There's a time to be aggressive and go for big gains, and there's a time to shoot for higher probabilities with smaller payout potentials.
I'm finding it hard to muster any conviction to go either long or short right now, as I can make compelling cases for both the bull and the bear thesis here.
In today's tape, my feeling is we need to err on the side of being too conservative and trade with a margin of safety.
So today, we're putting on what I feel to be a conservative, delta-neutral options trade in the technology sector ETF $XLK.
While in the process of preparing for this week’s live Options Jam Session, I came across an open trade in $HMC that has been performing quite well for us.
It reminded me that when I wrote about the trade back on May 15th for subscribers, I began the piece with this:
I’m filing today’s trade under the category of “Hard Trades.” Not because it’s particularly hard to execute or because it’s a complicated multi-legged spread. It won’t require an excessive amount of margin to get positioned nor is there any risk of unlimited losses.
It’s hard because people might look at the trading action of the past few days and think that it’s “gone too far” and “I should wait for a pullback.”
But this isn't really about Philip and his cancer sticks.
Instead, I'm going to sell premium in his Philip Morris stock options, betting on the company going nowhere for at least the next month.
First up, look at this chart:
We can clearly see the range contracting all year in $PM. Given what the broader stock market is doing, my bet is this range contraction continues.
Now the wrinkle we have to deal with is that Philip Morris is slated to release their next quarterly earnings statement on October 19, which is ONE DAY before October monthly options expire! That makes it tricky to be selling premium in the regular monthly options.
But the good news is, we can select the October 13 WEEKLY expiration options to express our trade.
We're adding another bullish leg to an existing position we already have on the books in Google.
In early May, we purchased December 120 calls that have performed nicely for us. In fact, we already sold half of our position and are #FreeRiding on the remaining portion of that initial trade. We can't lose!
Given the price action and relative strength we've seen in $GOOG this summer, we're ready to put on another fresh position to take advantage of even more upside.
At the risk of sounding like a broken record, I'm continuing my theme of the past week of looking for opportunities to sell premium in mostly delta-neutral options trades.
"Delta-neutral" basically means I'm looking to collect income in sideways consolidations while the broader markets sort out this current correction.
Not only is this a good tactical bet for sideways, sloppy, and messy markets, but it also provides nice portfolio diversification if you have a book of long positions like I do.
We've got a well-known mega-cap stock to use as our vehicle today, so let's get to it.
The longer I’ve been in this business of trading, the more I’ve come to realize that “get better at smarter trading” is not the answer to the question: “How do I make more money as a Trader?”
Yes, we can all be better at regime detection, trade selection, strategy selection, optimal position sizing, risk management, and profits management. There will never not be room for improvement in these realms.
However, to me, the real answer lies somewhere off the charts. Away from the screens. Outside of our office or wherever we get work done.
The answer is located someplace closer to where we unwind. Where we exercise. Where we meditate. Where we reconnect with the important people and places in our lives. Where we rejuvenate our souls.
It’s becoming all too clear to me that one of the keys to optimal performance is to make sure our bodies and minds are right. And that ain’t gonna happen while hunched over a computer screen or mobile device.
A reader recently reached out to me, asking about a trade I put on.
I’m paraphrasing, but the conversation went something like this:
Reader: “The implied volatility of the MSTR June 450 calls is 64.7%. That is far from cheap, no?”
Me: “The absolute number of implied volatility is meaningless to me. I’m paying attention to its relative value. I want to know where IV is now compared to where it’s been.”
Reader: “Wow. That amazes me. I always thought the implied volatility was an indication of how expensive an option was. Could you write an educational piece on this sometime please?”
Dear reader, your wish is my command.
Here’s the thing about options premiums (and implied volatility, or “IV,” which measures premiums) – they mean revert.
When IV spikes, it’s only a matter of time before it comes back down. And when IV is low, it’s likely that any sudden premium moves will be to the upside, not the downside.
As is common when the stock market is moving lower, we're seeing rising options premiums. We aren't seeing any big volatility spikes yet, and $VIX is still relatively muted, but the recent rise coupled with setups that appear to be ripe for some sideways action in the coming weeks and months has me on the hunt for delta-neutral premium selling opportunities.
Today's trade is in a metals and materials stock that appears to be stuck in a year-long range that we're betting on continuing.
Check out this chart of Freeport McMoran $FCX for a visual of what we're seeing:
Today on the Morning Show, JC was talking about bitcoin and how if you want to underperform the next leg higher in crypto, then own bitcoin. But if you really want to get some juice for the next crypto rally, the crypto mining stocks are how to participate!
In particular, both JC and Strazza like Riot Platforms $RIOT and Marathon Digital Holdings $MARA.
And specifically, we all like what could have been a recent "oops" or fakeout-breakdown that may have just shaken out all the weak hands, clearing a path for the next move to new cycle highs:
With $MARA flirting with breaking back above $16.00 per share today and implied volatility in the options near yearly lows, it feels like high time to catch the whipsaw back to highs.
As many of you know, Steve Strazza and I are touring South East Asia this month. We're hitting the homestretch of our trip, with about a week or so left. We're currently in Hong Kong and this city is beyond description. I don't even know where to begin. It's a cliche to say "you have to see it to believe it." But it is 100% true in this case.
As you can imagine, it's been a bit of a logistical challenge to keep up with the U.S. markets when we are on the other side of the globe. U.S. trading hours in Hong Kong are 9:30 pm to 4:00 am. Lucky for us, many of the positions we have on have been performing well. We've been positioned for a continued bull market and we're definitely being rewarded over the past few weeks.
We're currently positioned long in stocks like $AAPL, $MARA, $KBH, $GXO, $CARR, $VRRM, $ABNB, $IONQ, $DKNG, and more.
I mention this because as I'm looking at candidates for new long trades that we like, I am frustrated that most report earnings over the next 1-2 weeks. And as you know, I don't like positioning when a stock is so close to reporting earnings. I don't like the binary risk.
I’m traveling throughout Southeast Asia — to eight different countries — with my All Star Charts analyst Steve Strazza, giving presentations at local Chartered Market Technicians (CMT) Association events, meeting local traders, enjoying native cuisines, and just marveling about the similarities we traders from different corners of the world all share.
So for the rest of the month of July, I’m going to cut the preamble and get right to the action for you guys.
As such, here’s the setup for the trade I’ll be putting on today:
