We don't do a lot of "earnings" plays here at All Star Options. We don't scare away from entering smart trades with defined risk ahead of earnings reports, but only if we feel there's a larger play in the cards.
However, when all the stars align, we'll consider specific opportunities.
So far, this new corrective phase in U.S. stocks is playing out according to script: Deep down moves, interrupted by gravity-defying bounces that suddenly get saddled with lead weights which drag stocks back down with the fishes. Sorry for the horrible Godfather-inspired mixed metaphor.
In this type of environment, we want to be patient with our risk-defined positions when they go against us, yet aggressive when they go our way. This one simple mindshift will be what separates the winners in a bear market from the pretenders.
We laid out our first list of stocks we want to be short in a correction back on October 12. So far, this list is treating us well. The next name that we're ready to tackle is Cisco $CSCO.
I posted this on twitter today as the latest round of dip buyers were tripping all over themselves to buy up any and all perceived bargains being offered by Mr. Market. While the cumulative bounce for the past three trading days has been impressive, I've traded through too many corrections and bear markets to be tricked this easily into thinking the storm has fully passed.
Instead, I'm welcoming bounces like this because it more easily reveals the weakest names that are struggling to rebound. The stocks that haven't bounced or are struggling in relative terms to rise with their brethren, these are the names we want to press into on the short side. They are the ones likely to lead the carnage on the next leg down.
Where I live in Colorado, we received our first snowfall of the season. And it meant business. Today, we woke up to 8 inches of overnight snow and it kept falling all morning. Yesterday, it was nearly 70 degrees and sunny. It's the time of the year when seasons change quickly around here. Not unlike the markets this week.
My wife and I have both been more mindful of our diet this year, and our four year old son is growing like a beanstalk. And as the season is changing rapidly, we find ourselves scrambling through our closets looking to locate last winter's clothes, only to find most of them don't fit any of us. So, comically, we find ourselves a little ill prepared for the new winter.
This all feels very fitting as the markets most definitely and rapidly changed seasons this week. And we were still wearing a lot of last season's positions. As you can imagine, that left us pretty uncomfortable.
Long trades getting blown up all over the place. Luckily for us, we'd had a good run coming into last week with opportunities to take profits in a lot of our positions. That makes the exits and adjustments that have been forced upon us the last few days a bit more palatable. In both cases, the profits and losses were taken according to our plans as laid out when we entered into the trades in the first place. Weeks like this are a good reminder of why we put trade plans together up front to begin with. When markets start getting wacky, the last thing we want to be doing is scrambling in the wind, trying to keep our heads about us as we're struggling to assemble puzzle pieces on a board that won't stay still.
The good news is, rising volatility will likely offer us some good higher probability income trades in the coming days and weeks to hopefully more than make up for this week's reality check.
U.S. stocks gave everyone a little reminder last week that stocks don't always go straight up in Bull Markets. Significant gains will be seen in the drivers of every bull run, but not without pauses and pullbacks along the way. Overall, we're still bullish here, but more cautiously so and looking to minimize our risks on long plays as best we can.
If the markets are currently undergoing a pause that refreshes, then we expect the resumption to highs will be lead -- at least in part -- by semiconductors. With that in mind, we want to be buying dips amongst the leaders in this space and we have a great candidate lined up.
Gotta love it when the market hands us a little two-way action to remind everyone that stocks go both up and down. And more importantly, I get real excited when I start to see options premiums rise thanks to irrationally freaking out market participants. Is the top in? I don't know and neither do you (my gut says no), but there are plenty of people starting to buy protection in the options market to protect their positions. We'll happily take the other side of those insurance bets.
We were bullish on Microsoft all summer, and with $MSFT printing another new all-time high this week, our stance hasn't diminished in the least. The only thing that's changed is we've raised our price target. That tends to happen in bull markets.
In our October conference call for subscribers, we teased a bullish trade idea in $MSFT. And upon further reflection, I think I've come up with an even better probability play with an opportunity for better risk adjusted returns.
We've got 46 days until November expiration and it's always good to have some income trades on for every monthly expiration. It just makes good sense for somewhat diversifying our portfolio. We don't want to have only directional and/or long premium plays on. If the market goes sideways or falls somewhat from here, we need to have some cushion built in somewhere.
After reviewing all the most liquid ETFs we track, I've identified our best candidate based on relatively high implied volatility and range-bound trading action.
As the Technology sector goes, so often goes the market. And the Tech Select Sector ETF $XLK has been going nowhere -- increasingly so -- over the past several weeks.
Does anybody here think broader market indices go sideways from now until the end of the year?
Yeah, I didn't think so.
If, or rather when, indices start busting a move, we're pretty confident that the technology sector will have a major say in the direction and pace. And we've got a plan to participate, whichever way it goes.
This is the monthly conference call for Members of All Star Options. In this call we will discuss the current market environment and focus on price and volatility behavior. Throughout the session, J.C. Parets will add commentary on the technical outlook moving forward, and Sean McLaughlin will discuss the options strategies available to profit from the market activity.
This month’s Conference Call will be held on Tuesday October 2nd at 7PM ET. Here are the details for the call: