Recent price action in a tech name has us opportunistically wading in to catch a possible earnings driven bounce. We don’t often put trades on in anticipation of a reversal of price action (we tend to be drawn to trends), but in this case we have a stock that has pulled back in recent days to a major past breakout area and we’ve got an earnings event coming up that just may be the grease which gets the wheels turning back in the direction of the broader trend. [Read more…]
Sometimes, stocks you want to own give you no chance to get in comfortably. They just start running and offer you no pullbacks to buy into. In hindsight, these are always the ones we wished we woulda just closed our eyes and hit market buy on. Of course, in real life and in real time, it’s impossible to know when you’re looking at a stock that is going to run straight up. One such stock that has given me a little of this FOMO (fear of missing out) has recently offered us a slight window to buy into. And at the time of this writing (Monday morning, April 22), S&P Futures are indicating a gap down opening for the broader market, perhaps adding to our chances of getting in at a better price. [Read more…]
A stock of interest for us recently impressed investors with their latest earnings report, sending shares on a gap higher at the open today. Now that the event is out of the way, options pricing (in terms of volatility) has collapsed, giving us a great opportunity to participate in what looks like an ideal candidate for a “Post Earnings Drift” move higher. [Read more…]
Most regular readers of mine know I’m a big fan of the “hundred-dollar-roll.”
If you aren’t familiar with this phenomenon, essentially, its the tendency for traders and investors to be distracted by a big, sexy, (but ultimately meaningless) round number. And 100 is the most common of the big round numbers that captures the fancy of speculators new and old.
And this phenomenon isn’t new. In fact, in Reminiscences of a Stock Operator (the greatest trading book ever written, in my opinion), Jesse Livermore mentions trading stocks as they approach 100, 200, or 300 was one of his favorite strategies as he could very often count on that large number acting as a magnet for buy orders — which then eventually results in further follow thru for several more points beyond the round number. “There is nothing new on Wall Street,” he’d say.
This is all on my mind as a household name and a darling of Wall Street and Main Street emerges from a nice bounce off its 50-day moving average and approaches 100… [Read more…]
A beauty chart on monthly, weekly, and daily timeframes is setting up just under a major magnet level; there is an an earnings catalyst on the horizon which may goose the action in our favor quickly; and the premiums are relatively cheap for an upside bet. What’s more, the company behind the stock offers us a great opportunity to sleep well while we ride out our thesis. What’s not to love?
What stock could possibility offer all this? [Read more…]
As long as Mr. Market wants to keep grinding volatility premiums in options lower, we’d be foolish not to be buyers of long calls with expirations 4-6 months out in individual names that are showing signs of upward momentum. Who are we to argue with Mr. Market?
The next candidate on our list hails from the telecom space. [Read more…]
The “Gap and Go” pattern is popular with intraday and swing traders. It is a situation where a stock gaps higher out of a base (often earnings driven), then punishes the opportunistic faders who are playing for the stock to come back and “fill the gap.” The opposite happens, resulting in a slow, painful grind higher hurting all those short holders.
We’ve got such a situation developing in the semis space, where a slow grind up has beaten all the faders to a pulp and now it appears we might be setting up for one final push to inflict hurt on the final stubborn bears. [Read more…]
One of the most important parts of my process in selecting potential options trades is to assess the current volatility situation. Everything else being equal, I like to put on trades that position myself for volatility to revert to its mean. In other words, if volatility is high and therefore options prices are high, I want to express my directional trade in such a way that it might also benefit from volatility falling back to “normal” levels. Conversely, when volatility is low, I want any position I consider to benefit from a rise in volatility — if there is one.
There are no free lunches on Wall Street, nor in options trading. But betting on volatility reverting to the mean might be one of the closest things to it. The trick is in the timing.
Of all the most liquid ETFs I track, the one that has been the quietest lately — in terms of price action and volatility in options pricing — is the Retail Sector ETF $XRT. In fact, volatility in $XRT is currently at the lowest levels last seen in 2018 before the Christmas selloff. This has given me a wild idea… [Read more…]