Trade idea
AMD rotation
The speaker suggests a rotation from tech stocks like Apple, Amazon, Google, Microsoft, and Nvidia to AMD and Micron (MU). This rotation is based on the idea that certain stocks have outperformed others, and the market is shifting focus. The speaker also mentions that Micron was expected to trade down to 880 but instead traded back up to 1015, indicating a potential reversal or continued upward momentum. The trade idea is to go long on AMD and MU as part of this rotation strategy.
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Strategyrotation
Assetequity
Time horizonShort-term
Entry / triggerMarket rotation towards AMD
Target / exitNot specified
Invalidation / stopNot specified
SpeakerScott
Risks- Market rotation can reverse quickly
- Earnings reports may impact stock performance
- Volatility can increase during earnings periods
Trade idea
Trade idea selling puts or going long on stocks that are oversold
The speaker suggests selling puts or going long on stocks that are oversold during a market move. They mention specific stocks like Nvidia, Microsoft, or Micron as potential candidates, but emphasize that the decision should be based on the stock's current state rather than a specific trend. The speaker also notes that they avoid the trend game and prefer to focus on opportunities in oversold stocks. The thesis is that selling puts or going long on oversold stocks can be a viable strategy when the market is moving and the stock appears to be undervalued.
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Strategyselling puts or going long on stocks that are oversold
Time horizonshort-term
Entry / triggerstocks that are oversold on a move
Invalidation / stoptrend continues lower
SpeakerTom
Risks- Market continues lower
- Stock does not rebound
- Overtrading due to gut feelings
Trade idea
Nasdaq Micro Futures iron condor
The speaker suggests waiting until the middle of next week or after the weekend to close the iron condor position. The reasoning is that the position is already in the middle of its life, and waiting a bit longer could allow for potential profit. The speaker also notes that rolling the position is not advisable, and the focus should be on closing it out at the right time. The risk is that the market could move against the trade, leading to a loss.
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Strategyiron condor
Assetfutures
ExpirationJuly 31
Time horizonWeeks
Entry / triggerPosition has been open for 22 days
Target / exitWait until the middle of next week or after the weekend
Invalidation / stopClose the position if the market moves significantly against the trade
SpeakerSteve
Structure / legs- short strike at 28,000
- long strike at 31,100
Risks- Market volatility
- Potential loss if the trade moves against the position
Trade idea
SPACEX selling puts
The speaker believes that the implied volatility of SpaceX is high, making out-of-the-money puts at $90 a good opportunity for selling puts. The speaker is not bullish on the stock but is long deltas, indicating a bullish stance on the underlying asset. The trade idea involves selling puts as a way to generate income, even though the speaker is not confident in the stock's long-term direction.
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Strategyselling puts
Assetequity
Expirationnot specified
Time horizonshort-term
Entry / triggerstock trading below IPO price
Target / exitnot specified
Invalidation / stopnot specified
SpeakerSpeaker
Risks- Potential for stock price to rise above strike price
- Implied volatility may decrease
- Market volatility could increase
Trade idea
SPX iron condor
The speaker suggests that iron condors on the SPX with zero DTE are only viable when placed just outside the expected move and managed early. The strategy involves taking profits up to 25% and is considered a last resort due to its marginal returns in bull markets.
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Strategyiron condor
Assetindex
Expirationzero DTE
Time horizonshort-term
Entry / triggerjust outside the expected move
Target / exitmanage early with max 25% of profits
Invalidation / stopmarket moves beyond expected range
SpeakerTom
Risks- Market volatility
- Liquidity issues
- Time decay
Trade idea
MCL Broken Wing Butterfly
The broken wing butterfly trade in MCL (micro crude oil) is designed to profit from a range-bound movement in crude oil prices. The trade involves buying a 74 strike and selling 70 and 72 strikes, while also selling 82, 84, and 88 strikes. The maximum profit is $220 if crude oil stays within the expected range, while the maximum loss is $180 if the price moves beyond 82. The trade has an 81% success rate, making it a high-probability strategy for beginners.
