We've covered before how much I like buying stocks that are making new all-time highs. I like them, even more, when I can buy call options because premiums are low. And it's a cherry on top when the stock pays a meaty and steady dividend which lends price action support over the long run!
The bottom line is that the bottom is in for these stocks. The evidence continues to build in the bulls’ favor.
~ @sstrazza
Starting off with fire! We're not mincing words here.
But I'm not going to steal any of Strazza's fire. Head here to read his piece on what's going on with Chinese stocks. It sets the stage beautifully for today's trade.
At this point, it is almost becoming a cliche. But whenever the market sells off and Berkshire Hathaway takes a dip, it's almost becoming money in the bank to sell puts.
It's already worked for us numerous times this year. This won't work forever, of course, but until it stops working we should keep giving it a go.
An All Star Options community member recently sent me an email asking about the Average True Range (ATR) indicator and whether or not it is helpful in ascertaining if options premiums are elevated or depressed in the underlying instrument.
For a pretty thorough explanation of what ATR is, here’s a blurb I found on macroption.com:
One of the great things about options trading is the flexibility afforded to traders to combine multiple contracts, of the same or differing expirations, long or short, to express unique ways to participate in whatever thesis we might have about the future direction or opportunity the market is offering.
Depending on the type of trader and person we are, this menu of choices available either incredibly excites us, or it overwhelms us with analysis paralysis.
I usually fall into the first camp, excited about the choices. But I'll admit to sometimes feeling myself unable to make a confident strategy decision.
So when opportunities like today's trade come along, I get pumped. This is because today's trade is my favorite kind of setup. Both for the potential of the move and the simplicity in how we can play it!
We've currently only got one delta-neutral "income" trade on the books right now, but that one will be coming off sometime this week as it is comprised of December options which expire this Friday.
In a perfect world, I always prefer to have a least some delta-neutral short premium exposure in the portfolio to help us compensate for any sideways chop that the markets might serve up to our existing directional bets. It's a a nice portfolio diversifier.
With this in mind, today's trade will be in an ETF that is currently trading smack-dab in the middle of a four month range that I expect will hold for a least a few more weeks.
The Brothers Warner can't seem to get out of their own way. At least, that's what the price of Warner Brothers Discovery stock $WBD is telling us.
Look at this dog:
And recently, we've seen some aggressive put buyers step into the fray, as was discussed in a recent Follow the Flow Report. Here's what Strazza had to say about it:
It's hard not to notice the strength we've been seeing in the metals space lately. This surely is getting the Gold Bugs excited.
We wouldn't consider ourselves any kind of "bug," but it's fair to say we're biased toward charts that trend. If line goes up, we like to buy. If line goes down, we like to sell. Simple.
If we can get into an emerging trend early -- so much the better!
"Poor man's gold" (as JC called it), might just be starting a big relative outperformance trend that could spell a big opportunity for us.
No matter what the market, geopolitics, weather, congress, The President, retail demand, the news cycle, or even the price of the commodity itself throws at oil stocks, they just... keep... winning.
These are not trends I like to fight.
And it seems options markets aren't willing to fight it either as today's trade is in an oil sector bellwether that is now pricing in the lowest volatility in over 9 months as the stock flirts with post-Covid highs.
After we got past sharing each others' Thanksgiving dinner menus, wine pairings, and recipe swaps, the All Star Charts gang got back to business this morning hunting for trade ideas.
We arrived at today's idea in a roundabout way:
"Discretionary stocks have been the 'least shitty' performers as of late."
"We're seeing relative strength in 'da homies. [Homebuilders]"
"In that sector, Lennar $LEN is showing the best relative strength relative to the others."
...and that is a taste of how the Thanksgiving sausage is made.
So let's dig into some visuals to highlight what we're seeing.
