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.
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?
It would seem that the "new" economy we live in -- one where we order everything online for fear of walking into stores -- would benefit the companies that provide the infrastructure and transportation to make that happen. Fundamentally, that makes sense. But we're chart readers here, and the charts are telling us something different.
The guys at ASC are out with a piece this week highlighting the weakness under the hood in some of the biggest sectors in the US Stock Market. Read it here.
One of the poster children for weakness we want to get short ahead of another possible leg down is setting up right now.
Since I've got a little positive delta building in my portfolio and I'm leaning towards the market feeling a bit overextended here, I'm adding a little negative delta in an index to help balance the risks in my portfolio a bit.
And of course, it makes the most sense to get short the weakest (in relative terms) index to express this hedge.
Options premiums are still pretty elevated across the landscape and the default mode for me when looking for trades to put on is still to prefer selling premium to express any directional bets.
However, JC put some bullish metals ideas in my head last week that are starting to look interesting to me. And there's one in particular that warrants a shot with a debit spread -- where we can use the prevalence of still high options premiums to help us lower our cost of participation in a directional bet.
Now, $XLI is bumping up against some formidable upside resistance. And with options premiums still elevated, we're going to use them to leverage into a bearish directional bet here.