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StrategyBroken Wing Butterfly
AssetFutures Options
ExpirationAugust
Time horizonUntil August expiration
Entry / triggerCrude oil price below 82
Target / exit84
Invalidation / stopCrude oil price above 82
SpeakerUnknown
Risks- Crude oil price moves beyond the expected range
- Market volatility
- Liquidity issues in micro contracts
Trade idea
COINBASE put spread
The trade involves selling an August put spread in Coinbase, with strikes at 120 and 100, collecting a premium of $2. The trade is based on the expectation that Coinbase will remain below its year-to-date low of 145. The probability of profit is estimated at 90%, with the expected move being 32 points. The trade is considered favorable due to the risk-reward ratio and the inverse relationship between the strike width and the probability of profit.
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Strategyput spread
Assetequity
ExpirationAugust
Time horizonshort-term
Entry / triggerCoinbase is trading below its year-to-date low
Target / exitprofit from the premium collected
Invalidation / stopif Coinbase moves significantly higher
SpeakerTom
Structure / legs- put spread with strikes at 120 and 100
- premium collected: $2
Risks- Significant price movement in Coinbase could result in losses.
- Volatility could affect the expected move and probability of profit.
Trade idea
JP Morgan sell out of the money puts
The speaker suggests that trading JP Morgan and Morgan Stanley around their earnings reports could be a use case for understanding how premiums expand and contract. The expected move is estimated to be around 3%, but the actual move could be between 4% and 6%. The speaker advises being one-dimensional and directional, suggesting selling out of the money puts if bullish on JP Morgan. The trade is considered risky due to the potential for a larger-than-expected move, which could lead to significant losses if the market moves against the trade.
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Strategysell out of the money puts
Assetstock
Expirationnext week
Time horizonshort-term
Entry / triggerbefore the opening on the 14th
Target / exit335
Invalidation / stopif the move exceeds 3% or if the earnings are significantly better or worse than expected
Speakerspeaker
Risks- Large unexpected move
- Earnings report surprises
- Volatility spikes
Trade idea
MSFT strangle
The speaker suggests that the strangle on Microsoft (MSFT) is currently profitable and advises exiting the trade before earnings, as volatility is expected to increase significantly around the earnings date. The rationale is that the earnings period will likely cause a spike in volatility, making the strangle less effective. The speaker also recommends taking partial profits and exiting the trade before the earnings announcement to avoid potential losses.
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Strategystrangle
Assetequity
ExpirationAugust 21st
Time horizonShort-term (1-2 weeks)
Entry / triggerCurrent price level
Target / exit26% profit
Invalidation / stopEarnings date (July 29th) and volatility changes
SpeakerSam from Miami
Structure / legs- put strike 325
- call strike 450
Risks- Earnings may result in a significant price movement that invalidates the strangle
- Volatility may not increase as expected, reducing the trade's effectiveness
Trade idea
Hood rolling to August
The speaker suggests rolling the Hood trade to August to re-center the position after a significant upward move. This is done because the stock has already experienced a large move, and the volatility is considered decent. The speaker believes that re-centering the trade in August can help manage risk, especially given the stock's history of missing earnings and the potential for continued volatility.
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Strategyrolling to August
Assetequity
Expiration2023-07-29
Time horizonuntil August
Entry / triggercurrent volatility is high
Target / exitre-centering the trade in August
Invalidation / stopif the stock continues to move significantly before August
SpeakerSam
Risks- The stock may continue to move significantly before August
- Volatility may not remain at current levels
- Earnings reports could impact the stock's performance
Trade idea
HOOD short strangle
The speaker has a short strangle in HOOD, which they believe is positioned around the expected price movement. They have been bullish on HOOD throughout the year and have been buying it whenever it dips into the 70s, which has worked for them. The trade idea is based on the expectation that the price will move within the expected range, allowing for profit from the strangle.
