Whoa baby. This might be a fun one. Or not. Either way, we'll likely find out pretty quickly.
Chinese stocks continue to offer up interesting opportunities. And today's trade is no exception. And to play it, we're going to do it in a fairly aggressive manner, but with a tight risk management stop.
We're already long some domestic semiconductor stocks via options (the trend is working). However, perhaps we've set our sights too close to home.
International stocks have been on a tear recently, showing even greater strength than the U.S. So maybe we should be looking for the strongest stocks, in the strongest sectors, in the strongest countries?
With this in mind, today's trade takes us to Switzerland.
I'm an amateur chartist, at best. If you want charting experts, I'll refer you to my team here at All Star Charts.
That said, I've got my eye on what appears to be a bullish flag forming in a hot Chinese stock and it looks ready for liftoff. Coupled with cheap options pricing, we can neatly define our risks and position ourselves for a big win.
As promised during yesterday's The FLOW show, I'm following up on a possible trade idea we discussed.
However, after Strazza and I put our heads together with the rest of the Analyst team this morning, we're going to attack an opportunity in Schlumberger $SLB from a different angle -- one that can be rewarding regardless of which direction the stock takes.
It’s easy to follow a trading plan when the price action is moving our way. We feel like geniuses.
Look at me! I’m so smart! The stock market is doing exactly what I planned for it to do! Let’s go car shopping!
But how do I feel if the price action goes the other way?
Assuming I’ve put a trading plan together that accounts for both the possibility of being right AND the possibility of being wrong, why should I feel any different when the price goes the wrong way?
What’s the point of putting together a detailed trading plan if I later exit the position following the first price move in the opposite direction I hoped for?
A little pullback in stocks today has opened up the window for us to sell some options premium as a nice portfolio hedge for our predominantly long portfolio.
We don't need a long preamble here. The plan is simple: I'm going to enter a delta-neutral credit spread in an ETF that is currently atop my list of ETFs sorted by implied volatility.
Earlier this week, we took our original risk capital out of our Micron Technologies $MU position, and now we're enjoying a #FreeRide into the summer.
We've got a somewhat more conservative bullish bet going in Analog Devices $ADI via a call calendar spread.
As you can see, we've already got exposure to the semiconductors space. But there is a ton of bullish action here so as long as it keeps working, we're going to wade a little deeper in the semis pool for our next trade.
Today’s note has nothing to do with trading, and absolutely everything to do with trading.
Let me explain.
The solutions to trading problems aren’t always found when we’re trading. In fact, I would argue most of the time they aren’t. At least not for me.
Have you ever been in the shower, on a walk with your dog, or driving your car when suddenly you were struck with a fantastic idea or an important “to-do”? Not just about trading, but about anything?
Happens to me all the time.
Even worse, it seems that whenever I’m struck with a great idea or a prompt for an errand I need to do, they come in waves. The brainstorming just flows ideas out of my head in a torrent that makes it impossible for me to remember everything. And it always seems to happen when I have no ability to write it down.
So I just try to remember it all until later when I can either perform the task, send that email, write that blog post, make that trade, or adjust that strategy.
But this act of remembering prevents me from moving forward when all I’m trying to do is balance the spinning plates of thoughts running in my head.
Look, I don't know. I just follow Price. They are all just letters and numbers to me. If it trades, it's liquid, and there's a good technical setup -- that's all I need.
It just so happens that this particular company is engaged in creating Chinese internet content. Ok.
But man oh man do I like the potential reward-to-risk setup here so let's get straight to the point...
I tweeted that earlier today as I was feeling my position value decay away for no conceivable reason as the market was coasting sideways.
I felt helpless as my index options position was melting away, far beyond the level my theta risk suggested it would in a quiet market.
It turns out, the quiet market was precisely the reason.
It was a stark reminder to me: Long Vega also entails risks that I need to be aware of.
Most people, myself included, tend to worry about getting caught short volatility (short vega) in a market environment where volatility is rapidly rising. We’ve all heard the stories of traders holding naked short options that were overleveraged into a volatility spike. Those stories make the headlines. And rightfully so.
So it’s easy to forget that being long volatility can be just as painful when volatility is grinding lower as VIX certainly was today:
The Bull has been rolling. Have you noticed? Judging by the response I got from an innocent little bullish tweet last week during the midst of a mild pullback for stocks, you'd think I'm insane for thinking stocks have a chance to go up.
So many angry people looking for lower prices.
Maybe they'll be right someday? Chances aren't zero.
Meanwhile, I'll just keep paying attention to price and relative strength which is an excellent guide to point me into winning trades in any direction.
So for today's trade, we're going to ignore the digital assaults on our senses by the angry bears and get analog in our approach to riding this bullish wave.
Me and Strazza did The Flow show earlier in the week, and one of the names we discussed as being a possible trade to get into has finally popped its head above the trigger I was waiting for.
This one has the potential to be a quick mover, so let's get right to it!
