With earnings in the biggest bank names mostly out of the way, the time is now for banks to put up or shut up.

And today's trade is in one of the "junkiest" banks out there we know -- Bank of America. Sorry, not sorry.

With a nearby risk management level, we're gonna make the put buyers pay for our bullish calls.

I don't like this market. It can't make up its mind. Things were starting to look promising last week, then Friday happened. And even today, intraday, we're seeing weird, indecisive trading action.

So I know I'm a broken record, but as long as this sideways slop continues, I'm looking to stay delta neutral and sell premium. And with earnings event risk all over the place, it is probably best to stay with liquid ETFs.

Today's trade is in the Oil Patch.

[12/4/23: moving stop to 550]

Today's trade is a bet on stocks making a run back towards all-time highs over the next 3-6 months. If you don't believe that's in the cards for stocks, then this trade isn't for you.

Unfortunately, its also a trade in a stock with a high trading price, so the margin requirement may perhaps be a bit onerous for some.

If you're in either camp, there's no shame in skipping this trade. It's not for everyone.

If I haven't scared you off yet, then keep reading...

The utilities sector has been schmeissed (technical term) over the past couple of months. Its like all of a sudden investors all woke up en masse to finally decide the rising interest rates environment offers better alternatives for their investing dollars than relatively riskier dividend paying stocks.

This may be true, but is it possible investors may have overreacted a bit?

On a sector level, the Utilities ETF $XLU has potentially put in a tradeable bottom -- at least one we can lean against for risk management purposes. And considering their is upcoming earnings announcement risk in many of the biggest names in this sector, playing the ETF feels like the safest way to play.

Costco earns its margins before you even whip out your credit card at the checkout counter.

How?

They get paid upfront, selling you an annual "membership" that allows you to shop at Costco. That membership is all margin for Costco. This is how they can afford to sell most of their goods at or just above cost, yet still earn steady, reliable profits. What a concept!

We're gonna steal that concept by getting paid upfront.

There are no free lunches on Wall Street and certainly not in options trading. 

It might be sexy to tell people that we’re “options premium sellers” and suggest that all we do is sell naked options that expire worthless – while keeping all the premiums for ourselves. Easy peasy.

But we know that’s not really how it works.

There’s a risk in holding naked short options. Our brokerage houses are keenly aware of these risks – and that’s why they require us to post margin in order to hold these positions. The margin protects the house. Mostly their house, but our houses too.

When a short options position goes against us, our brokerages need to ensure we have adequate buying power in our accounts to close the position and prevent further losses.

But just because we need to post a certain amount of dollars to hold a position doesn’t mean we should calculate our returns off of that number. That number doesn’t mean anything other than the fact that it’s the amount the house needs in order to be comfortable with us being naked short.

We've adjusted a position in the Paid-to-Play portfolio today:

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.

Depending on who you ask, people might agree that consumers are feeling the pinch of inflation. The sentiment that I encounter on a nearly daily basis is: "I can't believe how much _____ costs now. It's insane!"

If we look at a daily chart of the consumer discretionary stocks ETF $XLY, we might draw a conclusion that consumers are beginning to feel tapped out, as the upward momentum in early 2023 seems to have run out of steam.

With elevated options premiums in $XLY, this sets up a nice options premium collection play.

Yesterday's trading action in $TLT, the 20-year treasury bond ETF, gives me confidence that it might have been a near-term low.

I'm making the bet that it'll hold for at least a few weeks. And the elevated options premiums here give us ample ammunition to wait it out.

After slowly dipping my toes last week into the idea that it might be time to start getting into some new long exposure, the market's reaction to the latest Federal Reserve action tells me the direction is still sideways until further notice.

So we're literally betting on that today with a delta-neutral credit spread in the Russell 2000.

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P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.