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Steven Place

Hangover Trade in MARA

February 23, 2021 By Steven Place

MARA is being taken to the woodshed with many other momentum stocks today. This is a crypto proxy play, so this plus RIOT and SOS and MVIS are all getting taken out.

With this move, investor fears are (justifiably) elevated, and implied are still running hot at around 200%. I think that this is a fade.

The technicals still look "fine." Odds are the stock won't see a gap fill to 40 anytime soon, and will just chop investors up to death.

Which is good--- that's what we want, we want to see bounces and selloffs and chop, all while our trade setup decays and we pull out a nice profit.

The Setup

Pretty straightforward idea here, we are selling puts that have a nice cushion to the downside and offer some solid risk premium. I think today's nasty selloff may see a few more days of downside, so it's possible I'm early on this trade.

That's why I want to scale in-- I will add to this trade if MARA comes into the gap from Feb 5th-- that's in the mid 22's, and I'll look for just a bit more of an overshoot to the downside to add.

If things get nasty, then I can always roll the put sales down and out to April options.

If you want to keep your margin requirements down, then look at buying the 15 put against, making the trade a March 18/15 bull put spread.

Put Calendars in RIOT

February 16, 2021 By Steven Place

From the Desk of Captain Obvious:

RIOT is up.

It's doubled in price over the course of about 10 trading days, due to its exposure in the crytpo space... the run to 50k in BTC is helping as well.

I want to put on a bearish trade, looking for... not a full round trip of the most recent rally, but a good giveback of the gains. This will most likely be coincident with a rug pull in BTC, and most likely a risk-off trade across the total trading environment.

I've been hesitant to get super bear-ed up into the front side of these rallies, but I think there is a good opportunity here if structuring your risk right.

Let's first talk about what probably won't work: buying puts in March. Here's why:

 

Highlighted in yellow are the implied vols for the March options board. 240% is entirely too rich, and what will most likely happen here is what we have seen when these parabolic names start to give back their gains...

The IV gets crushed.

We saw this recently in TLRY:

On Feb 10th during the parabolic spike, the March 30 puts were 4.45x4.65 with an implied vol of around 300%.

Right now, those same puts are trading 6.20x6.35 with an IV of 205%.

That means, on a stock that went from 77 dollars premarket and got cut by 50% in 2 days... the put value increased only by 2 bucks. Not much there.

So that's the dynamic I'm looking for-- a hard stop run in the stock, but the March IV comes down while longer dated options stay bid.

Here's the trade setup:

I paid 4.30 for the spread, and you can get a better fill if you leg into the trade.

This is a very elegant setup because it takes advantage of the current term structure in the RIOT options board.

And if we see a pullback, the implied vol in March will start to drop, and the Jun options will stay around the same IV, because longer dated options are not as sensitive to short term changes in IV.

Opex breakevens show 20 and 65, but those will probably tighten up over time.

If RIOT has some monster move higher and I completely miss the top on this, you will be shocked at how well this spread will hold up. When I did put calendars in TSLA's parabolic move, I was about 2 days earlier and the stock ripped higher... but we didn't see any change in the value of the calendar due to some options voodoo.

So I expect that this trade shouldn't have a ton of heat initially and we don't have to stress about the near term price action in the stock.

Now le'ts say the stock completely crashes and comes into 40... what I will then do is close out the long Jun puts and just hold onto the March puts naked... this will require margin, and you can buy a March put to cut down that margin.

Also, if the stock stays elevated for another month, I can just roll the short puts to April for a credit and continue to reduce the basis in the trade.

 

Proactive Spreads, January 5th, 2021 - GLD, ATVI, PENN

January 5, 2021 By Steven Place

The S&P had another rug pull on Monday-- great way to start the new year!

Overall, things are "fine." The only major warning sign was the fact that Monday's range was more than a 2 standard deviation move-- when there are volatility pivots like that, there is a tendency for the "impulse" low to not be the final low. We could easily crack 3650, get a bunch of investors spooked, and start carving out the lower end of a range-based correction.

Or we could continue with the Q4 2020 playbook and it can be a one-off event as we jam to new highs.

For today, our focus will be planning for a few things.

First, we want to be ready for the dollar to hit a cycle low. It's extended, and any pop should lead to some reversion in commodities. We'll also be looking for rug pulls in two tech/momentum names.

Trade #1: GLD

Trade Setup

Expected Price: 180.38

Sell to Open GLD 19Feb21 172/169 Put Spread

Tier 1: Enter at 0.56, Exit at 0.14

Tier 2: Enter at 0.784, Exit at 0.33

Tier 3: Enter at 1.008, Exit at 0.44

Stop Out If Close Under 171.89

Trade #2: ATVI

Looking for a pull to the 20 day moving average, prior resistance, and support from the candlestick wicks from 2 weeks ago.

Trade Setup

Expected Price: 88.25

Sell to Open ATVI 19Feb21 80/77.5 Put Spread

Tier 1: Enter at 0.43, Exit at 0.07

Tier 2: Enter at 0.602, Exit at 0.22

Tier 3: Enter at 0.774, Exit at 0.28

Stop Out If Close Under 79.89

Trade #3: PENN

Looking for just a little bit more downside here. I may have missed the short term bottom, but if it goes on one last stop run to attempt a test of prior resistance, I want to be involved.

Trade Setup

Expected Price: 78.5

Sell to Open PENN 19Feb21 70/65 Put Spread

Tier 1: Enter at 1.05, Exit at 0.37

Tier 2: Enter at 1.47, Exit at 0.76

Tier 3: Enter at 1.89, Exit at 1.01

Stop Out If Close Under 69.89

Proactive Spreads, December 3rd, 2020 - XLNX, SPG, SHOP

December 3, 2020 By Steven Place

Not much has changed about the overall market structure. Unless we see proper price violations, we should consider the trend to be up.

There are some "hot spots" in the market right now-- semiconductors and commodity stocks come to mind-- so we may simply see a rotational correction. There is some risk right now as the PFE news came out about vacc*ne supply delays, yet if that doesn't cascade over the next few trading days it should be fine.

(Yes, I am censoring the word, just so I make sure this email lands in your inbox properly.)

Overall, try not to overthink this market. My bet is that corrections will be limited to pockets of the market, and volatility will continue to head lower as we come into holiday trading.

Trade #1: XLNX

Very clean move over the past week, look for rotation lower as some other semiconductor companies take the lead. First dip in this stock should be a quality one.

Trade Setup

Expected Price: 136.59

Sell to Open XLNX 15Jan21 120/115 Put Spread

Tier 1: Enter at 0.94, Exit at 0.24

Tier 2: Enter at 1.316, Exit at 0.57

Tier 3: Enter at 1.692, Exit at 0.76

Stop Out If Close Under 119.89

Trade #2: SPG

If commercial real estate gets another whiff of good news, SPG will jam higher and (finally) fill the gap from March. Once it does, I want to fade it.

Trade Setup

Expected Price: 100

Sell to Open SPG 15Jan21 110/115 Call Spread

Tier 1: Enter at 1, Exit at 0.32

Tier 2: Enter at 1.4, Exit at 0.68

Tier 3: Enter at 1.8, Exit at 0.9

Stop Out If Close Over 110.11

Trade #3: SHOP

Got a lot of eyes on this one, looking to chase a breakout. My guess is we need one more washout before the big move comes, and I want to be prepared to play the dip into key levels.

Trade Setup

Expected Price: 1020.42

Sell to Open SHOP 18Dec20 975/970 Put Spread

Tier 1: Enter at 1.35, Exit at 0.72

Tier 2: Enter at 1.89, Exit at 1.26

Tier 3: Enter at 2.43, Exit at 1.71

Stop Out If Close Under 974.89

Proactive Spreads, November 19th, 2020 - VZ, TSLA, DIS

November 19, 2020 By Steven Place

Not much to say today, as in previous PS newsletters we've laid out all the clear risks in the market.

Let's keep it simple-- the longer we hold above 3500, the higher the odds for trend continuation.

And today was a "piercing pattern," meaning that the gap down and probe lower was met with aggressive buyers. I'd prefer a deeper pullback, yet it's still a very strong market.

At what point do we top out? When enough hedging has been burned off. The VIX is still in the 20s as investors are still scared about the 'rona and the fiscal deal that seems to never come around. Once we process through those risks, that's when we can start getting a touch more aggressive with selling call spreads. Until then, we need to work with any dips the market will give us.

Trade #1: VZ

This is a bit more of a "boring" setup as Verizon is not traditionally a fast moving stock. Because of this we will look at Jan opex for our trade setups.

The stock is flirting with new highs, but more sellers need to get cleaned out first. I want to see an attempt of that gap fill to initiate a position.

