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There's a time and a place

September 8, 2023

Stocks are messy these days.

The major indexes peaked in July and the new 52-week highs list topped out almost 2 months ago.

This is all perfectly normal market behavior for this time of the year. In fact, if markets were behaving any differently, then THAT would actually be unusual.

Just like over the past 3 quarters. If stocks didn't do as well as they did, again, that would have been weird.

The market continues to behave according to historical trends, obnoxiously so.

And to be clear, it's when the market ignores seasonal tendencies that we want to pay more attention, because THAT is the signal.

In the meantime, we're just chugging along in one of the more normal years for the market that we've ever seen.

So during this messy Q3 period of the pre-election year, with the indexes stuck below overhead supply, volatility is higher than it's been in a while, especially among Consumer Staples stocks.

So what should we do in a directionless market, with higher than average volatility?

Give the people what they want!

Sell them the Calls, AND sell them the puts too!

Collect that cash baby!

So that's exactly what we did.

We sold a strangle in Philip Morris betting that this messy market remains messy over the next month or so:

Notice that flat 10-month moving average right in the middle of its range. This is equivalent to roughly a 200 day moving average.

I wanted to zoom out to really give you some perspective. This stock is messy in the short-term within the context of a longer-term mess.

Mess on mess on mess.

The lack of direction here very much plays in our favor.

So that's the bet we're making.

We sold the $PM October 98 Calls and an equivalent amount of the 90 puts.

*Notice how we're selling the October 13th (Weekly) options in order to avoid any added earnings volatility.

Make sure to read all the risk management details and profit taking strategy here.

There's a time and a place for everything.

Earlier this year we were not putting on trades like this. Volatility was low, and the market was trending higher.

Buying stocks and possibly some cheap call options made a lot more sense.

A trade like this one likely wouldn't work very well in that prior environment.

But this isn't April.

It's a new regime. Remember we talked about this?

And so we've been acting accordingly.

Keep in mind the similar trades we've put on like this over the past month:

Selling a strangle in $MSFT - August 23rd

Selling a strangle in $FCX - August 16th

Check those out if you haven't already, and let me know what you think!

What are you doing in this environment? Are you forcing a strategy that is not conducive for this type of market behavior?

Or are you adapting your strategies for the market we're in?

Know which game you're playing.

JC

 

CLICK HERE to review the recording and the chartbook from the September Monthly Candlesticks Strategy Session.