Trade idea
SLV volatility trading
The speaker suggests that silver is experiencing extreme volatility due to retail participation, similar to meme stocks. The market is expected to experience a sell-off, with potential for a significant price drop. The strategy involves shorting silver during this period, with a focus on the potential for a rapid decline. The risks include the possibility of a sudden price reversal or continued rally.
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Strategyvolatility trading
Assetcommodity
Time horizonShort-term (days to weeks)
Entry / triggerHigh volatility and large price swings in silver
Target / exitPrice drop of $10 per day for a week
Invalidation / stopPrice reversal or sustained rally
SpeakerLarry
Risks- Price reversal
- Sustained rally
- High volatility
Trade idea
VXM volatility_betting
The speaker describes VXM as a synthetic spy trade that is cheaper than trading SPY directly. It is recommended for those looking to bet on market volatility. The trade is considered a way to bet on lower market prices, with a one-for-one correlation with volatility. The speaker suggests it as an alternative to VIX options, which they personally dislike.
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Strategyvolatility_betting
Assetvolatility
Time horizonshort-term
Entry / triggerMarket volatility is expected to increase.
Invalidation / stopMarket volatility decreases or the trade moves against the position.
SpeakerSaul
Risks- Market volatility may not increase as expected.
- The trade could be affected by broader market movements.
- The synthetic nature of VXM may introduce additional risks not present in direct SPY trading.
Trade idea
TQQQ volatility trading
Trading volatility through short puts and calls in TQQQ can be more profitable than in QQQ due to higher liquidity in TQQQ. However, the options in TQQQ are less liquid, which may affect the edge and risk profile. The underlying stock and options markets are influenced by the same models, but liquidity differences can impact trade execution and edge. The strategy is suitable for short-term trading, but traders should be cautious about the liquidity of options and the potential for wider spreads.
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Strategyvolatility trading
AssetETF
Time horizonshort-term (weeks to months)
Entry / triggerwhen the underlying stock is actively traded and options are less liquid
Invalidation / stopif the underlying stock or options show significant liquidity issues or market volatility beyond expected levels
SpeakerMitch
Risks- liquidity risk in options
- market volatility
- execution risk due to lower liquidity in options
Trade idea
Trade idea volatility
the implied volatility of SpaceX will settle into around 60
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Strategyvolatility
Time horizonshort-term
Entry / triggershort volatility and short premium in SpaceX
Target / exit60
Invalidation / stopif volatility holds near 100%
SpeakerTom Stoff
Risks- calls exploding on sharp rally
Trade idea
LNG volatility trading
The speaker mentions that natural gas (LNG) has been a poor performer in their portfolio, despite not taking any directional bets. They are short strangles, which have resulted in losses. The speaker suggests that natural gas has been difficult to trade profitably, indicating that the strategy may not be effective in the current market environment. The trade idea is based on the speaker's personal experience with LNG and their observation of its performance.
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Strategyvolatility trading
Assetequity
Time horizonshort-term
Entry / triggernatural gas price movements
Invalidation / stopprice movement against the short strangles
SpeakerScott
Risks- Gamma risk from short strangles
- Volatility risk
- Market direction risk
Trade idea
ETHA volatility trading
The speaker has traded ETHA extensively and notes its high volatility, with the market typically 10 cents wide. They mention that trades can be filled one or two cents off mid-price. The speaker has held a position in ETHA since its inception and suggests it as a viable option for trading Ethereum.
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Strategyvolatility trading
AssetETF
Time horizonshort-term
Entry / triggerhigh volatility environment
Target / exitmid-price + 2 cents
Invalidation / stoploss of 10 cents
SpeakerScott
Risks- high volatility
- slippage
- market gaps
Trade idea
VXX calendar and diagonal spreads
The speaker suggests that VXX is a better alternative to VIX for calendar and diagonal strategies due to its more manageable risk profile. They emphasize that VIX calendars can lead to large credits during periods of extreme volatility, which can be detrimental to retail traders. VXX is recommended as it allows for similar strategies without the same level of risk. The thesis is that traders should avoid VIX calendars and instead use VXX for similar strategies, especially when volatility is expected to remain stable.
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Strategycalendar and diagonal spreads
Assetvolatility
Expirationnot specified
Time horizonshort-term
Entry / triggerwhen volatility is expected to remain stable
Target / exitprofit from the decay of time value
Invalidation / stopif volatility spikes or the underlying index moves significantly
SpeakerRon
Structure / legs- calendar spread
- diagonal spread
Risks- volatility spikes
- underlying index movement
- market regime changes
Trade idea
VIX volatility trading
The speaker suggests that if the VIX is above its long-term average and the market does not confirm macro narratives, it may be a good time to consider shorting the VIX. The rationale is that the VIX is a measure of fear, and if the market is not confirming macro narratives, it may indicate that the current level of fear is not justified. The speaker also emphasizes the importance of reducing delta before getting long vol, suggesting that shorting the VIX could be a more prudent approach in this scenario.
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Strategyvolatility trading
Assetvolatility
Time horizonShort-term (days to weeks)
Entry / triggerIf the VIX is above its long-term average and the market does not confirm macro narratives
Target / exitThe VIX returning to its long-term average
Invalidation / stopIf the VIX continues to rise above the long-term average
SpeakerMarket Talk
Risks- The VIX could continue to rise above the long-term average
- Market conditions could change rapidly
- The VIX is not a guaranteed predictor of future market movements
Trade idea
Trade idea Volatility trading
The speaker suggests that volatility trading should be approached with consistency, either as a buyer or seller. Buying volatility is risky due to its 90% chance of losing, while selling volatility in a lull state offers better odds. The key is to avoid flipping between strategies and stay consistent in the chosen approach. This is analogous to staying consistent in a casino game, such as always betting on the bank in blackjack or roulette.
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StrategyVolatility trading
Time horizonShort to medium term, depending on volatility cycles.
Entry / triggerWhen IVR is low, consider buying volatility. When IVR is in a lull state, consider selling volatility.
Target / exitProfit from volatility changes in the lull state or contraction state.
Invalidation / stopLoss if volatility moves against the trade, especially if IVR is not in the expected state.
SpeakerSpeaker
Risks- High risk of loss when buying volatility
- Market conditions may not align with expected volatility states
Trade idea
Trade idea volatility trading
During midterm election years, the S&P 500 historically experiences a drawdown of around 17% to 19.4%. The speaker suggests selling out-of-the-money puts as a way to capitalize on increased volatility and premium capture. This strategy allows for exposure to market movements without the need to own the underlying asset. The speaker emphasizes that this approach is safer than buying long shares and involves taking small, incremental steps to manage risk. The strategy is suitable for investors comfortable with contrarian strategies and willing to take calculated risks.
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Strategyvolatility trading
Assetequity
Time horizonshort-term
Entry / triggermarket drawdown during midterm election years
Target / exitvolatility increase and premium capture
Invalidation / stopmarket rally or failure to capture volatility
SpeakerIsile
Risks- Market rally
- Failure to capture volatility
- Liquidity issues
Insight
Market Vulnerability and Potential Weakness
The market may show signs of weakness in Q1, particularly in February or March, due to its current state of vulnerability. The speaker suggests that the market's prolonged period of elevated interest rates, despite not being historically high, could lead to a correction. The market's extended upward trend and fully priced stocks may indicate a potential for a pullback.
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Applicable when- Elevated interest rates
- Extended bull market
- Fully priced stocks
Limitations- The prediction is speculative and based on market sentiment rather than concrete data
- The market may not show weakness as expected due to external factors like geopolitical events or economic data
Insight
Market Volatility and Sentiment
The transcript highlights the volatility in financial markets, with the Nasdaq rising 140 points after being down overnight, and the VIX futures and cash indices showing declines. This indicates a shift in market sentiment, possibly due to overnight news or market corrections. The movement in silver and Ethereum suggests that certain assets are performing better than others, reflecting divergent market expectations.
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Applicable when- market corrections
- overnight news impact
Limitations- No specific market regime is identified beyond general volatility and sentiment shifts.
Insight
Volatility as a Trading Strategy
Volatility can be leveraged as a trading strategy, particularly when it is high. The speaker suggests that buying volatility contracts, such as puts, can offer returns if the underlying asset moves in a certain direction. This strategy is highlighted as a way to generate returns even if the stock itself does not perform well, as long as the volatility remains high. The practical implication is that traders should consider volatility as a separate factor from the stock's price movement.
