As the market continues to test the resolve of both bulls and bears, some bearish setups are starting to trigger.
The team put out their latest Short Report last week and one of the names from that list triggered an entry this morning. And considering that my portfolio of options positions is currently leaning long, I like the idea of establishing some bearish positions to add counterbalance to my holdings.
While certainly not at panic levels, we've been seeing a persistent $VIX holding north of 20, and the last two days we saw it flirt with 25. This signals to me that there is still a bit of uneasiness remaining in the stock market, leftover from the recent correction.
Scanning my books, I noticed my portfolio is a little light on delta neutral premium trades, so we're going to take the recent rise in volatility as an opportunity to add a little diversification.
As always, I take a gander at my list of the most liquid ETF options and look for the ones with the highest implied volatilities right now. And then if the chart suggests some consolidation is in order, that's where I look to strike.
I have one trade that stands out head and shoulders above the rest as my number one F-up. I really screwed this one up.
Financially, it was my best trade of the year. Probably my best trade in several years…
But it still stands out as my worst trade of all time.
This was circa 2013. I had recently moved to Boulder, CO and life was good. New vistas, new friends, new environments, new everything.
And one thing I did which was new for me (at the time), was I had come up with a long-term bullish thesis on a stock. And over the course of a couple days, I wrote up about 5 pages of notes on my yellow legal pad outlining exactly how I’d play my bullish thesis using options.
To quote Steve Strazza: "When commodity stocks go, they go!"
This pretty much sums up the talk we had this morning when coming up with today's trade idea.
We were looking across the strongest sectors and hunting for opportunities to get involved. One challenge we were having is many of the stocks we liked had either already had a big move and we'd be chasing, earnings were on deck in less than a week, or the options chains were too thin for us to get good fills.
Finally, after some searching, we found a name that made sense. And it was one I wasn't familiar with.
JC came to Boulder yesterday (where I Iive) and we were able to get together to enjoy a late dinner. It was a great opportunity to reflect on how far we’ve come and what we’ve already accomplished.
All Star Charts launched about 13 years ago. And we launched All Star Options nearly four years ago.
During this time, we’ve seen big bull runs, panic-inducing corrections, and everything in between.
I love when the team feels a little "frisky" and hunts for "speculative" ideas. There's nothing that gets the creative juices flowing more than getting outside the wheelhouse a bit, looking for new experiences.
This lead them down the path of picking through the wreckage in Chinese stocks.
In the recent Monthly Candles Strategy session (find the charts here), JC highlighted a couple names in China that are offering speculative opportunities for those willing to step boldly where most bulls are too sheepish to look.
As options traders, we too can join the party. But we can minimize the risk better while still participating if the speculators have their way.
I can't pretend to understand the first thing about interest rates, how or why they behave the way they do, nor how their moves in relation to each other mean certain things. Thankfully, I don't need to. I just need to follow price.
And right now, price is signaling loud and clear that we need to take a short position in some of these bond vehicles.
I’ve received a few questions from readers about playing bounces in some oversold stocks.
The most recent was Facebook, er… Meta (whatever).
An opportunistic trader hit me with this question:
Is anybody interested in taking a position in these heavily discounted calls in $FB today?
Discounted? Au contraire, mon frère.
Shares of $FB stock may be “discounted” after getting shellacked to the tune of -26% or so. But there are no discounts to be found anywhere on the options chain.
The overwhelming majority of options trades we put on at All Star Options tend to be structured in a way to participate in moves that should take place within 2-8 months. The shorter duration trades are usually trades where we are net short premium (naked puts, short strangles, bear call spreads, etc), whereas our longer-term trades tend to be ones where we are net long premium at attractive prices (in volatility terms).
Today, we're doing something we've never done here. We're making a long-term bet utilizing LEAP options.
"LEAP" is an acronym for Long-Term Equity Anticipation Securities. Essentially, this means we're taking a position in options that have greater than a year until expiration.
If you were on the @allstarcharts twitter SPACES chat this morning (every trading day at 11:30ET), you heard us riffing on today's trade.
I was chatting with an All Star Options member this morning and he asked me a very insightful question:
“Sean, I’d be very interested in your thoughts on why you choose not to make a trade in certain setups?”
He went on to elaborate that he’d like to know the things I look for that are possible “red flags” that prevent me from pulling the trigger in otherwise good stock setups.
The overwhelming majority of trades I put on for All Star Options subscribers are in stocks that the All Star Charts team has identified as stocks we want to be in (either long or short).
The most common reason I won’t pull the trigger is
...And trading volumes are particularly good for the trading exchanges that make it all happen!
With the markets whipsawing back and forth to start the year and trading volumes rising all over the place, the exchanges that extract fees for every stock share, futures contract, or options contract that trade at their venues are seeing their revenues rise.
Couple this with some strong relative performance in the stocks, and we're setup for a very nice bullish move -- should we get it.
Today's trade is in a one such name that facilitates all kinds of trading.
For anyone that joined me, JC, and Strazza on the Twitter Spaces this morning, you heard us scratching our heads on what to trade next.
In this sloppy tape, there just aren't any real compelling opportunities we can find worth getting aggressive with. When the best idea on the table is "buy $QQQ above 350," then you know we're struggling for good directional bets.
But that's ok. We options traders don't just need directional markets to make money. We can take advantage of sideways action too!
And that's what we're going to continue to do with today's trade.
