Here's a snippet that sums up a conversation I had with my Head Technical Analyst Steve Strazza this morning:
Me: Any trade ideas have you excited this morning?
Steve: Nothing. New lows everywhere today.
Me: I know. It's ugly.
Steve: I can give you a handful of nice charts that are breaking out, but they are all going to fail. Can't buy breakouts in this market.
Yep. That's where we're at. Putting on directional bets in either direction feels like a high risk proposition. Long breakouts are likely to fail, while short breakdowns are likely to get caught offsides in a wicked bear market dead cat bounce.
But this doesn't mean we're out of options to earn some profits. Options premiums remain elevated across the board, and we've got some areas with clean levels of support we can use as guiderails to sell some delta-neutral premium with higher-than-normal chances of success.
Whether looking to speculate, hedge or collect premiums, options players are increasingly flocking to options that have fewer than 7 days to expiration. And with the proliferation of weekly options and three-times weekly expirations in popular index ETFs like $SPY, $QQQ, and $IWM, traders frequently have the opportunity to trade options expiring within 24 hours!
It is no surprise that these types of short-dated options are attractive to some players. They offer the best characteristics of options: defined risk, leverage, and affordability for even the smallest of traders.
Even though stocks have broadly advanced on the first two trading days of October and Q4, today's market action reminds players that stocks are still risky here and the options market continues to price in this fear in the form of higher than normal options premiums.
As such, the odds favor net premium sellers in these conditions -- so that's what we're on the hunt for.
Ideal setups are ones in which a nearby support level has revealed itself so we can lean against it for risk management purposes.
One such setup can be found in Brookfield Asset Management, $BAM:
Put September and Q3 in the books. It was one to remember.
But we're turning the pages to October today and the rally in the markets is helping to reveal where the new strength may emerge for the next bull run, as well as some significant levels of support for beaten-down stocks and sectors.
Today's trade is fading the recent volatility against a key nearly year-long level of support in a sector that got badly beaten last month.
One of JC's favorite trades when volatility is spiking and bearish sentiment seems a little overdone on the downside is to either buy stock in Berkshire Hathaway $BRK.B or even better -- sell some naked puts to fade the fear.
During our morning meeting today, JC was feeling that the time was right to pull the trigger on this idea again.
Selling naked puts is the move for us today, but we have to be aware that earnings are on the horizon in early November -- which may be accounting for some of the extra premium in November monthly expiration options.
As you can see from this chart, $BRK.B has undercut a significant level ever so slightly, but if this move is false, the whipsaw back up should be swift:
Premiums remain elevated in the options market as volatility persists and confusion among market participants reigns supreme.
We sold a delta neutral spread on Friday to take advantage of this environment. Today's trade will also be a credit spread, however, this time we will be taking on some bearish directional exposure to counterbalance some of our long exposure.
We recently closed an October Short Strangle in the Energy ETF $XLE at our profit target. The timing was pretty fortuitous, considering the wild ride all stocks have been on since the latest Federal Reserve interest rates announcement.
With volatility ticking backup up quite noticeably, $XLE has climbed back up near the top of my implied volatility list of ETFs, and the November options are priced in such a way that we can sell some pretty far out-of-the-money strikes increasing our odds of success.
Eventually, even thick skulls like mine get the point.
Pretty much all summer long, the team here at All Star Charts has been mentioning Enphase Energy $ENPH as a strong outperformer that is on the verge of a potential epic breakout. During today's internal Analyst meeting, the team agreed that now is finally the time to get involved.
JC and I did a video on a possible trade in $ENPH ahead of today's Fed Reserve Interest Rates announcement. We did just get into it moments ago. Enjoy this video to get a great idea of why we like this trade and how we'll play it:
I know this might be breaking news to some of you, but there are often great opportunities to be had in international stocks. And the All Star Charts International Hall of Famers report regularly serves up the best setups out there.
Today's trade comes directly from the most recent report, so let's board the airplane and head abroad!
Every week, the team publishes the Follow The Flow report which surfaces unusual options activity. This is a report I reference often, not because I want to do the same trades that surface in the scan, but when I can find a technical setup that I like that is supported by the options flow, this can often lead to a bit of alpha with my own options strategy.
However, in today's case, I think I may jump aboard with the unusual options buyers and play along with them in a small-cap oil tanker.
What a wild week, eh? On Tuesday, the rug got pulled on dip buyers with the latest inflation data point coming in hot, throwing a whole bunch of confusion into the market regarding the future of interest rates. Or, so I'm told.
The net result for us options traders is that there is once again some juicy options premium for us to sell into. And we've got a bunch of sloppy ETF charts that look primed for some net sideways actions over the near term.
