I love when the team feels a little "frisky" and hunts for "speculative" ideas. There's nothing that gets the creative juices flowing more than getting outside the wheelhouse a bit, looking for new experiences.
This lead them down the path of picking through the wreckage in Chinese stocks.
In the recent Monthly Candles Strategy session (find the charts here), JC highlighted a couple names in China that are offering speculative opportunities for those willing to step boldly where most bulls are too sheepish to look.
As options traders, we too can join the party. But we can minimize the risk better while still participating if the speculators have their way.
I can't pretend to understand the first thing about interest rates, how or why they behave the way they do, nor how their moves in relation to each other mean certain things. Thankfully, I don't need to. I just need to follow price.
And right now, price is signaling loud and clear that we need to take a short position in some of these bond vehicles.
I’ve received a few questions from readers about playing bounces in some oversold stocks.
The most recent was Facebook, er… Meta (whatever).
An opportunistic trader hit me with this question:
Is anybody interested in taking a position in these heavily discounted calls in $FB today?
Discounted? Au contraire, mon frère.
Shares of $FB stock may be “discounted” after getting shellacked to the tune of -26% or so. But there are no discounts to be found anywhere on the options chain.
The overwhelming majority of options trades we put on at All Star Options tend to be structured in a way to participate in moves that should take place within 2-8 months. The shorter duration trades are usually trades where we are net short premium (naked puts, short strangles, bear call spreads, etc), whereas our longer-term trades tend to be ones where we are net long premium at attractive prices (in volatility terms).
Today, we're doing something we've never done here. We're making a long-term bet utilizing LEAP options.
"LEAP" is an acronym for Long-Term Equity Anticipation Securities. Essentially, this means we're taking a position in options that have greater than a year until expiration.
If you were on the @allstarcharts twitter SPACES chat this morning (every trading day at 11:30ET), you heard us riffing on today's trade.
I was chatting with an All Star Options member this morning and he asked me a very insightful question:
“Sean, I’d be very interested in your thoughts on why you choose not to make a trade in certain setups?”
He went on to elaborate that he’d like to know the things I look for that are possible “red flags” that prevent me from pulling the trigger in otherwise good stock setups.
The overwhelming majority of trades I put on for All Star Options subscribers are in stocks that the All Star Charts team has identified as stocks we want to be in (either long or short).
The most common reason I won’t pull the trigger is
...And trading volumes are particularly good for the trading exchanges that make it all happen!
With the markets whipsawing back and forth to start the year and trading volumes rising all over the place, the exchanges that extract fees for every stock share, futures contract, or options contract that trade at their venues are seeing their revenues rise.
Couple this with some strong relative performance in the stocks, and we're setup for a very nice bullish move -- should we get it.
Today's trade is in a one such name that facilitates all kinds of trading.
For anyone that joined me, JC, and Strazza on the Twitter Spaces this morning, you heard us scratching our heads on what to trade next.
In this sloppy tape, there just aren't any real compelling opportunities we can find worth getting aggressive with. When the best idea on the table is "buy $QQQ above 350," then you know we're struggling for good directional bets.
But that's ok. We options traders don't just need directional markets to make money. We can take advantage of sideways action too!
And that's what we're going to continue to do with today's trade.
We're continuing the theme of monitoring relative strength in this tricky tape. The next leaders if/when a bull market resumes are revealing themselves now. Are you paying attention?
One of the names that is holding up relatively well recently, and one that also appears in our recent Follow the Flow report is Qualcomm $QCOM.
This week when the broader indexes printed their recent lows, $QCOM tested the low of a the range coming out of its breakaway gap last November and held. This is important.
I joined JC and Strazza today during their daily Twitter Spaces brainstorm and we got to kicking around ideas of how we want to play this market.
When prompted, I voiced my opinion that anything we do in the options space right here should involve being sellers of options. Premiums are elevated pretty much across the board. So whatever we do, let's get a tailwind to help us along. And for me right now, that tailwind is mean-reversion in options premiums.
We never know when premiums will trend back to normal, but we do know that they always eventually do. So we must position ourselves accordingly.
After kicking around a few ideas, collectively we agreed it's best to err in a household name that is unlikely to kill us if we get it wrong.
I wrote that headline to save you the trouble of turning on your TV or following your favorite fear mongerer online. You're welcome.
Unless you've been lost in the wilderness for the last two weeks (not a bad place to have been, btw), then you no doubt know the bulls are currently in trouble.
The fake-out breakout in the Russell 2000 $IWM has turned into a full-blown route, the S&P 500 is testing levels last seen at the end of September and early October, and $VIX has printed the highest levels of the year. There's not a lot to be optimistic about right now -- especially if you're holding a bunch of long positions that are at or near stop-out levels like I am.
I got stopped out of a bunch of positions last week, two today (a long call spread in $STX and a short strangle in $XLK), and a couple more might get exited tomorrow if things don't stabilize here.
Into this maelstrom, we've been dialing back putting on new positions. During last week's holiday-shortened trading week, we only put one new position on -- and that may have been one too many ;)
We're putting on an $SMH March 265/270/320/325 Iron Condor for an approximately $2.15 credit.
This means we’re short the 270 puts and 320 calls, while protecting our position $5 away on both sides with long 265 puts and long 325 calls. We’ll be doing the same number of contracts at all four strikes to keep the risk even.
Check out our short video with the thought process behind these trades:
