I was foaming at the mouth on Sunday evening.
After a 3% drop on Friday, the futures markets opened down 1.5%.
That’s fine, I thought… and I went to bed knowing if we were at those levels into Monday’s open, we’d probably see some capitulation. Then we could be aggressive fading the move into the drop by playing SPX, TLT, VXX, and GLD.
When I woke up the next morning, the selloff was no longer there. We started to go green.
Well, that changes the gameplan.
My opinion on this market has shifted about 6 times over the past 48 hours. When this happens, I know that my sensitivity is turned too high and for the broad markets I don’t have an edge. Which is fine, there’s no need to force trades.
We are, right now, in the middle of a high reversion range where the market is easily moving 1% in a single day. Getting aggressive in either direction here is recipe for disaster.
To me, it would’ve been a lot easier to trade had the markets properly dropped and the SPX tested 2750 into Tuesday. Aggression would be warranted.
But here, at these levels… not much to play.
My thoughts on this are also compounded with the current positioning on. If you’re looking for positions to put on, just go back over the past month and a half of the newsletter acrhives and you’ll find plenty of open positions that you can enter into at a better basis than I have. Most of these trades expire into September opex, so I’m closely monitoring those if I need to adjust.
This time around, we’ll look at a layup setup in TGT and a capitulation trade in GLD.
Trade #1: TGT
Massive gap higher to new highs on earnings. I want to play a pullback to the earnings day open.
Expected Price: 99.87
Sell to Open TGT Oct 92.50/90 Put Spread
Tier 1: Enter at 0.40, Exit at 0.10
Tier 2: Enter at 0.65, Exit at 0.25
Tier 3: Enter at 0.80, Exit at 0.35
Trade #2: GLD
I want to take a contrarian bet in GLD into the next spike. This trade has done reasonably well over the past few months as long as we got the timing right.
The overnight high is 145.88– I want to see a squeeze above that to take advantage of panicked buyers.
Expected Price: 147.18
Sell to Open GLD Oct 155/158 Call Spread
Tier 1: Enter at 0.47, Exit at 0.17
Tier 2: Enter at 0.67, Exit at 0.27
Tier 3: Enter at 0.87, Exit at 0.37