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Tuesday, July 5, 2022

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Options Expiration Friday – Anything Can Happen

SPY 5 MINUTEAnother crazy day ahead

What else is new in this market?  As you can see from Dave Fry's SPY chart, the pattern is holding up of high-volume (relatively) sell-offs following low-volume run-ups.  This is how the Institutional Investors manipulate the markets to dump unwanted shares on retail investors.  I've been telling you all week how it works and now we can see it in action.  

Of course, it's nice to have this knowledge ahead of time – that's the edge we strive to give to our Members at Philstockworld.  Even if you are just reading us for free and don't have access to our Live Member Chat Room, you would have done very well to follow our advice on Tuesday and go with the DIA puts at $166.80 and the DXD longs at $26.20 – it was right there on top of the morning post (which you can have mailed to you every day, pre-market by SUBSCRIBING HERE)!  In our Member Chat, the previous day, our trade ideas were:

A 5% pullback on DIA is 8.3 points (830 Dow points), back to $158.40 from here.  The June $161 puts are .95 so, if you have $100K to protect against a 10% drop, you can buy $5K worth of the June $161 puts and a 5% drop pays you back $8,000 and a 10% drop to $150 (15,000) would net you $11 per contract so a 10x return is $55,000 back – that's overhedged actually!  

On DXD, the July $25/28 spread is $1.10 and is $1.25 in the money so you get all the upside on DXD up to a 140% profit on a very small move down in the Dow.  We already have July $28 calls in the STP and it's a little too soon to roll but we will.   

On a new trade – you can just get out if the S&P holds 1,900 for more than a day – that's not too far from here.  

INDU WEEKLY$5,000 worth of June $161 puts were cashed out by us yesterday at $1.40, which would be $7,240 on 53 contract, up 50% in 3 days and the Dow has barely even pulled back!  That's $2,240 in your pocket to compensate for any longs you may have left on the table.  The reason we cashed them out is that we expected a bounce today – into the close of options, but we still have our DXD spread, now $1.45 and up 32% out of a possible 172% – so just on track to our goal

So $5,000 in each trade as a hedge would have returned $3,840 in 3 days – aren't ideas like that worth the $1 a day an Annual Report Membership costs?  I know $1 is a lot of money, in our Live Weekly Webinar on Tuesday, I pointed out to our Members that every $1 you spend today costs you $5 in your retirement – but that math only works if you instead invest it wisely.  Of course, the $3,480 you didn't MAKE this week by not spending $7 cost you $19,200 in your retirement – so I think it's a pretty good value proposition, don't you?

Anyway, so how did we know the market was going to turn down.  Well, I posted the link above to the week's post, where I laid out our bear case as strongly as I possibly could but I think this chart sums things up very nicely.  Institutional Traders (ie. Banksters) have been dumping out of the market while their pet Media Clowns (ie Cramer) herd the Retail Sheeple in to buy up the shares.

The "smart money" has left the building and is still leaving every day we have volume while their TradeBots pump the market back up on slower days – so they can get as much as they can for those last few shares in their portfolio.

I've been telling you this for months, David Tepper told you yesterday (see yesterday's post) but, sadly, even just 6 years after investors got very badly burned chasing a stimulus-induced rally – they are jamming their hands right back into the flames that are being fanned by the same Mainstream Media Assholes that screwed them over the last time.  

I say it often enough that you must be sick of it by now:  I don't care what the PRICE of the stock is, I care about the VALUE and, like David Tepper and Warren Buffet – I am just not seeing a lot of VALUE at these PRICES.  We did find 9 value plays this week in Member Chat and we'll go over a dozen more over the weekend but, so far, we haven't pulled the trigger on any of them as we're waiting to see how severe this pullback will be.  

