Getting Ready for Premium Suck Friday?
Hi everyone, this is John, welcome to the free video. What another crazy, volatile day! We had the big sell-off Wednesday, and started off with initial weakness this morning, and then we went from about $18.70, give or take, up to $19.30, a 60 handle rally that was pretty much nonstop. I held onto some puts overnight, and then sent a text: We're getting out. This is bigger than a one-hit-wonder kind of a rally.
How do we know that? Okay, we opened ... we sold off, we sold off, we sold off ... When you get something like this, where it's 5, 10, 15, 20, 25, 30 ... 30 minutes of buy programs, and you can't even get below 0, right? That's the first red flag. That's more than a little bit of a blip. Then, when the ticks did sell off, the S&P's really didn't come off very much. They went from +30. Yes, they dropped, but it wasn't a humongous thing. And you can see during that time, the VIX didn't spike up, either. Then, from there, it was a series of higher highs and higher lows. You don't want to hold through that. Bail on that kind of stuff. And then because tomorrow is monthly expiration, not getting too cute directionally, and focus on potential premium plays. So what do we look at there?
Well, I like the idea of having, in this market, one slightly bullish play, and one slightly bearish play, and one slightly neutral play that are all based on premium. So for Amazon (AMZN), let's--and I Iove doing in-the-money iron condors (iron flies). So what does that look like? What if for AMZN, we got a rally, or, say, a pin to 600 tomorrow. What would be the best way to take advantage of that? What we did is, we sold the 600 iron fly, 10 wide, when it was around this level. We sold it at $6.90. Obviously tomorrow, if this pins at 600, then we keep all that. But I'm not looking to keep all that. I'm fine buying this back at 50% max profit. To get there, we would need a little bit of strength in AMZN. And obviously some premium decay. So if we get a quiet day tomorrow, that's the first best choice. In this case, if we open up down 100 NASDAQ points, this trade's a bust. But remember, it's 10 points wide, and I sold it for about $7. So I'm risking $3.10 to make $6.90, so I like that one.
And then for Priceline (PCLN), I did the opposite. For PCLN, made a bet that we would pin at $1100, which is within the expected move, and it's a little bit more of a bearish slant. Sold it for $16.40, would be completely fine buying it back for a $20. Keep in mind, this is $20 wide, so my max risk on this is $3.60. I love the risk to reward, and the fact that we got a little bit of direction, with a bit of premium.
Last but not least, looking at Apple (AAPL). AAPL sold the $100 straddle, $1.43. If tomorrow we pin at $100, I get to keep it all, but again, in this market, I'd be happy with 50% of max. On this kind of a day, in addition to those premium plays, when you have hot and heavy markets like this, it's easiest to pick your directional battles. I like to use a tick chart of the S&P's. Here we got a nice little head-and-shoulders top with a squeeze, and you got the early warning. When that happens, it is a pretty solid setup, and boom. I think this directional stuff is easiest with the futures. You obviously could have bought in-the-money SPYder puts on this, with the idea of just holding it for about 10 minutes or so. All right. So what if you don't know about futures?
For those who don't know much about futures, I'm going to be doing a FREE webinar on Tues, Jan 19, 7pm CST. Futures actually lead the cash market, and if you don't understand that, it's harder to trade directionally. They're good to hedge, too. You don't need to trade them, but futures move the markets.
You guys have a good one! We'll see you at the next update.