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Strategyshort strangle
Assetstock
Time horizonShort-term
Entry / triggerPrice movement within expected range
Target / exitProfit from price decline
Invalidation / stopPrice moves beyond expected range
SpeakerUnknown
Risks- Price moves beyond expected range
- Market volatility
- Liquidity issues
Trade idea
SOXS scalping
The trader should set a profit target based on the assumed risk, typically 25-35% of the expected move. For example, if the risk is $2, the profit target should be around 50-100 cents. The trade should be exited if it does not move in the expected direction within the first few hours of the market session. This approach ensures disciplined trading and avoids holding positions that do not meet the initial criteria.
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Strategyscalping
Assetstock
Time horizonIntraday, typically within the first few hours of the market session.
Entry / triggerBuy at a price where the stock is trading, with a clear profit target set as a percentage of the assumed risk.
Target / exitProfit target set at 25-35% of the assumed risk, typically around 50-100 cents for a $2 risk.
Invalidation / stopExit if the trade does not move in the expected direction within the first few hours of the trading session.
SpeakerUnknown
Risks- Market volatility may prevent the trade from reaching the profit target.
- The trader may be forced to exit the trade prematurely if the market moves against the expected direction.
Trade idea
null Fading intraday moves
Fading intraday moves can be profitable, especially in volatile assets like futures. However, the speaker notes that fading intraday moves in stocks like Micron or AMD is risky and not recommended. The key is to monitor broader market indicators like Nasdaq futures or S&P futures, depending on the asset class. This strategy is more suitable for position trading or swing trading rather than scalping.
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StrategyFading intraday moves
Assetnull
Expirationnull
Time horizonIntraday
Entry / triggerFading intraday moves in volatile stocks or futures
Target / exitShort-term profit from price reversals
Invalidation / stopIf the price continues in the direction of the initial move
Speakernull
Risks- Market continuation in the initial direction
- Liquidity issues
- Slippage in fast-moving markets
Insight
Market Rotation and Sector Performance
The transcript highlights a classic market rotation where certain sectors, such as AMD and MU, experienced significant gains while others like Apple, Amazon, and Meta saw declines. This rotation suggests a shift in investor sentiment and capital allocation, with specific stocks performing well based on market conditions and investor preferences. The mechanism involves the movement of capital from underperforming sectors to those showing stronger momentum or growth potential.
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Applicable when- market rotation
- sector performance
- investor sentiment
Limitations- The transcript does not provide detailed analysis of the underlying factors driving the rotation, such as macroeconomic indicators or specific company news.
Insight
Earnings and Market Volatility
Earnings reports have historically been a toss-up for benchmark indices like the S&P and Nasdaq, with results often within 1% of a 50/50 split. However, in a bull market, earnings surprises tend to lean toward the upside, with most outlier moves occurring upwards. This is due to the market's overall positive sentiment and the tendency of firms to lowball their earnings estimates, which are often easily beaten. The increased volatility around earnings periods reflects market nervousness, as higher implied volatility in the front month earnings contracts indicates fear. In a bull market, this volatility can be exceptionally good for indices, as the market tends to rally despite the uncertainty.
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Applicable when- bull market
- earnings season
Limitations- Outliers are rare and not predictable
- Market sentiment can shift rapidly
- Volatility can increase unexpectedly during earnings periods
Insight
Volatility and Earnings Performance
Volatility spikes before earnings can create fear in the market, but historically, more significant upward moves have occurred, which have been beneficial for benchmark indices. High volatility can make it harder for earnings to outperform to the upside, so monitoring the VIX is crucial. The VIX is currently in a neutral range, indicating a balanced market environment.
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Applicable when- volatility spikes before earnings
- historical market performance
- VIX levels
Limitations- Volatility levels can change rapidly
- Earnings performance can be influenced by multiple factors beyond volatility
Insight
Common Mistake in Trading
The most common mistake beginner traders make is overtrading or using excessive position sizes, often driven by gut feelings rather than a mechanical approach. This mistake is also made by experienced traders, but it's particularly dangerous for beginners. The most dangerous thing in trading is assuming one knows something, which can lead to poor decision-making. Traders should be open to opportunities based on implied volatility, buying power, and other factors, rather than being locked into a single strategy or underlying asset.
