While bargain clothes shoppers seem to be driving profits in a way Wall Street likes, it takes a certain kind of trader to buy stock in the company when it's making new All-Time Highs.
Well, I just happen to be that type of trader! In fact, one of my favorite setups is to buy stocks making fresh all-time highs. There is no overhead supply of bagholders looking to dump the stock to get back to even. Nothing but blue skies ahead.
And when options premium has collapsed, we can buy long calls to put ourselves in a position to enjoy the possibility of unlimited gains.
After some pretty significant broad market moves in both directions in recent weeks, it's starting to feel like market participants are a bit tired. And can we blame them?
While volatility is often beneficial to active traders who have a good game plan to pounce at opportunities that are presented in such environments, eventually, we get tired. It's exhausting.
Knowing this, we can take advantage of this potential situation by crafting trades that take advantage of the likely decrease of options premiums that often takes place when traders are tired and stocks and indexes start trading in smaller ranges.
So let's use the Utilities sector to express a bet on compressing ranges...
So we were talking about a guy who's apparently subsisting only on McDonald's patties for the next 30 days. Just the patty --- no bun, no condiments, no lettuce. He's trying to prove some kind of point that it's not McDonald's burgers that are unhealthy, it's everything else in a typical American's McDonald's order at the drive-thru window.
Ok. Whatever.
But all this "healthy McDonald's" talk got us thinking about the even healthier looking chart of its stock $MCD in recent weeks:
We've got an oil stock on the doorstep of multi-year highs, a recent shakeout that probably rinsed out the hot-money crowd that came into the stock following their latest earnings report, and implied volatility plumbing new yearly depths.
This sets up an excellent opportunity to take a flyer on a simple long calls trade.
“Why do you rob banks?” authorities asked notorious bank thief Willie Sutton.
His response: “Because that’s where the money is.”
We're not planning on robbing anybody, but if today's trade plays out like we think it can, it might feel like we're stealing. Only, we won't need to worry about the authorities coming after us, nor will we need to feel bad about it.
Our Analyst Willie Delwiche says that a basic requirement for many bullish ideas right now is that any stock or ETF in question needs to be above August highs. Anything below August highs is subject to a rude reversal. I'm on board with this line of thinking.
So, today's trade is in an American bank that is above its August high and showing signs of wanting more.
With strength starting to stand out in more and more sectors, we have a few good setups that we like for long trades here.
In chatting with our Head Technical Analyst Steve Strazza today, he pushed me in the direction of today's trade by highlighting the fact that if this one moves, its likely to move much faster and stronger than a couple of the other ideas I was interested in.
And the options in this stock are set up in a way that we can play this idea with a simple long calls trade. I like that. So let's dig in.
And price continues to tell us the Energy bull market still has legs.
Today's trade is a case in point where trading action today announced a declaration that an old-school oil services name wants to continue climbing higher.
Yesterday we were treated to the latest interest rate hike from the Federal Reserve and a speech and Q&A with Fed Chairman Powell that apparently wasn't well received by the market as stocks slid furiously into the closing bell and continued the selloff into this morning.
Where we go from here is anyone's guess. Still, I'd like to take the opportunity to continue taking advantage of consistently elevated options premiums and put on a delta-neutral credit spread in an area of the market where I think some sideways rangebound action may be setting up into the end of the year.
"Old Economy" stocks are drawing our attention again.
Our Head Technical Analyst Steve Strazza says: "these old economy stocks are all beating earnings and taking leadership roles" and he cites companies like Caterpillar $CAT, Deere $DE, as well as energies, homebuilders, and transportation stocks.
Today's trade is an expression of the continuation of this theme, and our target stock is offering us a nice pullback to enter into.
We continue to be handcuffed by earnings season. Some of the best setups we like right now are in stocks slated to announce earnings over the next week or two. As an options trader, I don't like to position ahead of imminent earnings announcements. That is tough binary risk to control.
Today's trade has earnings coming up in a little over a month from now, so that'll have to do. At least it gives us some time to build a little cushion. Because if we're wrong in this trade, it's likely we'll find out pretty quickly over the next two weeks.