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Applicable when- high volatility
- bullish on an asset
Limitations- Requires understanding of volatility contracts
- Risk of losing capital if volatility decreases or the stock moves against the trade
Insight
Market Volatility and Trading Opportunities
The transcript highlights that during periods of high market volatility, there are significant trading opportunities. The speaker notes that markets can move dramatically, as seen with gold and silver, and that such volatility is beneficial for traders. However, it also emphasizes the importance of managing risk and being prepared for large swings until market conditions stabilize.
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Applicable when- High market volatility
- Uncertain market conditions
Limitations- Volatility can lead to increased risk and potential losses
- Not all traders may be able to capitalize on volatility effectively
Insight
Market Volatility and Sentiment
The transcript highlights the volatility of financial markets, with the Nasdaq and S&P indices showing significant declines. The speaker discusses the market's performance, indicating that traders should be aware of the potential for continued volatility and the importance of monitoring market movements closely. The discussion also touches on the emotional aspect of trading, such as the impact of personal experiences and the importance of staying engaged with market dynamics.
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Applicable when- market downturns
- high volatility periods
Limitations- The discussion is anecdotal and does not provide specific market analysis or strategies.
Insight
VIX Trading Strategy
The speaker suggests that trading the VIX (Volatility Index) is a poor strategy from a trading standpoint, describing it as a 'terrible retail product.' Instead, they recommend trading S&P options as a cleaner and better market alternative. They also mention VXM, a micro VIX future, as a synthetic spy trade that is cheaper and has a one-for-one correlation with market volatility. This insight highlights the preference for S&P options over VIX options and the use of VXM as a volatility bet.
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Applicable when- trading_vix
- trading_spx_options
- using_vxm
Limitations- The speaker does not provide specific entry or exit points for these strategies.
- The effectiveness of VXM as a synthetic spy trade may vary based on market conditions.
Insight
Volatility and Position Duration Strategy
When volatility is high, traders should focus on the near-month options, such as the front month and the next month, to manage risk effectively. If volatility is low, traders should consider longer-dated options to increase duration. This strategy is based on the idea that high volatility creates a synthetic higher volatility environment, which is more suitable for strategies like iron condors. The decision to adjust duration is dependent on the level of implied volatility and the trader's strategy.
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Applicable when- high implied volatility
- low implied volatility
Limitations- This strategy assumes the trader has a clear understanding of volatility regimes and can adjust their positions accordingly.
- It may not be suitable for all market conditions or trader risk profiles.
Insight
Expected Moves and Market Volatility
The speaker discusses the expected move of a stock, suggesting a potential 10-12% movement. This highlights the importance of anticipating market volatility and understanding the factors that can drive significant price changes, such as earnings reports. The practical implication is that traders should be prepared for large swings and consider the timing of such events when making trading decisions.
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Applicable when- Earnings reports
- Market expectations
Limitations- Expected moves are not guaranteed
- Market conditions can change rapidly
Insight
Market Volatility and Sector Performance
The transcript highlights the volatility in major indices like the Nasdaq and S&P, with the Nasdaq down 350 and the S&P down 32. It also notes that while AI-related concerns were initially cited as a reason for the decline, other factors like crude oil and gold movements were also mentioned, indicating that market movements can be influenced by multiple factors. The speaker suggests that the market's performance is not solely tied to AI but is affected by broader economic indicators.
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Applicable when- Market downturns
- Sector-specific influences
Limitations- The analysis is based on a single market observation and does not account for long-term trends or broader economic contexts.
Insight
Trading Volatility When It's High
When volatility is high and persistent, traders should embrace it as an opportunity rather than a challenge. The speaker emphasizes that high volatility is a favorable condition for trading, and it's better to trade it while it's present rather than waiting for it to return. This insight suggests that traders should focus on strategies that capitalize on volatility, such as options trading, and not be concerned about its temporary absence.
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Applicable when- high volatility
- persistent volatility
Limitations- Volatility can be unpredictable and may not remain high indefinitely.
