-day implied volatility (in green) on the bottom.

 

TPIC has held around $40 for the last year and I am confident that more windmill farms are going up in the U.S. Frank Gregory noted last week what a harbinger of change wind farms on the Cape Cod Sound are.

 

The hard part for TPIC in this trade will be getting fills as the liquidity is a bit thin right now

 

My first choice is buying TPIC Aug20 50 calls for $2.25 or so. That is part A for now. The implied volatility is so cheap that I prefer to enter on that side buying options. A run to $50 or higher and I will close the calls. As of this writing I am not filled on the TPIC Aug20 50 calls, but I will leave a bid in for the day.

 

A note about liquidity, which is how easy it is to get in and out of options … TPIC is not liquid, meaning not much option volume on 260 contracts per day.  The threshold for a liquid contract these days is around 5,000 daily contracts …

 

I am doing much less than normal here, only keeping to a single contract because of the liquidity in the options. If TPIC gets more active that might change.

 

THE LESSON: Buying longer-term IMPLIED VOLATILITY and lower levels helps keep time decay very low. Any lift in implied volatility and the options can reflate. 120 days is a long time to expiration.

 

The Rundown

Sharp Bets:
Mark Sebastian runs our marquee long option strategy for a once-per-week trade. SB specializes in low-implied volatility calls and puts and managing trade size for a risk-adjusted portfolio of options. 

Look for more upside action in the OP Markets Show as Implied Volatility is starting to dive again. Mark and I will update the ARK Funds trades.

 

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. 

 

We are covering ratio calendars in the Pro/Plat session on Monday afternoon at 4:30 p.m. EST.

 

And if you have questions, or would like to learn more, give our customer care team a call at (888) 872-3301 Monday-Friday between 9 a.m.-5 p.m. EST. Or reach them by email at support@optionpit.com.

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.

 

This week, we will finish the Married Put session and start Buy Writes. Synthetic Covered Calls will be on tap next week as a way to create a low-cost buy write.

 

The Power Income Portfolio:
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 option expertise.

The Power Moves Portfolio Starting Lineup
Below are the current open positions …

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

      • Mark will hit the Gamma Radar hard on Monday afternoon at 3 p.m. EST.
      • The Turbo Trade session will cover strangles on Thursday at 3pm EST.

To Your Trading Success,

 

AG

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