Trade Setup

Expected Price: 59.47

Sell to Open VZ 15Jan21 57.5/55 Put Spread

Tier 1: Enter at 0.51, Exit at 0.17

Tier 2: Enter at 0.714, Exit at 0.35

Tier 3: Enter at 0.918, Exit at 0.46

Stop Out If Close Under 57.39

Trade #2: TSLA

TSLA finally saw the move out of consolidation. The news of S&P inclusion was the catalyst, yet that has been telegraphed even since August.

Technically, we look for continuation, and I'll be rooting for a pullback to participate in some spread sales.

Trade Setup

Expected Price: 476.54

Sell to Open TSLA 18Dec20 400/396 Put Spread

Tier 1: Enter at 0.78, Exit at 0.23

Tier 2: Enter at 1.092, Exit at 0.5

Tier 3: Enter at 1.404, Exit at 0.67

Stop Out If Close Under 399.89

Trade #3: DIS

DIS is most likely establishing a "base on base" pattern, creating a new range against the most recent volatility pivot higher. It will probably be a sloppy mess given it's a proxy to the 'rona, yet I think the most recent levels at 135 will hold pretty well.

I'm looking for a deeper dip here as it fills the gap from last week.

Trade Setup

Expected Price: 138.34

Sell to Open DIS 18Dec20 130/125 Put Spread

Tier 1: Enter at 0.83, Exit at 0.12

Tier 2: Enter at 1.162, Exit at 0.39

Tier 3: Enter at 1.494, Exit at 0.5

Stop Out If Close Under 129.89

Proactive Spreads, November 16th, 2020 - BABA, PDD, MU

November 16, 2020 By Steven Place

Another weekend, another vaccine trial result. This time it's Moderna, which is claiming a 95% success rate.

This is helping the overall psychology of the market. Instead of worrying about the third or fourth waves, institutions can now start modelling their risk with more clarity.

The market hates uncertainty. The transition from an uncertain narrative to a certain one is where market rallies happen, and I think we're well into one.

A big key that I saw last week is how well some sectors held their gains. Financials didn't fall apart, smallcaps kept the Monday low, and airlines... that's right, airlines of all places didn't fall apart on Monday's parabolic spike.

In the face of case spikes in Europe and the Northeast, markets held firm. That's a signal! When an obvious bearish narrative isn't confirmed by price, that's where we see continuation as the market is pricing in something different than the prevailing narrative.

Are we close to an intermediate term top in stocks? Maybe, but probably not.

The market loves certainty, yet there comes a point in time where if all the risks are effectively discounted, then nobody will get paid to hold into a low risk environment. That's where tops can happen, and we aren't there yet.

The VIX is still in the 20s. Until that really starts getting hit and no investors are buying hedges, we must assume overall trend continues higher.

Trade #1: BABA

Alibaba has not had a good run over the past few weeks. The "Singles Day" in China turned out to be good sales numbers, but that wasn't the reason it's been weak.

"Ant Group" was supposed to IPO and was 86'd by the Chinese authorities. Color me shocked.

Jack Ma is involved in the IPO and BABA owns a third of ant. It was supposed to be the largest IPO since Sauidi's Aramco. But the CCP pumped the brakes on the whole thing because it's what they like to do when someone like Jack criticizes the CCP banking system.

Technically, the stock is oversold. I think there is enough of a support level coming in from the rising 200 day moving average and previous support that we can get away with selling some put spreads here.

Trade Setup

Expected Price: 258.38

Sell to Open BABA 18Dec20 230/225 Put Spread

Tier 1: Enter at 0.72, Exit at 0.05

Tier 2: Enter at 1.008, Exit at 0.21

Tier 3: Enter at 1.296, Exit at 0.26

Stop Out If Close Under 229.89

Trade #2: PDD

PDD had a very nice move higher on the back of good earnings. It saw a second day push and got ahead of itself. I still like it short if it can reclaim Friday's close.

Trade Setup

Expected Price: 153

Sell to Open PDD 18Dec20 180/185 Call Spread

Tier 1: Enter at 0.8, Exit at 0.08

Tier 2: Enter at 1.12, Exit at 0.34

Tier 3: Enter at 1.44, Exit at 0.44

Stop Out If Close Over 180.11

Trade #3: MU

MU is breaking out to new highs on volume. We can get away with following the trend on this one.

Trade Setup

Expected Price: 61.5

Sell to Open MU 18Dec20 55/52.5 Call Spread

Tier 1: Enter at 0.34, Exit at 0.03

Tier 2: Enter at 0.476, Exit at 0.06

Tier 3: Enter at 0.612, Exit at 0.08

Stop Out If Close Over 54.89

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