You've probably noticed a few recent blog posts and twitter comments from the All Star Charts team singing the praises of "cash". There's nothing wrong with cash as a position if there aren't any compelling ideas to get you excited about. In fact, its often the best move.
However, we options players can still structure trades that will profit in sideways markets. But a big challenge currently is that we prefer higher options prices driven by relatively high volatility to sell into -- and its hard to find that anywhere right now. Across the board, options prices are getting extremely compressed everywhere. What to do?
How about a strategy that positions us to benefit from sideways action while also getting a goose from any reversion to the mean (er, higher) volatility?
One options strategy that we occasionally employ at All Star Options is a bullish Risk Reversal. This is a trade we like to put on when the cost of naked calls is too high for our comfort (due to high volatility and/or higher priced strikes), and we're comfortable taking ownership of long stock in a "worst case" scenario.
Simply, it is a trade where we typically purchase an out-of-the-money call, and finance this purchase (all or in part) with the sale of an equal amount of naked puts in the the same expiration cycle.
This is an advanced-level trade that requires more buying power than most trades we put on (due to the naked puts component) and a higher level of comfort with risk. A typical risk reward graph would look like this:
Imitation is the best form of flattery. And we liked our trade idea in $WYNN so much that a nearly identical play setting up in a completely different sector warrants us the opportunity to repeat the same mechanics.
There's something appealing about stacking edges in my favor while taking a shot on the short side of a casino stock that gives me a little extra juice. Waitress? I'm going to need another cocktail...
On last night's All Star Options monthly conference call, we laid out a play to buy a potential bounce in a leading name in the materials sector. For completeness, the trade plan is below.
If you're of the mind that the broader stock market is set to top out soon, then it makes sense to start hunting for short selling opportunities amongst the weakest sectors. One sector ripe for this right now is the shipping sector. And one stock in particular is offering a rare opportunity to play the downside with straight long puts.
We're headed into another monthly expiration cycle and its time to take some action on open positions with options expiring in March. Not going to sugar coat it -- March positions have been challenging!
Don't look now, but all-time highs are starting to pop up for some well known names. And after just completing the "hundred-dollar-roll," we've got an old classic offering us a cheap opportunity to play for some outsized relative gains.
A stock we've had our eyes on since early February made new all-time highs last week and is showing signs that its upcoming earnings report will offer us a nice catalyst for quick gains.
With nearly 55 days until April expiration, this is the time I start looking at index and sector ETF’s for possibilities in selling delta-neutral income spreads.
This is an exercise I do every month where I analyze the current volatility priced into each of the most liquid optionable ETFs and measure where each ETF sits within its most recent 90 day trading range.
Well, this afternoon as I went through my monthly analysis, it was determined that out of all of the major ETFs that I follow not a single one offered appealing volatility to sell into and each ETF was trading near the upper or lower end of its most recent trading range. This tells me that ETFs are continuing to trend -- and a trend is not your friend when you are a delta neutral premium seller.
The real estate arena has been on a wild ride since early December. The sector (as measured by $IYR, US Real Estate ETF), tumbled more than 13% in less than four weeks, only to completely retrace the move in the next four weeks then continue trudging higher as if nothing happened. The move has been nothing short of astonishing. We've made our bet on a fade with $IYR, but to cover our bases, we've going to take a flier on an individual stock in the space that offers us a nice reward-to-risk opportunity and will hedge our sector risk, somewhat.
