Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

“COVID Exhaustion”: People Are “Done Being Told What To Do”: Former CBOE Floor Trader

Courtesy of ZeroHedge View original post here.

Submitted by QTR’s Fringe Finance

Ryan began trading in 2002 on the floor of the Chicago Board of Options Exchange (CBOE) as a market maker in the DJX and SPX pits. In 2005, he joined the proprietary trading firm Trebuchet Financial, where he continued to trade options and equities.

In 2014, he began using the @OpenOutcrier Twitter handle to post real-time stock and options trading headlines, breaking news, rumors and strategy.  In early 2017, http://openoutcrier.com/ was launched as an extension of the Twitter handle and integrated news platform.  

The site consists of the OOC Feed, a custom BenzingaPro newswire, chat room, curated social media feed, and searchable archive.

Ryan was one of the first people on FinTwit I started talking to years ago – I’ve known him somewhere between 5 years and a decade. I have since met him numerous times in real life at various conferences and events; and I recognize that he brings sharp insights, especially in the world of options, and a valuable – and different – perspective to the market and investing.

I got a chance to catch up with him for the first time in a long time last week.

Part 1 of this interview was published here last Friday. Here’s Part 2

Q: We’ve seen tons of volatility the last 6 months and you’ve been an options expert for a while. How should retail options traders change their strategies once implied volatility blows out options premiums?

A: This is the concept that is the hardest to grasp for most new options traders. I often hear, “I’m long puts and my stock went down, how did I lose money?” This is the effect of volatility on the price of options.  Especially out of the money options, who’s entire value is based on volatility and time to expiration. 

This was common for traders who bought puts on stocks after they’ve going parabolic (like $BYND $GME $AMC).  They’ll see that the stock is down 30%, but they own puts 50% out of the money and in the time since they bought the puts volatility is also down 50%.  This is also very common when newbs attempt to trade options around earnings. 

I will never hold a long option position over a companies earnings. There are three possible outcomes for what a stock will do over earnings, move your way, move against you or not move at all.  In all three scenarios though, the one thing that is almost assured, is that volatility will come out of the options after the earnings. This means you immediately lose in 2 out of 3 possible outcomes. Also, you might still lose on the third as well, if the stock’s move is not great enough to mitigate the amount that the volatility is lowered. Never hold long options over earnings, its just a terrible idea.

There are two things about volatility in general that I want to be aware of: what is the current volatility in relative terms and almost more importantly what direction do I think volatility is moving in. Based on these two factors I will tweak my trading strategy to try and capitalize. In the current bull market, we’ve had relatively low volatility for years.  This lends itself to being long options (because they are cheap) and then allowing them to increase in value with news or buying volume (which increases volatility as well). This is my favorite strategy and style of trading, scalping options from the long side as they increase in volatility.

After the pandemic sell-off in early 2020, there was fear in the market as we sold off.  This fear, as well as the large directional move to the downside, meant an increase in the volatility of the market, and more expensive options.  Its much harder to be long options in that type of high vol market outright. This is when I want to be short options in some capacity. Personally, I never naked short an option, because this holds the possibility of unlimited risk (whereas if I am long an option have limited risk, and can only lose what I pay). Therefore I will short options in either vertical or calendar spreads.  Use vertical spreads if you want to mitigate the effects of volatility, meaning different strikes in the same expiration. Use Calendar/time Spreads if you want to take advantage by selling a high volatility expiration against a lower volatility expiration (I prefer the same strikes across different expirations).

Thanks, Ryan. A question that might be timely for 2022: How do you hedge the broader market using options? Some of your favorite strategies?

I’d reference my answer to your last question. If we are in a low volatility bull market, then its relatively cheap to own puts vs your longs, or you could own VIX calls vs a big market downturn.

You can always mitigate the cost of owning protection by using spreads, but this caps your protection as well. Its a bit counterintuitive but when things are cheap and there is no fear, that’s when you want to pay for your hedges.  You don’t want to have to chase and pay up for puts when we’re crashing because you need it. However, almost everyone panics into puts out of fear vs being prepared and having the protection, its just human nature.

I know this isn’t your specialty, but have you looked at China? Anything worth dabbling in with U.S. listed China based names or are you cautious?

