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Looking at a basket of the fifty biggest names in Europe, we've got a clean level to bet against for a rotation higher. And a volatility picture that offers us an edge to play it.
I generally try to avoid that. Today's trade might be the simplest thing I do: follow a trend.
When a chart is going from the bottom left to the upper right, who am I to call a top in something like that? What kind of arrogance must I have to think I'm the one who can call the turn?
Let somebody else be the hero. I'm going to follow the trend until it ends.
During our Analyst meeting this morning, I observed the relative "calm" in the Chinese Large Cap ETF $FXI and how, while down for the day, it is still holding in a range it's been in for over three weeks now.
And we love how it's holding this range as a healthy consolidation from its late September breakout.
There's nothing about this chart that is bearish to me:
As we inch closer to the election, the "change-of-narrative" plays still hold interest to me -- both as hedges to my overall bullish positioning, and as alpha generators.
Today's trade is in a "junky" solar name that has gotten beaten down with the rest of it's sector as investors are pricing in a Trump victory that would be perceived as bearish for the Solar Industry.
But what if a Trump victory results in an inverse "sell the news" type of event and the selling pressure gets lifted from this sector? Or, better yet, what if the pollsters are wrong (it's happened before!) and Harris comes out victorious? Wouldn't that result in an immediate narrative shift for this sector? And if that happens, junky stocks like today's trade could potentially offer a tremendous amount of alpha.
Shoutout to my boy Kenny Glick. He's the man. And I feel like I'm channeling him a bit today. I recently saw him talking about how he's getting into a trade in a name that has failed on him so many times in the past. Yet, when there's a favorable setup, he has to step up and take another swing -- even though he's seen this movie before.
I'm going to do something similar today in a crypto miner. I've been beaten time and time again with these things. But one of these times it's got to work! Why not today?
Please forgive my tirade at the beginning of this episode about my short $MTB trade. I had to defend my honor...
But after that, me and Strazza get into the setup in MARA Holdings $MARA and how we arrived at what might seem to a lot of you (me too) a pretty high risk, but potentially huge reward trade:
I'm continuing my recent theme of portfolio diversification today with another short position, this time in a stock that should be performing well heading into Halloween and holiday season -- but isn't.
In fact, the chart looks like its got a lot of room to fall if their upcoming earnings report disappoints.
The one bet I will not be making is that the stock market finishes election week anywhere near where it began the week.
In other words, there is a high likelihood of a large directional move following the election. And there will likely be some epic whipsaws along the way.
As such, it feels to me that options traders should start building a good mix of both bullish and bearish bets, as well as a wide variety of expirations so as to mute the volatility likely to be introduced to our portfolios.
I don't think we want to be too overweighted on delta-neutral positions (though I think it's a good practice to have one or two on at all times). I do think it is prudent to have some long-premium bets on that can return 5-10x in the direction of the trend. Simple long calls and long puts will do the trick.
I do not recommend attempting to pick bottoms and tops. It can be a dangerous game.
Yes, when you occasionally get one right you can make a killing. But we also put ourselves at risk at getting killed. Especially fading short squeezes, and double especially if you're doing it via getting short common stock.
Smart options traders, however, have an advantage here. We can define our risks precisely. We're going to take advantage of this feature with today's trade, a bet on the unexpected.
We had a delta-neutral options position on the books that we stopped out of this week. Thankfully, it was not a big loss. It felt like the right idea, but the wrong instrument.
So today's trade is a similar trade in a stock from the same sector. We're going to take advantage of a possible continued consolidation and get out before their next earnings event.
Perhaps this is just my own personal Waterloo, but there seems to be history of market turbulence whenever I travel and am away from my main trading station.
Next week will be a travel week for me. I'll be attending Stocktoberfest in Coronado Island, back home for one day in the middle of the week, then back on the road heading to Seattle. And this being October, when "surprises" seem most often to occur, I'm a little on edge about my mostly long-leaning portfolio.
So today's trade is a simple bearish bet in a weak name that may offer some cushion if things do get slippery next week.
Last week, I wrote to you about how winning is hard -- because holding out for large wins is easily the hardest thing we attempt to do as traders. Sitting through pullbacks against the direction of our trade is so. damn. hard.
I highlighted a trade we currently have on $CM. It was pulling back and testing the mettle of anyone long -- including me. Here's where it was at the time: