It's been an epic trip to India and Japan for the All Star Charts team, so sorry for the decreased frequency of trade ideas during the past week. We're on a plane now headed back to the U.S. and JC and I were chatting between in-flight meals (10 hour flight from Tokyo!) about some opportunities we're seeing out our windows from 30,000 feet over the Pacific Ocean.
One such area that has our attention is the US Healthcare Providers space. Earlier in the week, our boy Bruni published a piece featuring a bunch of stocks to watch here.
The one stock that most caught my eye was one setting up for a hundred-dollar-roll and all-time highs.
There might not be a bull market everywhere. It seems interest rates are taking a breather here and deciding their next move. And while they consolidate, options markets are currently pricing in some elevated premiums that are pretty tempting to sell if you're a believer in options volatility mean reversion (I am!).
Sean, what is your strategy for handling the impact of Theta on an open position? Is there a bailout point where the time decay outweighs the potential upside?
The answer is YES. Theta, as well as Gamma often become my enemy as we near expiration. Here's how I approach it...
Today we’re looking at Financials pushing up against their historic 2007 highs for the 3rd time.
The way I learned it was that the more times a level is tested the higher the likelihood that it breaks through. I don’t know if this is going to be it, or if it will take a 4th or a 5th test. But I do think there is a blog post coming soon where we’re looking at Financials at all-time price highs.
Meanwhile, on a total return basis, Financials are already making new all-time highs this week.
Looking at these charts, it is hard not to be enthusiastic about the potential for a major breakout in this sector:
I recently received an email from a subscriber asking about best practices in exiting options positions:
How do you automate managing risk on options if you want to define it through the base stock price? E.g. you have calls on MSFT that you bought based on MSFT holding support at $100. Do you auto-sell (put a stop loss) on the option based on the MSFT price, not the option price itself?
I agree. Lots to play on the upside. That said, lets not get crazy here. We still need to put ourselves in some high probability situations and not bet the farm on any one trade. So let's take a look at a good opportunity in that vein.
As I do at the end of every month, I scan across my portfolio of open positions and observe any positions which hold options nearing expiration in the upcoming month. Today being October 31, I'm setting my sights on November expiry.
