As June gets under way, it’s time to review positions with June options that remain open (haven’t already hit profit targets or been stopped out).
Most trades I put on for All Star Options tend to have a minimum duration of 30 days (short premium plays) and often as long as 6-8 months (for long premium plays). As options approach expiration, greeks like theta and gamma start to become my enemy and whipsaw my P/L. Therefore, as options and spreads get into the expiration month, my best practice is to put each position on notice — it’s time to take action.
In the latest All Star Charts Monthly Conference Call, JC laid out a number of bullish trades. In the week or so since that call, a number of the stocks mentioned have since pulled back. Does that mean the trades are dead?
Not necessarily.
Nothing goes up in a straight line. And if you're a believer that our current pullback is just a result of sector rotation and a reload for a later resumption higher, then you've got to be a lover (as I am) of opportunities to enter the strongest stocks as they pause and/or pull back a bit.
With that in mind, we're putting a trade on in a Pharma stock that has the wind in it's sails.
Don't fight the tape. The markets are moving higher, whether we agree with it or not.
That said, we want to be long the strongest stocks. This is trendfollowing 101.
Last week, Steve Strazza put up a bunch of ideas in semiconductors which have been leading the way. Many are now breaking out so we're going to put on an options trade to take a jump into this trend.
Ok, I have to be honest here. I'm not incredibly bullish at these prices. As much as I try to divorce myself from the news cycle and the fundamentals, its hard to think NOW is the time to get long.
That said, only price pays, and charts and declining volatility in many stocks is telling different stories.
The beautiful thing is I can express bullish trades with options and clearly define my risk. Here's one that looks like a good risk reward:
In March, the up move and subsequent retracement in Bonds was breathtaking and had the world's attention.
In April, Bonds spent most of the month "normalizing," at a newer, higher level.
Here in May, we're starting to see signs that another move to the upside is materializing. Here's a quote from JC in a recent email to All Star Chart subscribers:
If you're looking for an uptrend, it's in the bond market, NOT the stock market.
...the technical setup in Treasuries looks much better than it does for Stocks right now, over both long and short-term timeframes. TLT is trading just a few percent off all-time highs as price just broke above a confluence of resistance.
And here's the chart of relative strength between $TLT and $SPY that adds further evidence of a resumption of trend for TLT:
In a recent blog post, JC highlighted some bullish stocks that he can simply no longer ignore. Regardless of whether or not we feel the upside may be close to exhausting itself in the broader markets, there are some setups that are screaming for attention.
For the past week or so, it's been a feeling to me that markets are setting up for some sideways chop with any directional bias being to the downside from here.
Meanwhile, options volatilities still remain elevated across the board (though well off the March highs) reflecting a lingering fear among market participants of another shoe to drop as the Coronavirus scare continues to effect human health and the global economy.
Against this backdrop, I'm looking for some delta-neutral credit spread strategies to employ. When doing so, I like to scan the most liquid ETFs and look for the ones exhibiting the highest premiums.
The broader markets are starting to show signs that we may be setting up for some sideways-to-down chop.
And one sector that is likely giving investors fits is the financials. During this recent "recovery," $XLF has continually been underperforming relative to the S&P. JC shared this chart today highlighting this observation:
So now that all the "FANG" stocks have reported earnings and their price performance has essentially dragged equities indexes higher over the past month, now what?
As May gets under way, it’s time to review positions with May options that remain open (haven’t already hit profit targets or been stopped out).
Most trades I put on for All Star Options tend to have a minimum duration of 30 days (short premium plays) and often as long as 6-8 months (for long premium plays). As options approach expiration, greeks like theta and gamma start to become my enemy and whipsaw my P/L. Therefore, as options and spreads get into the expiration month, my best practice is to put each position on notice — it’s time to take action.