Meanwhile, by combining fast and slow-moving hedges, we're able to take some quick profits off the table while maintaining a very nice upside (140% still to go) on our more conservative hedge.  Not only that but, since we have been drilling our Members on Futures Trading this year, we were able to take advantage of the intra-day bounces.  In our Live Member Chat Room yesterday, at 12:58, I said to our Members:

Gotta like playing /TF long at 1,080, just for the small bounce.  

/TF is the Russell Futures, one of our favorite day trades and it pays $100 per point, per contract when you get it right and boy did we nail this one:  

By having plenty of tools in our trading toolbox, we are able to make money in both directions on the same day.  Other than that, the only other trade we made all day was a bullish adjustment to our CMG spread, as that stock dipped down to $491.  There's another free idea for you – it may not make as much as our option spread from Member Chat, but it should do well into the fall, when margins begin to correct.  

Today is going to be another watch and wait day.  If you are a free reader, you can still get in on the DXD spread, that still has 140% more upside and we certainly want to be well-hedged into the weekend.  I'm sure we'll find something more aggressive than that in Member Chat – it depends how high they manage to take the indexes before the selling kicks in again.  

Meanwhile, enjoy it while you can – as Stephen Colbert points out, we're all screwed anyway:  

 

Have a great weekend, 

– Phil

 

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pirate / greetings
wombat here. doesn't sound like you didn't understand, you just made a mistake – still happens to me quite often. Best advice is take your time – never feel rushed, and look over your confirmation before you send. Or, if you're really unsure about the big picture ( assuming you are using TOS ) construct your trade in the analyze tab and then convert it to 'Confirm and Send' from there.

One of the things that always baffled me is the different names for things. One broker could call something totally different – very frustrating. Since its after hours, here are my two basic lists to keep your head from exploding. I still find them invaluable >>

 

BEAR STRATEGIES

 

BEAR PUT SPREAD / PUT DEBIT SPREAD  / LONG PUT SPREAD

requires no margin

    BUY HIGH PUTS ( CASH — )   ITM  ( higher strike )

    SELL LOW PUTS ( CASH +++)   OTM ( lower strikes, same expiration ) 

 

    **can SELL multiples strikes if you want to be put shares at discount

    Good for picking up shares on bear runs.

 

    example.

    I much prefer picking specific stocks I want to buy at say 2010 lows- october 2011 lows and selling a put spread. 

    For example Aflac is a good buy at 40. So i would then buy a 50 put and sell a 45 as well as a 40 put. I would end     up getting put the stock at 40 and shelling out next to no money. All Jan strikes

 

 

BEAR CALL SPREAD / CALL CREDIT SPREAD / SHORT CALL SPREAD

requires margin

    SELL LOW CALLS ( CASH +++ )   ITM or ATM   ( lower strike )

    BUY HIGH CALLS  ( CASH —    )   OTM  ( higher strike, same expiration ) 

short the strike thats ATM and buy long the strike by further out OTM

 

hugher lift in extrinsic value

 

    Example:
    XYZ stock is trading $63

    Strategy:
    Sell one 60 strike call at +$5.60
    Buy one 70 strike call at -$1.60
    Net Credit +$4.00    

Maximum Profit = Net Credit Received

Maximum Profit = Net credit $4 *100 = $400

Breakeven = Short Call Strike + Net Credit Received ( 60 + 4 = 64 )

Maximum Loss = Difference in Strike Prices ( Spread ) – Net Credit Received ( 10 – 4 *100 ) = $600

 

 

 

 

 

BEAR PUT BACKSPERAD

 

    BUY 2 HIGH PUTS ( CASH — )   OTM – buying more at lower strike

    SELL 1 LOW PUTS ( CASH +++)   ITM 

unlimited profit, limited risk – initiated when trader thinks stock will experience significant downside in the near-term.

The put backspread is a bearish strategy SELLING PUTS and BUYING 2X MORE PUTS at a lower strike. 

It is an unlimited profit, limited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience significant downside movement in the near term.

 

 

VERTICAL SPREADS – same everything, just different strike prices.

