That is not a typo. I lost money on this trade. Actually, it was a series of trades. But it was executed with one decision and one combination of keystrokes.
It was the summer of 1998, and it was my first year trading.
The Long-Term Capital Management debacle was weighing on markets. There was money being made on the short side. Big money.
Many of the more successful traders in my office had already earned a boatload of cash with aggressive short trades on this particular morning. And at lunchtime, they decided to head out to the golf course to celebrate another day of crushing the markets.
But not me.
Nope, I was still a piker trader at that time, still trying to figure out how to stop losing money. So while the rest of the guys were high-fiving each other on the way out the door to the golf course, I stayed at my desk banging keys, trying to catch up to the big shots.
As we moved through the sleepy lunch hour, markets were showing signs of another leg down and I was building a short position in about 8-10 stocks. Slowly at first. Small amounts of shares. Nibbles, really.
Whether looking to speculate, hedge or collect premiums, options players are increasingly flocking to options that have fewer than 7 days to expiration. And with the proliferation of weekly options and three-times weekly expirations in popular index ETFs like $SPY, $QQQ, and $IWM, traders frequently have the opportunity to trade options expiring within 24 hours!
It is no surprise that these types of short-dated options are attractive to some players. They offer the best characteristics of options: defined risk, leverage, and affordability for even the smallest of traders.
Even though stocks have broadly advanced on the first two trading days of October and Q4, today's market action reminds players that stocks are still risky here and the options market continues to price in this fear in the form of higher than normal options premiums.
As such, the odds favor net premium sellers in these conditions -- so that's what we're on the hunt for.
Ideal setups are ones in which a nearby support level has revealed itself so we can lean against it for risk management purposes.
One such setup can be found in Brookfield Asset Management, $BAM:
One of JC's favorite trades when volatility is spiking and bearish sentiment seems a little overdone on the downside is to either buy stock in Berkshire Hathaway $BRK.B or even better -- sell some naked puts to fade the fear.
During our morning meeting today, JC was feeling that the time was right to pull the trigger on this idea again.
Selling naked puts is the move for us today, but we have to be aware that earnings are on the horizon in early November -- which may be accounting for some of the extra premium in November monthly expiration options.
As you can see from this chart, $BRK.B has undercut a significant level ever so slightly, but if this move is false, the whipsaw back up should be swift:
Eventually, even thick skulls like mine get the point.
Pretty much all summer long, the team here at All Star Charts has been mentioning Enphase Energy $ENPH as a strong outperformer that is on the verge of a potential epic breakout. During today's internal Analyst meeting, the team agreed that now is finally the time to get involved.
JC and I did a video on a possible trade in $ENPH ahead of today's Fed Reserve Interest Rates announcement. We did just get into it moments ago. Enjoy this video to get a great idea of why we like this trade and how we'll play it:
With the rise in $VIX (the "fear gauge") over the past several trading days continuing to persist, we've been on the hunt for options premium selling opportunities. Higher volatility environments lend themselves to better opportunities for premium sellers who can manage their risks and size their positions conservatively.
As such, we're going to sell some premium in the banking sector to take advantage of elevated premiums and what appears to be a high likelihood of continuing sideways action.
That's right, we're in the 'hood. Robinhood stock $HOOD, that is.
Steve Strazza has been pounding the table about this name for so long that JC and I finally relented and agreed that it's starting to become that "put up or shut up" time.
With the stock swimming just below $10 per share, JC said: "Let's just leverage into this thing! If it's gonna work, we'll crush it. If it's not going to work, we'll know pretty soon. Below $9 we're out."
During our morning Analyst meeting today, the team was looking across a variety of asset classes and sectors to identify the current leaders, and those likely to continue tracking higher if the broader stock market rally is for real.
One sector that stood out starkly was Big Pharma.
There are some monster bases in the process of resolving higher here.
Every idea that we put on at All Star Charts starts with a technical setup that we like. We are students of price action and that supercedes everything.
It's nice when our technical analysis lines up with "other" factors that may support our idea, be they fundamental, news, or in this case, insiders and activist activity.
Here's what our team noticed in an email to ASC subscribers earlier this week:
The most significant insider transaction on today’s list is a Form 4 filing for Pinterest $PINS.
Now that the second quarter blackout period is behind Pinterest, CEO William J. Ready is also buying shares. He just reported a rather sizable $5 million purchase.
We can’t think of many things more bullish than the CEO getting involved following the insider activity from Elliott last week.
CEOs and Activists buying big positions? That has our attention.