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Applicable when- beginner traders
- experienced traders
Limitations- Overtrading can be mitigated with proper risk management
- Assumptions about market knowledge can be dangerous in volatile markets
Insight
Market Commentary on Tech Layoffs
The discussion highlights the mixed implications of tech company layoffs, such as Microsoft's recent actions. While reducing costs and eliminating 'dead weight' can be seen as bullish for the long-term financial health of the company, the uncertainty around whether these layoffs are permanent or temporary remains. The speaker notes that companies often hire and fire based on market conditions, which can lead to volatility. The broader implication is that such decisions reflect a shift in corporate strategy, but the market's reaction is not clear-cut.
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Applicable when- tech sector layoffs
- corporate strategy changes
Limitations- Uncertainty about the permanence of layoffs
- Market reactions are not predictable
- Subjective opinions on company management practices
Insight
Flex Options as Non-Standard Instruments
Flex options are non-standard options that allow for different sizes and settlement terms, making them distinct from LEAPS. They are primarily used by institutional traders and are not commonly used by retail customers. The mechanism involves getting a quote and making a trade, but they are largely replaced by over-the-counter options offered by firms like Goldman Sachs or Morgan Stanley.
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Applicable when- institutional trading
- non-standard options
Limitations- Not suitable for retail traders
- Limited liquidity
- Not widely used in practice
Insight
Income Strategy Preferences
The speaker prefers selling out-of-the-money puts or strangles as income strategies, especially in a range-bound market. These approaches are considered more reliable than iron condors, which are deemed less effective in bull markets. The speaker also mentions selling a ratio of two puts to one call as a preferred method for generating income.
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Applicable when- Range-bound market
- Bull market
Limitations- The speaker notes that the industry may not classify these as traditional income strategies
- Effectiveness may vary based on market conditions and individual risk tolerance
Insight
Market Commentary on Asset Performance
The market commentary highlights the performance of various assets, including stocks, commodities, and cryptocurrencies. The transcript provides specific price movements for indices like the S&P 500, Nasdaq, and commodities like gold and oil, as well as cryptocurrencies like Bitcoin and Ethereum. It also mentions the performance of individual stocks such as Apple, AMD, and Meta, and the VIX and VIX futures. This information is useful for understanding the current market conditions and identifying potential trading opportunities.
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Applicable when- market performance
- asset price movements
Limitations- No specific trading strategy or recommendation is provided in the commentary.
Insight
Learning Through High-Probability Trades
The speaker emphasizes the importance of learning how to win by engaging in trades with a high probability of success. This approach avoids putting oneself in bad positions that could lead to losses. The key is to focus on strategies that have a high chance of profitability, such as the broken wing butterfly trade discussed, which has an 81% success rate.
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Applicable when- High-probability trades
- Learning to win
Limitations- Not all trades have high success rates
- Requires proper risk management
Insight
Probability of Profit in Put Spread Trades
Selling a put spread can offer a high probability of profit, as demonstrated by the 90% probability mentioned in the transcript. This is calculated based on the width of the strikes and the premium collected. The trade involves selling a put spread with a 10% width of the strike range, which translates to a 90% probability of profit. The trade's risk-reward ratio is considered favorable, with the expected move being 32 points, and the trade being positioned 1.5 to 1.25 times outside this expected move.
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Applicable when- strike width
- premium collected
- probability of profit
Limitations- The probability is based on historical data and may not reflect future performance.
- The trade's success depends on the underlying asset's price movement and volatility.
Insight
Asymmetric Upside Potential of Tech Giants
The discussion highlights that companies like Apple and Microsoft, despite their size, still have asymmetric upside potential due to their ability to innovate and disrupt markets. This contrasts with utilities, which typically have limited upside and are regulated, leading to predictable growth. The key insight is that while these tech giants may not be considered growth stocks anymore, they still have the capital and potential to make unexpected moves, such as introducing groundbreaking products or services.
