Options premiums remain elevated in this market. This continues to put me on the hunt for premium selling strategies in the most liquid ETFs.
One of the ETFs showing the highest volatility appears to be starting to settle into a range. And we can sell options very far away from current prices which gives us a lot of wiggle room.
As markets start to (relatively) calm down, trading opportunities with clearly defined risk management levels are once again starting to reveal themselves.
One such opportunity is presenting right now in the semi-conductors space.
On Monday, I laid out my plan for entering into $SPY Iron Condors steadily throughout the week. I entered into the final Iron Condor this morning and wanted to give you a little update on where we stand with them.
I'll start by saying: this is no ordinary week. But you knew that.
If you are sitting on the sidelines, waiting for all this craziness to subside, that is not a bad idea at all. There is no reason to put our money at risk if we can't get a handle on our own emotions during this highly uncertain time.
That said, for those who are willing to wade into these choppy waters with me -- these insane premiums offer us the ability to sell premium FAR away from current prices. I'll share with you my simple game plan for this week.
The boys were out with a bullish piece on China stocks, citing oversold conditions. As JC said: "If the world isn’t ending after all, this could be an interesting place to look for huge winners."
So I've got my eye on a big name that has held up pretty well, all things considered.
The current market calamity is certainly not sparing many of our long or delta neutral positions. The good news for us is the majority of them have defined risk.
At the open this morning, many of our positions traded through our stop-out levels. But an important point to remember here is that we're looking to see a CLOSE below our stop levels. We're don't jump on an exit the second a level is broken intraday.
There is a lot of trading left in today's session. This is not the time to be dumping defined-risk positions into the hole.
Options premium sellers profess a deep and undying love for elevated volatility. But when they get it, are they willing to act? Sometimes when you're in it -- like right now -- it can feel very scary. The urge to sit it out may overtake you. I get it. Been there.
For those of us who plow ahead and like to take advantage of opportunities when statistical edges are backing them up, this next trade is for us.
Feels to me the stock market is at one of those inflection points. Personally, I'm finding it difficult to find trades that I'm willing to bet too aggressively long here. But on the flip side, I'm not willing to get aggressively short here either. In situations like this, the best move is often to patiently wait for the market to tip her hand. Problem is, we all know waiting is the hardest part (cue Tom Petty).
Of course, there are strategies options traders can employ profitably when the expected move is a sideways chop fest. And the best way to line the odds of profitability more in our favor is to find situations where a sideways grind has already begun to take shape and it is coupled with higher than average volatility being priced into the options. When selling premium, this gives us some nice cushion to absorb some moves.
I've found just such a situation for us to take advantage of.
JC is out with a piece today that is bearish on Latin America broadly, and more specifically, Mecradolibre $MELI.
Here's the money line:
Here is the chart showing Mecradolibre failing once again near this 677 level that has been trouble since last year. There is clearly still an overwhelming amount of supply here. The bet is that $MELI gets back down to 517, which would put it near the lower end of this multi-year range:
The stock is expensive so if getting short a $650 stock feels pretty unappealing to you, I've got an options trade that may be more palatable.