HORIZONTAL / CALENDAR SPREAD – same everything, including strike, but different expirations

DIAGONAL SPREADS – different strikes, different expirations 

 

Long strangles need vol to make them profitable since the stock needs to go outside of the long strikes.  Here at PSW, we sell premium, so we are short the strangle, so we want the stock to stay between the strikes.  If vol picks up, our trade gets hurt as option prices will increase and stock movement will as well.  
 
Thanks why during earnings, as vol in a stock is pumped high, ppl will sell a front month option, and buy a back month option in some form (calendar, diagonal, etc).  Take advantage of the juice.

 

BULL STRATEGIES

BULL PUT SPREAD  / PUT CREDIT SPREAD / LONG PUT SPREAD

 

    SELL HIGH PUTS ( CASH +++ ) ITM

    BUY LOW PUTS ( CASH — ) OTM 

 

 

Short PUT protection Good for pullbacks. Bullish strategy, income generating.

SELL a PUT roughly 5% BELOW the current stock price drop while simultaneously 

BUY a put approximately 10% UNDER the current price

This lowers the collateral I have to put up in my brokerage account, hedges risks and enhances risk adjusted return.

 

 

BULL CALL SPREAD / CALL DEBIT SPREAD / LONG CALL SPREAD 

 

    SELL HIGH CALLS ( CASH +++ )

    BUY LOW CALLS ( CASH — )

 

good for a short term moderate rise 

limited upside – depends on the difference in spread of strikes

its a debit spread – you're spending cash

 

BULL CALL  BACKSPERAD

 

    BUY 2 HIGH CALLS ( CASH — )   OTM – buying more at lower strike

    SELL 1 LOW CALL ( CASH +++)   ITM 

 

unlimited profit, limited risk – initiated when trader thinks stock will experience significant upside in the near-term.

The call backspread is a bullish strategy SELLING CALLS and BUYING 2X MORE CALLS at a lower strike. 

It is an unlimited profit, limited risk options trading strategy that is taken when the options trader thinks that the underlying stock will experience significant upside movement in the near term.

 

 

Thanks stjeanluc 

Weak bounces but right before a weekend, who knows… Anything can happen!

Makes you wonder what is in that FOMC Meeting Minutes on Wednesday that they have to line up 4 speakers the morning before!

I'll be reporting from Russia next week and part of the week after and then France until June 7. I actually wonder if I can post on a blog from Russia since they have these new laws that in order to be an editor of a blog with more than 2000 readers you have to report to the authority! In any case, it should be quite interesting. 

I would make sure your posts include a Buy rating for RSX.  You can always include a smiley face as a word to the wise.  🙂

Thanks Zero… Although my colleagues there told me that Russia doesn't spy on its citizens email or electronic communications unlike the NSA in the US. So I guess I am safe.

stjeanluc 

Show them these comments

Have safe travels

 

Phil

For the weekend

If I want to go to the world cup in four years in Russia

What would be a good trade?

Like you did on the buy a Tesla

Fun idea I think for two of us about $25,000. 

Thanks

 

FROM PHIL:  Russia/QC – Well, RSX is nice and cheap at $24, since it bottomed out at $15 in 2009 and was $30 in October.  If we give them until 2016, I suppose this Ukraine stuff will blow over and the 2016 $19/24 bull call spread is $3 and you can sell the $21 puts for $2 for net $1 so $5,000 will get you $25,0000 if it works out but then you'd be on the hook for $110,000 worth of RSX at net $22 if they go in the crapper so maybe you'd rather sell 20 MANU Dec $15 puts for $1.10 ($2,200) and 10 RSX 2016 $21 puts for $2 ($2,000) against 50 of the spreads for $15,000 for net $10,800 and you can hopefully work off another $5K selling more MANU after this bunch expires. 

Phil,

It looks like yet another Manic-mulated Merger Monday coming pUmP.

Strether

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