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Applicable when- Tech sector
- Innovation potential
- Market disruption
Limitations- The potential for disruption is speculative and not guaranteed
- Market conditions can change rapidly
- Regulatory challenges may affect growth trajectories
Insight
Market Punishment of Good Earnings at All-Time Highs
The market is more likely to punish companies for good earnings when it is near all-time highs. This is because the potential for disappointment is higher, and companies must exceed elevated expectations to avoid negative reactions. Analysts have been aggressive with their profit expectations, raising the bar for earnings performance. This dynamic suggests that earnings trades are more rewarding when volatility is high, as the expected price movement is greater, making the risk-reward ratio more favorable.
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Applicable when- market near all-time highs
- high volatility
- elevated analyst expectations
Limitations- The market's reaction can vary based on macroeconomic factors
- Not all companies will face the same level of scrutiny
- Past performance does not guarantee future results
Insight
Volatility and Expected Move Impact
Higher volatility leads to larger expected moves, making outlier moves more painful. In low volatility environments, expected moves are smaller, and the impact of an outlier move is more pronounced. This principle highlights the importance of volatility in assessing potential market movements and the associated risks.
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Applicable when- high volatility
- low volatility
- outlier moves
Limitations- The analysis assumes market conditions remain stable
- Does not account for unexpected macroeconomic events
Insight
Market Commentary on Jamie Dimon's Leadership Transition
Jamie Dimon's transition from leadership at JPMorgan Chase is expected to involve a strategic downplaying of earnings to provide a cushion for his successors. This approach aims to give the new co-CEOs a lower entry point and the opportunity to outperform. The speaker suggests that Dimon's actions are influenced by his contrarian nature and desire to avoid setting his successors up for failure. The practical implication is that market participants should anticipate a potential short-term dip in JPMorgan's stock as Dimon prepares to step down.
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Applicable when- Leadership transition at JPMorgan Chase
- Earnings announcements
Limitations- The speaker acknowledges past errors in predicting market movements, indicating that the analysis is not infallible.
Insight
Risk Assessment in Low Volatility Environments
In low volatility environments, the risk of a sudden volatility expansion is heightened. This is because the market's ability to absorb shocks is diminished, and the velocity of downside risk can be significantly higher than upside risk. Traders should be cautious and prepared for rapid changes in volatility, especially during extended bull markets where implied volatility tends to be low.
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Applicable when- low implied volatility
- extended bull markets
Limitations- Volatility expansions are rare, occurring less than 10% of the time
- Market sentiment shifts can make it difficult to distinguish between hedging and being wrong
Insight
Retail Investors Are Becoming Contrarian
Retail investors have become very smart and skilled contrarians, buying when things are cheap and entering the market when they feel it's undervalued. This behavior contrasts with their past approach and indicates a shift in market dynamics.
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Applicable when- market volatility
- low liquidity assets
Limitations- This insight is based on observations of retail investor behavior and may not apply universally to all market conditions or investor types.
Insight
Importance of Liquidity in Scalping Options
Scalping options requires tight markets with high liquidity. The speaker emphasizes that illiquid options are unsuitable for scalping due to the excessive edge given up during trades. They recommend stocks like SPY, SPX, QQQ, and others with high daily trading volumes (over 10 million shares) as ideal for scalping options.
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Applicable when- scalping options
- tight markets
- high liquidity
Limitations- Not all stocks meet the liquidity criteria
- Requires market knowledge to identify suitable instruments
Insight
Profit Target Percentage of Assumed Risk
A trader should set a profit target that is a percentage of the assumed risk, typically around 25 to 35% of the expected move. This approach helps in managing risk and ensuring that trades are exited with a defined profit objective. The profit target should be based on the risk involved in the trade, whether long or short, and should be considered before entering the trade.
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Applicable when- intraday trading
- options trading
- scalping
Limitations- This method assumes a clear understanding of the expected move and risk, which may not always be accurate in volatile markets.
