Wild market conditions persist! Yesterday, stocks had a huge gap down opening, but then spent all day ripping higher and closed convincingly in the green. Today, the rally picked up right where it left off.
Talk about whiplash!
This makes it incredibly challenging to find directional bets with any degree of confidence. So, with implied volatilies elevated across the board, today we're hunting for another delta-neutral premium selling candidate.
And this time, we're doing it on an individual stock.
Markets continue to be "messy" and it's tricky looking for positions to take aggressive stances in. And with VIX hovering at or near the 30 level for the better part of the past week and a half, the option trader in me continues to look for opportunities to sell premium.
A smarter man than me once told me: "If something is working, find ways to do MORE of it!"
Well, selling premium on balance has been working pretty well since January, so...
Chatting with the team this morning, one pocket of strength we identified that has been holding up relatively well in this slop is the banking sector. And while there weren't any individual names we were willing to bet the farm on, the financials sector ETF $XLF caught our attention as a good possible candidate for a delta neutral credit spread.
No, it’s not April 15th just yet. But I’m getting into that zone where I need to start sending relevant info to my accountant to get the ball rolling for my 2021 tax return.
I hate that I have to farm out my tax return preparation to a professional in order to get them done. I wish the US tax code wasn’t the way it was – who doesn’t?
But let me relate a little story to you that might get your mind right about whether or not to go it alone when doing your taxes…
I don’t remember the year, but it was somewhere around 2003-2004 when I first moved to Chicago. I had been using an accounting firm to prepare my tax returns since I began trading in 1998. But this year, I thought to myself:
“Sean, you’re smart. You’re college-educated. You almost minored in accounting, and you had straight A’s in all your accounting classes. You should be able to handle the filing of your own taxes!”
So I don’t remember if it was out of an act of curiosity, boredom, or just trying to pinch a penny, but I decided that year I’d prepare my own taxes.
If you've been following our narrative this week, you know we've been preaching patience as the stock market is most decidedly in the "chop zone" right now. Me and JC did a live twitter stream on Wednesday afternoon discussing the situation and how we don't feel compelled to force any new trades.
That is still the situation. But one name that I've been watching for a delta-neutral credit spread has moved in the last two days in a way that gives me a little more confidence that now may be a good time to get involved.
In Major League Baseball, the 40/40 Club is an exclusive group of players who are the only ones to have achieved both 40 home runs and 40 stolen bases in the same season.
The first player to achieve this milestone was Jose Canseco in 1988 as a member of the Oakland A’s – back during the “Bash Brothers” days with his steroids pal Mark McGwire.
Since then, only three other players have joined this list: Barry Bonds (1996), Alex Rodriguez (1998), and Alfonso Soriano (2006).
Here at All Star Charts, we’ve achieved a little bit of our own 40/40 dynamic as JC celebrated his birthday this week and joined me in the 40+ crowd of awesomeness. Perhaps it’s not quite as exciting as crushing home runs over the wall or swiping second base against catcher Yadi Molina. But I like to think it’s cool in its own way.
As the market continues to test the resolve of both bulls and bears, some bearish setups are starting to trigger.
The team put out their latest Short Report last week and one of the names from that list triggered an entry this morning. And considering that my portfolio of options positions is currently leaning long, I like the idea of establishing some bearish positions to add counterbalance to my holdings.
While certainly not at panic levels, we've been seeing a persistent $VIX holding north of 20, and the last two days we saw it flirt with 25. This signals to me that there is still a bit of uneasiness remaining in the stock market, leftover from the recent correction.
Scanning my books, I noticed my portfolio is a little light on delta neutral premium trades, so we're going to take the recent rise in volatility as an opportunity to add a little diversification.
As always, I take a gander at my list of the most liquid ETF options and look for the ones with the highest implied volatilities right now. And then if the chart suggests some consolidation is in order, that's where I look to strike.
I have one trade that stands out head and shoulders above the rest as my number one F-up. I really screwed this one up.
Financially, it was my best trade of the year. Probably my best trade in several years…
But it still stands out as my worst trade of all time.
This was circa 2013. I had recently moved to Boulder, CO and life was good. New vistas, new friends, new environments, new everything.
And one thing I did which was new for me (at the time), was I had come up with a long-term bullish thesis on a stock. And over the course of a couple days, I wrote up about 5 pages of notes on my yellow legal pad outlining exactly how I’d play my bullish thesis using options.
To quote Steve Strazza: "When commodity stocks go, they go!"
This pretty much sums up the talk we had this morning when coming up with today's trade idea.
We were looking across the strongest sectors and hunting for opportunities to get involved. One challenge we were having is many of the stocks we liked had either already had a big move and we'd be chasing, earnings were on deck in less than a week, or the options chains were too thin for us to get good fills.
Finally, after some searching, we found a name that made sense. And it was one I wasn't familiar with.
JC came to Boulder yesterday (where I Iive) and we were able to get together to enjoy a late dinner. It was a great opportunity to reflect on how far we’ve come and what we’ve already accomplished.
All Star Charts launched about 13 years ago. And we launched All Star Options nearly four years ago.
During this time, we’ve seen big bull runs, panic-inducing corrections, and everything in between.