I’ve loved trading these stocks and this story over the last five years or so. I am by no means an expert on US/China relations, nor do I have any idea the eventual outcome that we arrive at [with China]. 

What I do know is that these are huge companies and there is the very real possibility some, or all of them, are delisted from US exchanges. My gut tells me that there is too much US financial and political capital invested in keeping this charade up for them to blanket delist them all. The US bill doesn’t really appear to have any teeth (it wants US auditors to examine) or urgency (companies have years to comply), so I don’t see them killing it from the US end.

Most of the big hits to the Chinese stocks have come from Chinese President Xi taking action. This makes things much harder to predict what he’ll do next in the name of common prosperity.

This is a great example of how big Macro and political headlines can be used to trade individual stocks. For narratives [and themes] like these that span and develop years, I want to have a list of ‘go-to’ stocks to try and take advantage of as news breaks. For example:

  • Chinese Stocks: $BABA $BIDU $JD $PDD

  • Vaccine Names: $BNTX $PFE $MRNA $JNJ $NVAX

  • EV Stocks: $TSLA $NIO $LI $XPEV $RIVN $LCID

This can work for any big news story and sector.  If there is the possibility of a binary macro or political or any kind of news, then I want to already have an idea of what stocks I think will move so I can get there as quickly as possible. I’m not front running the trade by putting a position on and hoping that I’m right, but I’m teed up and ready to go and respond when the news hits.

Will Jerome Powell hold his nerve this year and taper as expected? If yes or no, what will the outcome be for equity markets?

I think he will taper as expected and I’m at least a little excited to have Fed meetings that matter again. What is the Fed’s mandate now? Feels like they’ve been bobbing and weaving, changing their goal to justify their actions. 

But inflation is the market’s Boogey Man and it’s a direct result of previous misguided Fed over-reaching. I think Powell knows this and will attempt to get it under control or else it will be the legacy written on his headstone.

What commentators and fund managers do you read/listen to, and why?

None, because they are all full of crap and I don’t want their opinions or BS poisoning my brain. The problem in general with making market calls is almost always an issue of time frame.

‘Joe CNBC loves Facebook’ is the headline but from where, why, for how long, what’s your stop? What if tomorrow the commentator changes their mind on new information? Then the problem with people who listen to market calls is they expect to be spoon fed entries and exits as if they are the personal client of the commentator. 

This is an impossible situation to appease everyone in markets that change and evolve by the second.  

What’s your take on how the nation will navigate Covid in 2022? What effect will it have on markets?

The nation as a whole has COVID exhaustion. After two attempts to really return things back to normal derailed by Delta and Omicron, people are done being cooped up and told what to do. 

I think people are at the phase of learning how to live and navigate the risks on their own and don’t need or want the government to dictate things anymore.  I think we re-open and move forward with our new normal.

More work from home and tons of pent-up personal travel, less offices and business travel. Its going to be hard for some companies to re-assert themselves over employees after all the freedom and flexibility they have tasted.

The employment situation is very interesting to me.  An entire class of workers don’t feel the need to stick with a single company for their entire careers, or even very long stretches. There seems to be a sort of mercenary mentality to these workers where they will do a job for a bit and as soon as they get bored or disappointed with the company they cut bait and move on to any number of opportunities available. 

I can’t recall a moment in my professional career where individual workers had more opportunities or leverage.

What’s new with OOC?

At OpenOutcrier, we’re currently working on a site redesign and relaunch. We are going to package our premarket prep Twitter posts into a free email for anyone who wants it. And god willing, we are finally going to integrate a squawk into the site. I can’t wait for everyone to hear me swear with every losing trade!

If anyone is interested in trying out the site come to www.openoutcrier.com and sign up for a free two week trial.  If you join and chat in the pit that you read this article from QTR I’ll add another two weeks to your trial for free.

--

Zero Hedge readers can get an exclusive offer of 22.20% off FOR LIFE as subscribers by using this link: Get 22% off forever

DISCLAIMER: Everything here is the opinion of OOC/Ryan Sellers. None of this is a solicitation to buy or sell securities. It is only a look into our personal opinions and portfolios. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. I’m not a financial advisor, nor is Ryan. We hold no licenses or registrations and are not qualified to give advice on anything, let alone finance.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!