Insight
Importance of Fills in Scalping
Fills are crucial in scalping, as they ensure trades are executed at the desired price or limit. The speaker emphasizes that getting filled at your price is essential, and if not, it's better to avoid the trade. When closing trades, the speaker is more aggressive, but the priority remains getting filled at the intended price. This approach helps minimize slippage and maintain profitability in high-frequency markets.
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Applicable when- scalping
- high-frequency trading
- options trading
Limitations- Requires sufficient liquidity
- May not apply to all market conditions
Insight
Trading Strategy Based on Expiration Cycles
The speaker prefers trading monthly options for scalping, maintaining consistency within the same expiration cycle. This approach helps in managing risk and maintaining a structured trading environment.
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Applicable when- scalping
- options trading
- futures trading
Limitations- Requires consistent market conditions
- May not be suitable for all trading styles
Q&A
What is the question of the day?
The question of the day is whether strong second quarter earnings will disappoint the market. The discussion explores the historical relationship between earnings and market performance, with the hosts noting that it's a trick question.
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Actionable takeawayThe transcript suggests that earnings performance is not a straightforward indicator of market sentiment, and the hosts emphasize the importance of understanding market dynamics and sentiment.
Q&A
Could strong second quarter earnings actually disappoint this market?
Historically, earnings have been a toss-up for benchmark indices, with results often within 1% of a 50/50 split. However, in a bull market, earnings surprises tend to lean toward the upside, with most outlier moves occurring upwards. The increased volatility around earnings periods reflects market nervousness, as higher implied volatility in the front month earnings contracts indicates fear. In a bull market, this volatility can be exceptionally good for indices, as the market tends to rally despite the uncertainty.
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Actionable takeawayEarnings reports are generally unpredictable, but in a bull market, the market tends to rally despite the uncertainty. Increased volatility around earnings periods reflects market nervousness, but this can be a positive for indices.
Q&A
How to make sense of these rotations that keep happening between hardware and software?
The speaker suggests that these rotations are driven by large institutions and prop firms engaging in momentum trading. They compare this to the late '90s with day trading houses and short-term swing traders. The speaker also notes that the market has become more accessible due to low commissions, allowing for quick trades on trending stocks.
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Actionable takeawayRotations in the market are often driven by momentum traders and prop firms, and the market has become more accessible due to low commissions.
Q&A
Is learning futures options the natural next step after trading regular options, or should one get comfortable with straight futures first?
The speaker recommends learning futures options as the natural next step after trading regular options. They suggest that futures options are a progression from equity options and that trading futures is a different animal. They advise getting comfortable with futures options before jumping into futures directly.
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Actionable takeawayFutures options are a natural progression from equity options, and traders should get comfortable with futures options before moving to straight futures.
Q&A
What do you take from Microsoft's recent layoffs? They let veterans with 20 years experience go. Thoughts on such management decisions? Bullish or bearish for the stock for the long run?
The speaker is uncertain about the implications of Microsoft's layoffs. While reducing costs and eliminating 'dead weight' could be seen as bullish, the speaker notes that the long-term impact is unclear. The speaker also criticizes the way Microsoft operates, suggesting that the company's management practices are not ideal.
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Actionable takeawayThe speaker is uncertain about the long-term implications of Microsoft's layoffs, suggesting that the market's reaction is not clear-cut.
Q&A
Are you guys going to have longer shows or different segments in the future?
The speaker and team are planning to have longer shows and different segments in the future if they receive support from the audience and have enough viewers. They are also hoping to bring back some band members and have more content.
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Actionable takeawayThe content creators are planning to expand their show format based on audience support and engagement.
Q&A
Will the SPY close over 760 by September?
The speaker states that the probability of the SPY closing over 760 by September is 85%, with a note that the prediction engine may provide more detailed analysis.
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Actionable takeawayThe speaker provides a probabilistic forecast for the SPY closing above 760 by September, suggesting a 85% chance based on their analysis.
Q&A
Are there opportunities in the mutual fund industry for individuals with Series 7 and 69 licenses?
