You Never See It Coming

Yo Pit Crazies,


A day doesn’t go by when I don’t hear a student — and sometimes even other pro traders — say, “I never saw that coming.” 


It reminds me a bit of the lyrics to a bluegrass song I heard recently …


You never know what’s waiting around the corner

Just beyond the bend

A mountain to climb — a treasure to find

Or fences to mend


It’s like pickin’ on options!


The point is, while knowing the future is impossible, being prepared for what’s next is critical to your trading success.


It’s something that I, and the Option Pit team, have taught thousands of students to do successfully through the years.


So next week in the Pro Chat Room and Trading Legion, we are going to take a deep dive hedging.


The how. The when. The why.


I might even invite some Sharp Betters and Vol Edgers to stop by!


But you’ll never see them coming …


Risky Business


Risk management and trade management are two sides of the same coin.


How one manages a trade helps dictate how one manages risk.


Option Pit’s Queen of the Candlesticks Lisa Leslie is a great case-in-point. 


Most of her trades are made via spreads, call vertical spreads or put vertical spreads. Or very inexpensive options. (You can read all about them in her Profit in Pumps letter.)


By managing risk that way, she keeps the dollars to enter low and potential rewards high. 


No one trade is going to cause a mess.


My first advice when hedging a trade is to figure out what and how much you want to hedge up front.


For example, I did a session on married puts last week. Buying a put against stock automatically stops out the stock’s risk. The margin, or real dollar cost, is still high — but the risk is capped to the strike of the put, less the premium on that put.


On the other hand, selling credit spreads comes with less margin since it is a spread. The risk side of the trade can get quite high as traders are liable for the entire cost of spread, less the initial credit.


In between the risk profiles of a debit spread and credit spread lies an almost limitless combination of calendars, butterflies, ratios, diagonals and every other spread type under the sun.


How all of those spreads work is what we teach in Trading Legion. In our Pro Sessions, students learn how to master their use.


THE LESSON: Risk Management starts from the trade and works out to the portfolio of trades. If the market moves one way for a long time, can your account handle it? Take time to look today!


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 options portfolio. 




Mark added a buy of Advanced Micro Devices (Ticker: AMD) June 18 77.5 calls for $2.05 and sold them at $3.10 for a 50% return


Jumping into a weak market is one of Mark’s specialities, as is picking very low priced calls.


Elsewhere, ViacomCBS (Ticker: VIAC) calls have an outside shot as the stock moves back.


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 during the entire trading session. 


The tone in the Pro Trading Room was more bullish yesterday. Oil and EV stocks reigned.


Some of the ideas included …


      • Exxon (Ticker: XOM) buy-to-open 16 Jun 60 calls. Sell-to-open 16 June 65 calls. Filled $1.14
      • Buy-to-open Ford (Ticker: F) July 16 13 calls at $.56 (Another trade from Pro Room star Cat)
      • Some eyes were also looking at VIX June 16 17 puts.

Special Mention:


Enphase Energy (Ticker: ENPH) is in the Power Moves Portfolio, and I wish I thought of this trade … but one of our Pro Room students, Ken A., did instead!

      • Buy-to-open Jan. ENPH 120/170/220 calls for $7.80

That trade was up 21% yesterday!

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

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.


      • Update: For the ARK Innovation ETF (Ticker: ARKK), buy-to-open three ARKK Jul02/Jun04 90 put calendars at $1.90. Buy-to-open 1 ARKK Jul02 110 call. Pay $3.60.

This was filled $1.90 and $3.40


The idea was a move down in ARKK where the put spreads pay big. ARKK moved straight up and the trade is 2%. The magic of a well hedged trade!  If ARKK keeps moving to, say, $110, I will close the calls and keep the put calendars for credit.  Sometimes this market can change directions.


      • The Invesco CurrencyShares Euro Trust ETF (TIcker: FXE) is moving higher. The trade is back to even and I’m working a $1.25 offer for some of the FXE Jun18 114 calls.

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 options expertise.


Ford powers up!


Frank has queued up none other than Ford Motor Co. as President Biden recently tooled around in a new electric F-150 pickup truck. As Frank noted above, that just so happens to be the best-selling vehicle in the U.S. — and it’s going all-electric.


While Ford has a decent chance to bring some capital gains for an investment, I mostly see this as a “buy write” stock, which is when I buy the stock and sell calls against it. We had a small pop yesterday in F, so I thought I would sell the 13 calls but buy some in-the-money calls a bit farther out.

Ford Motor Company 1 year chart notice the lower Implied Volatility in the bottom half


So I bought the F Jul02 11 calls and sold the F Jun18 13 calls for $1.30 …


This diagonal spread is known as  a synthetic covered call. That’s just an option jargon way of buying a call in the money and selling a call at-the-money or just out-of-the- money. The investor gets most of the gains of a buy write, although no dividends. During COVID F is not paying dividends.


If all goes well, I should collect 50% on my spread.  I might have a chance to sell more 13-level calls or higher depending on what F does.


Elsewhere, if you want an exciting green energy stock lighting things up, check out Enphase Energy (Ticker: ENPH) doing a rubber biscuit bounce from $117 four days ago.


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


Volatility Edge/Volatility Trading Club:


The Option Pit VIX Light is still yellow and Mark will flip to red if we have a quiet weekend and Monday opening.


VTC Trade No. 246 is my only live position right now.


      • I own the VIX June 16 30/45/60 call butterflies and Jun 16 20 puts. I paid $1 for more of the VIX June 16 20 puts on Wednesday and sold them for $1.60 or a 60% return overnight.

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!


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

      • Mark and Licia teamed up on some AT&T (Ticker: T) calls during yesterday’s event. Here’s the trade:
        • Buy to open eight T June 11 29.5 calls. Pay $.60 maximum $0.655/14/21.
      • Elsewhere, Mark recently went in on Exxon (Ticker: XOM): Buy to open four XOM June 4 61.5 calls. Pay $1.15 maximum $1.20. He closed some of these calls this week at 1.99!

Like what you’re seeing? Have more questions? Drop a comment below!


To Your Trading Success,


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