Options Trading and Education Blog

Option Pit Vol Report 10-17-2017

Posted By Mark Sebastian Tue, 10/17/2017 - 9:17am

AMZN gives WBA the boot

Posted By Andrew Giovinazzi Mon, 10/16/2017 - 3:56pm

Ever since this summer when AMZN kicked the tar out of COST and WMT for buying toney retail space owner WFM, I have been waiting for the next victim.  Meal maker BLUE got thrashed but that was kind of a David and Goliath battle anyway.  WBA is no market pansy but rather a real heavyweight globally in prescription drugs.  It did not matter much as the leader premium got kicked out of WBA in a hurry.

I tried to remember the last time WMT fell apart like this and it was around the tax inversion takeover of Boots.  That was a good buying opportunity too.  Since this is an option blog I won’t bore you with the details of the fundamentals but they are good.  I think the moves recently are a bit underpriced with earnings coming out.  Normally WBA is a mid-teens IV stock but right now it could be anywhere really with a $5 move in the next month easily in the picture.  i think the outsize move potential is the real story right now, just don't know which way.

  LivevolX for Lightspeed

I think the Nov24 cycle is kind of a bargain. I like it as a straight strangle buy (this worked ok in COST this summer).   Diagonal put spreads might work too for someone who wants to own WBA with the protection of a downside put.  You could even take some diagonal credit and buy a cheap upside call butterfly in AMZN with it.  After all, AMZN just goes up.

The Trade

I like owning the WBA Nov24 strangles and one could write puts against it for a long delta lean to jump up the aggressive quotient.  One would have to be ready to roll that shor t put as watchers of COST have seen it is all not all a one-way trip back.

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Disclosure:  WBA, WMT, COST and AMZN positions

Our Free Easy VIX class is Oct 26th.  Links coming soon.

Option Pit Vol Report 10-16-2017 Banks

Posted By Mark Sebastian Mon, 10/16/2017 - 9:12am

Idea of the Week: AMAT

Posted By Andrew Giovinazzi Fri, 10/13/2017 - 11:15am

Check out our new VIX course soon!


Morning Vol Report 10.13.2017 HPQ win for the Chat Room

Posted By Andrew Giovinazzi Fri, 10/13/2017 - 9:14am

The market greets WMT

Posted By Andrew Giovinazzi Thu, 10/12/2017 - 6:01pm

Not much to write about today.  The biggest news is that the NFL might review its “take a knee” policy and that as you know would overshadow any economic news.  I did find headlines about the Chinese government taking an “active” role in the big Chinese internet companies and I am thinking long term that cannot be good.  BABA and BIDU were both done a bit after torrid runs.  My story for today is WMT because it broke the 3 day rule I just wrote about and what the heck I own it too.

It seems that when AMZN bought WFM, WMT got smacked into the mid-70s, when folks thought it was over for the big Bentonville retailer.  Now that everyone is discovering that WMT has a massive foot print and a connection to the internet things are looking up.  What I am noticing is that longer term IV is perking up a bit.  It is tough to sell IV at 15% in a stock that move $8 in 5 days.

  LivevolX for Lightspeed

AMZN is worth $200 billion more than WMT.  Granted AMZN invented internet convenience but I think WMT is learning fast 20 years later.  The fact they spent money on employees was probably the best tell they could give that a big upgrade was about to happen.  Realized vol has been creeping up in WMT too.  That really should not happen with a mega cap stock but I think it is because folks are buying calls.  I like that idea and 16% IV seems ok.

 Disclosure:  WMT positions

The trade

Buying WMT Jun2018 95 calls look as tasty as a rotisserie chicken.   One can hedge slightly with WMT Jun 2018 70 puts.

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Option Pit Vol Report 10-12-17

Posted By Mark Sebastian Thu, 10/12/2017 - 9:18am

Option Pit Vol Report 10-12-17 from Mark Sebastian on Vimeo.

The 3 day rule

Posted By Andrew Giovinazzi Wed, 10/11/2017 - 5:03pm

The 3 day rule

No, I did not invent the 3 day rule, but I like it.  In the old days a stock that went up 3 days in a row was susceptible to a pullback.  The 90’s put the rule on hold and QE messed with it as well.  Basically it is the old tape readers logic that 3 days in one direction is not sustainable.  With equity prices it is not a bad swing run timing thing, but it works very well for volatility, QE be damned.

Mark and I have several conversations a week about volatility, sometime several per hour.  The basic rule for me is sustained changes in IV.  Not future erosion in VIX but sustained changes in the what folks pay for options outside of the normal decay pattern.  That 3 day change in IV always gets my attention and leads me to set up vol trades or close ones that I am on the wrong side of.  We almost had 3 up days for VIX over the last 7 days but it did not hold.

  LivevolX for Lightspeed

9-10 VIX is really not a trade, unless you know how to time spread index options, which our Pro Chat room does.  It is near impossible to make good volatility money on the velocity of vol at a low VIX unless you know how.  If you want to learn how to trade VIX, take our free Webinar on Oct 26th.  You might learn something new.

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Option Pit Vol Report: 10-11-2017

Posted By Mark Sebastian Wed, 10/11/2017 - 9:22am

Option Pit Vol Report: MEH from Mark Sebastian on Vimeo.

NVDA to the moon and beyond

Posted By Andrew Giovinazzi Tue, 10/10/2017 - 4:08pm

Not very long ago NVDA was a $30 stock.  Now that the world has caught on to the many uses of GPU’s NVDA is a $190 stock.  Citron hated it at $100 and that was $90 ago.  With earnings coming up the MOMO crowd will not be able to let NVDA go so I think there is reasonable support for the name.  The question is if I can make some upside cheap enough.

The trick is to find a nice bargain in the options going into expiration.  The Nov10 cycle should hold the earnings but going to Nov17 is a safer bet.  $200 is a magnet right now so given a little time we can get there.  Nov03 IV is in the 30s which is not a bad sale outside the earnings cycle.  That gives us the reduced  short theta of the earnings and the soon to be hyper long theta in the Nov03.


 LivevolX for Lightspeed

This time spread with any momentum should price well and unless NVDA falls out of bed. The 200 calls in the earnings cycle should hold their valve around $3.75 or so.  Thus we can trick the market into paying for our earnings calls if all goes well.

The trade

200 level time spread in NVDA look inviting selling the Nov03 and buying Nov17.  Close in early Nov or ride the long calls after Nov03 expiration.  If one must hedge, use the Nov03 cycle puts on a ratio, maybe 5 spreads to 1 put.

If all this is Greek, take our Gold Course.  


Disclosure: NVDA positions

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