Eduardo mentions that there are opportunities in the mutual fund industry for individuals with Series 7 and 69 licenses. He suggests that these licenses can be valuable in a sales supporting role, even if not directly in wealth management. He also advises Eduardo to use library resources and online tutorials to prepare for the licensing exams, noting that the process is manageable and the tests are not overly difficult.
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Actionable takeawayIndividuals with Series 7 and 69 licenses may find opportunities in the mutual fund industry, particularly in supporting sales roles. Preparation for these licenses can be done through online resources and tutorials, which are available at a reasonable cost.
Q&A
What is the expected move in crude oil by August expiration?
The expected move in crude oil by August expiration is $8, with the price expected to stay within a range that allows the broken wing butterfly trade to profit.
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Actionable takeawayThe expected move in crude oil by August expiration is $8, which is used to determine the strike prices for the broken wing butterfly trade.
Q&A
Should Apple and Microsoft be thought of as utilities?
The discussion suggests that while Apple and Microsoft may not be considered utilities due to their potential for innovation and asymmetric upside, they are not traditional growth stocks either. The speaker argues that utilities are regulated and have limited upside, whereas tech companies like Apple and Microsoft can still disrupt markets and offer significant growth potential.
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Actionable takeawayThe classification of Apple and Microsoft as utilities is not appropriate due to their potential for innovation and asymmetric upside, despite their current market position.
Q&A
When do the banks start reporting?
The banks start reporting on July 14th, with Morgan Stanley reporting on that day and JP Morgan reporting the following day, July 15th.
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Actionable takeawayThe speaker mentions that five of the six major US banks report on July 14th, with JP Morgan reporting on the 15th.
Q&A
When should I take my strangle off?
The speaker advises exiting the strangle before the earnings date, as volatility is expected to increase significantly around the earnings period. The optimal time to exit is before the earnings announcement, ideally within a few days.
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Actionable takeawayExit the strangle before the earnings date to avoid potential losses from increased volatility.
Q&A
Is the market underpricing risk right now?
The speaker believes the market is underpricing risk, as evidenced by the recent volatility spikes and the market's apparent indifference to various risks. However, the speaker acknowledges the difficulty in confirming this due to the efficient market hypothesis. The speaker also notes that when volatility is cheap, there is more risk for traders.
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Actionable takeawayTraders should be cautious in low volatility environments, as the risk of sudden volatility expansion is higher.
Q&A
Does the fear index increase with more volatility and more risk?
Yes, the fear index increases with more volatility and more risk. However, it does not necessarily scare away buyers until a prolonged bear market occurs.
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Actionable takeawayThe fear index is a useful indicator of market sentiment, but it should not be used in isolation to predict market behavior.
Q&A
Why is liquidity important for scalping options?
Liquidity is crucial for scalping options because illiquid options result in excessive edge given up during trades. The speaker emphasizes that tight markets with high liquidity, such as SPY and SPX, are ideal for scalping.
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Actionable takeawayScalping options requires tight markets with high liquidity to minimize the edge given up during trades.
Q&A
What is the recommended profit target for a scalping trade?
The recommended profit target for a scalping trade is typically 25-35% of the assumed risk, which for a $2 risk would be around 50-100 cents.
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Actionable takeawaySet a profit target based on the assumed risk, typically 25-35% of the expected move.
Q&A
Which expiration do you prefer when scalping options?
The speaker prefers options with a short to zero days to expiration (DTE), typically within a week, as they offer more liquidity. For monthly options, the speaker prefers the monthly expiration, but for scalping, the active month is preferred. If the speaker has an opinion on a specific day, the zero-day SPX is used.
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Actionable takeawayWhen scalping options, prioritize options with short to zero days to expiration for better liquidity. For monthly options, the monthly expiration is preferred, but the active month is used for scalping.
Q&A
What is the preferred method for scalping in the futures market?
The speaker prefers scalping the active month for futures and monthly options for options trading, maintaining consistency within the same expiration cycle.
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Actionable takeawayConsistency in expiration cycles is key for effective scalping strategies.