I am closing a lot of trades here and I thought it would be helpful to show the rationale for them. Basically, I am using a combination of 30-day historical volatility and 30-day implied volatility as a guide with total return for the month. Some of these have been a wild ride.
Look at Aqumin's AlphaVision Landscape for the four positions we are closing now (the fifth is the latest Hot Topic, PharMerica( ATPG)). This is just a subset of the 400 or so names that pop up and disappear, as markets move and volatilities change on my landscape. The height of each name is for one-month total return (inverse scale). That would make ATP Oil and Gas( ATPG) the only stock up for the group, over the last 30 days. Next is color: Green stocks have 30-day implied volatility trading at a premium to 30-day historical volatility (generally you want to be short those options) and red stocks the 30-day implied volatility is at a discount (generally you want to be long those options). I will go in order, clockwise from the bottom left.
Closing Positions Volatility
First, is the Direxion Emerging Markets 3x ETF (EDC) - Get Report, which I recommended as a three-lot buy-write on July 19 with EDC trading $23.63 and selling the September 24 call at $2.90. The 30-day implied volatility is still trading at a decent premium to the 30-day historical volatility (albeit lower levels), and I am still slightly bullish on emerging markets. I would roll the September 24 call to the October 28.64 (STRANGE STRIKE) call, a $2.65 debit with EDC trading at $28.66. We got pretty much the full pop there and look to do it again. Nice cost basis too.
The Sandisk (SNDK) trade has been a monster and we are lucky to get out. The only reason I rode this was because I thought the stock was too cheap. There is not enough 30-day implied volatility edge to keep this trade on anymore (just light green). So, I am buying this short SNDK September 45 put back (the short put recommendation was at $1.15) for $0.47 and calling it a day.
Cisco (CSCO) - Get Report is having a horrid month, and the 30-day implied volatility is now too cheap for me (cheapest relative to 30-day historical volitility of the four closing trades). We sold the CSCO September 21 put at $0.42 and now I am taking it off for $0.47. I was looking for a steady move up and I got a steady move down, and will take it off for a nickel loser. Done.
ATP Oil and Gas( ATPG) was the only up performer for the last 30 days and went to script. The September 11-12.5-14 butterfly was recommended for $0.37 and you can sell it on the marks for $0.48. You can be greedy and wait for expiration, but the redness tells me we are now at our short strike, with slightly undervalued implied volatility versus the 30-day historical volatility. Take this and run.
Trades: Buy to close 3 EDC September 24 calls for $5.00, sell to open 3 EDC October 28.64 calls for $2.35, buy to close SNDK September 35 puts for $0.44, buy to close CSCO September 21 puts for $0.47, sell to close 5 ATPG September 11 calls at $1.77, buy to close 10 ATPG September 12.5 calls for $0.72 and sell to close 5 ATPG September 14 calls for $0.20
At the time of publication, Andrew Giovinazzi held no positions in the stocks or issues mentioned.
Andrew is the Executive Vice President of Business Development for Aqumin, where he participated in the design team to apply AlphaVision to the financial markets. For 15 years he was a member of the Pacific Exchange and the Chicago Board Options Exchange, where he actively made markets and traded in both equity and index options.
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