We've been talking a lot lately about the number of stocks setting up to play "catch-up" to this bull market that is only just now starting to get the attention it deserves, in spite of it being nearly 8 months old now, by our measures.
Today's trade is in another one of these setups that continue to work for us ($CAT and $IWM are great, recent examples).
I have a feeling there will be a large segment of the trader population that hates this trade. And that is precisely why I think it has a good chance of working.
It's Friday. It's late in the day. I won't waste your time with a long preamble. Let's get right to it.
There was an inbound question to me this week regarding adjustments I make on short strangle trades.
For reference: A Short Strangle is a delta-neutral options position that consists of selling equal amounts of out-of-the-money naked puts and calls for a net credit. If everything goes according to plan, the underlying stays in a trading range and I can realize a profit buying back the short options for cheaper than I sold them.
Of course, it doesn’t always work out that simply. Many times, we need to play defense. Defense often involves rolling short options further away from the current price action. In practice, this means buying to close the existing short option and selling a further out-of-the-money option (in the same expiration series) for a combined net debit, which reduces my total net credit in the campaign.
The reader was asking me how I choose my “take profit” limit order following a defensive adjustment. Here was my answer:
As the bull market in stocks continues, the lifeblood to keep the ball rolling is sector rotation.
We're already seeing some of the big caps that have driven the first leg of this run start exhibiting signs of overexertion (check out $GOOG today).
It makes sense to us that stocks further down the cap scale are going to start asserting themselves and perhaps in some cases play "catch up" to their big brothers.
Today's trade is in a cyclical name in the Logistics space.
It feels like whatever items have been holding the broader markets back are falling by the wayside one by one, clearing the path to the next leg higher in this bull market.
And with volatility (as measured by $VIX) making new yearly lows, it's getting more affordable to make a bullish play with simple long call option trades.
My spidey senses are beginning to tingle with speculative fervor.
What we're seeing in the AI space as well as in the comeback in cryptocurrencies as of late has me thinking speculative players are soon to begin widening their net to capture alpha.
And some of these highly shorted equities with crypto exposure could be extremely ripe for short squeezes.
High on this list is Marathon Digital Holdings $MARA. It currently has in the neighborhood of 40% of its outstanding shares held in short positions. That is some major fuel for a short-covering rally if this stock starts ripping.
Here are a bunch of pictures illuminating why we think $MARA might be set up for a run higher. First up, the $MARA chart:
It's not going to be finished in my lifetime or in yours or my kids' or grandkids'. That's not the point. The point is to get it started.
~ Korczak Ziolkowski
Last weekend, I took a little six-hour road trip to South Dakota to spend a full day hiking in Badlands National Park. It was amazing. The landscape is stunning and challenging to describe. It’s not quite desert. It’s not quite grassland. It’s not quite mountainous. It’s remote. Some have likened it to a moonscape. But even that doesn’t quite capture it.
You just have to go and experience it for yourself. Trust me – it’s worth it.
I also took advantage of my proximity to Mt. Rushmore to arrive at 7 a.m. the next day. I was one of the only people in the park and was lucky to have Mt. Rushmore to myself for the better part of an hour.
As amazing as Mt. Rushmore is, being there alone on a bright, sunny morning – just me, the birds, and a cup of coffee – was truly surreal. If you ever get a chance to visit the Mt. Rushmore monument, it’s worth getting there early ahead of the crowds.
I'm continuing with my recent bent of positioning carefully in speculative names that have the potential to rip if the market resolves higher out of this Washington nonsense.
Today's trade is in a name that is showing signs of squeezing higher. It just needs a spark.
I’m a serial tinkerer with trading strategies, particularly in index options trading. In most cases, I’ll start with a simple concept and iterate from lessons learned along the way.
Each iteration is done with good intentions as I’m finding holes in the process and trying to fill them as I go along. I’m like a deckhand moving around the boat, patching small leaks with spackle.
This goes on for a while. And it happens slowly. But like compound interest, it grows stealthily… then mightily.
Unfortunately, I too often find myself in a situation where my PnL is going the wrong way and I’m suddenly handcuffed because I’ve created too many patchwork rules that are doing nothing now but causing confusion and slowing me down.
We all read them and they mess with our heads. It takes steadfast resolve to listen to the message of price action when everything else we read tries to trick us into doing the wrong thing.
The best way to keep ourselves level-headed when taking risks is to define that risk and trade small. There are few things more powerful than knowing with complete certainty the most I can lose, no matter what the market throws at me.
With this in mind, we're putting on a trade today in a stock that has the potential to be a real highflier if the markets stabilize and head higher following any Washington drama while limiting our risk in case we're early or wrong.
