Due to technical and logistical timezone difficulties with JC traveling in Europe, we are unable to have our usual monthly conference call to run through the broad themes JC is seeing from his unique technical perspectives as well as our usual review of open positions that need action taken ahead of the upcoming expiration.
But have no fear -- we got you!
All Options Premium subscribers will also be invited to attend the next All Star Charts conference call so you can get caught up on the bigger picture in the markets. This Call will be held on Wednesday June 19th at 7PM ET.
The markets are engaging in some sideways chop thanks to whatever headlines we're ignoring. Meanwhile, there are some oversold sectors showing signs of some mean-reversion. And within one of those sectors, we've got a stock setting up with a pretty straight forward reward-to-risk opportunity.
As we head into June Expiration, there are a number of open positions with options expiring in June that may need some attention. Generally speaking as we approach any expiration, it is a Best Practice to begin aggressively weeding out or rolling out positions that aren't working. Why? For long premium plays, unless positions are comfortably in-the-money, theta decay will begin to accelerate and whatever premium is left in our options will quickly disappear. For short premium plays where we haven't yet reached our profit target, gamma becomes our enemy making our position more sensitive to fluctuations of the underlying. A small winner/loser could quickly get away from us. Best to roll it out to the next monthly expiration cycle to buy ourselves more time, or close it down and look for newer/better opportunities.
In no particular order, here are some currently open positions with June options that we'll be looking to take action on next week:
We're tracking a household name that -- with the exception of four wild days during the Christmas nadir -- has been riding it's 200-day moving average quietly higher and is setting up for what could be a big move.
When you're bullish on a name and options prices -- in terms of volatility -- are the cheapest they've been all year, the prudent move is often the simplest move: buy longer-dated calls. And the decision is even simpler when you have a clearly defined level to show you where the trade idea is busted.
In a recent report, the All Star Charts team highlighted some mixed signals and the lack of trend in many areas of the stock market right now. These are often frustrating situations for straight stocks players. Luckily for us options traders, we can craft strategies that best suit any market environment we may be in. For today's play, we're going to get a little creative, mixing a credit spread with a calendar spread to establish a unique risk profile in a name that we're cautiously bullish on.
In a recent blog post, All Star Charts highlighted a stock retesting a breakout from a very large base. This was the money quote:
First off, big bases take time to form because they are caused by steady institutional accumulation. Mom and pop investors aren’t the ones creating this trend, so I know that there’s underlying demand that will support prices if they do move lower.
Because prices have memory and the base has taken a significant period of time to build, there’s likely been more trading at each price level along the way. As a result of this institutional support, the rate of change to the downside is likely to be less severe versus a name that’s advanced quickly to the upside with less trading activity at each level, and thus less memory among market participants to defend these levels on the way down.
Secondly, our risk is extremely well-defined when trading these patterns. In the event that we are buying a base breakout (or pullback), we know exactly where we are wrong and can generally minimize our risk relative to potential reward.
Stocks have lost firm footing in recent weeks. And while things may look a little sloppy out there in some corners, it is a constructive exercise to focus our attention on the sectors and stocks that are holding up well in this tape.
An iconic American credit card company is exhibiting a take charge attitude that has me interested in running up my balance.
As US stocks rallied for most of this year, many stocks in the Metals, Mining, Coal, and Steel sectors could not get out of their own way and refused to participate in the broad rally. Back in March, All Star Charts published a report highlighting this. So naturally, as stocks begin to soften across the board, it's time to lean into these bad boys and push them off a cliff.
Markets are getting a little shaky. No real surprise. We've had a huge run to start the year and it's only natural for there to be givebacks along the way. Markets don't go straight up forever. That's not how this works.
That said, there are some sectors and stocks that are still holding up relatively well that require our attention. If this turns out to be another garden variety correction then we're going to want to be long names that are standing strong now -- these are likely to be the next leaders. The All Star Charts team published a bullish piece on the Energy sector a couple weeks ago, and not much has changed since. The sector and its stocks have pretty much gone sideways. One stock that has my attention now is:
If you've read headlines or watched Shout! TV over the past 36 hours, you've likely been tempted to make some bad decisions with your portfolio. Panic is like sex to the financial media -- panic sells. Panic attracts eyeballs, gets you glued in, which translates to advertiser dollars. That's all financial media cares about. Not you, and certainly not your portfolio.
Our choice as market speculators is to either succumb to the artificial stress placed upon markets to make decisions not in our best long-term interest, or to take the other side of the nonsense, trusting in cooler heads and price action to lead the way. You know which path we take here...