Insight
Market Volatility and Sector Rotation
The transcript highlights the extreme volatility in the tech sector, particularly in chip stocks like Nvidia, AMD, and others. It suggests that the market is experiencing rapid sector rotation, with stocks fluctuating significantly. The speaker notes that the market's reaction to potential negative news, such as a slowdown in AI growth, could lead to sharp declines in these stocks. This insight emphasizes the importance of monitoring sector-specific news and the potential for rapid price movements in high-growth industries.
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Applicable when- High-growth sectors
- Sector rotation
- Market sentiment shifts
Limitations- The analysis is based on a single conversation and may not represent broader market trends.
- The potential for AI-related news to impact the market is speculative.
Insight
Volatility Trading Requires Adequate Account Size
Volatility trading, particularly with strategies like wall plays, requires a minimum account size to mitigate the risk of significant losses from a single trade. The speaker suggests an absolute minimum of $25,000 and recommends a range of $50,000 to $100,000 for a more robust position. This is due to the high risk associated with volatility, where a single adverse event could severely impact the account.
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Applicable when- volatility trading
- account size requirements
Limitations- The recommendation assumes a certain level of experience and understanding of volatility strategies, which may not apply to all traders.
Insight
Market Volatility and Trading Opportunities
The speaker highlights that significant market movements, such as a 1,600 handle decline in the NASDAQ or 200 handles in the S&P, can signal the end of a bullish trend and present opportunities for both long and short positions. This is due to the high implied volatility and the potential for price changes in stocks, which can be exploited through various trading strategies like selling premium.
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Applicable when- Significant market declines
- High implied volatility
- Bullish trend reversal
Limitations- Market conditions can change rapidly
- Not all traders may have the same interpretation of market signals
Insight
Market Volatility and Trade Adjustments
The speaker discusses how volatility impacts trade execution and adjustments. They mention that while volatility has decreased, it's still possible to adjust trades by raising strikes slightly. The expected move in the market is a key factor in determining the optimal strike levels for trades.
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Applicable when- trading with options
- adjusting strike prices
Limitations- volatility changes can affect credit received
- adjustments may not always be necessary if volatility remains stable
Insight
VIX Trading Risks and Alternatives
The speaker highlights the risks associated with trading VIX options, particularly calendars, which can lead to significant losses due to their potential for large credits during periods of extreme volatility, such as the 2008-2009 financial crisis and 2022. They emphasize that while VIX is a useful indicator, it is not a great retail product for trading. Instead, they recommend using VXX for calendar and diagonal strategies, as it is more manageable. For those interested in volatility trading, the VXM (micro VIX future) is suggested as a better alternative. The key takeaway is that VIX products are generally untradeable or risky, and traders should be cautious and consider alternatives like VXX or VXM.
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Applicable when- high volatility periods
- retail traders
Limitations- VIX products are inherently risky
- VXM may not be suitable for all traders
Insight
Market Volatility and Earnings Impact
The transcript highlights the significant impact of earnings announcements on stock prices, as seen with Micron's stock movement. It also notes that while Micron's stock has experienced a substantial increase, the percentage move is not as large as that of Oracle's previous move. This suggests that while earnings can drive short-term volatility, the magnitude of the move depends on the stock's current price level and market conditions. The discussion also implies that traders should consider the context of a stock's price range when evaluating potential moves.
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Applicable when- Earnings announcements
- Stock price range
- Market conditions
Limitations- The transcript does not provide specific data on the percentage move of Micron or Oracle, so the comparison is based on qualitative observations.
Insight
Volatility and Profit Potential
Low volatility does not change the probability of profit but affects the amount of money that can be made. High volatility allows for higher potential profits, while low volatility limits the potential gains. This distinction is crucial for traders when deciding on risk-reward trade-offs.
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Applicable when- trading strategies
- risk management
Limitations- Assumes consistent market behavior
- Does not account for unexpected events or market shifts
Insight
Market Volatility and Price Movements
The transcript highlights the volatility of the S&P and Nasdaq indices, noting that the S&P is up 26 but struggling, while the Nasdaq is only up 100. The Nasdaq sold off about 75 handles off its high and rallied almost 200 handles after the close. This indicates significant intraday price movements and market uncertainty. The discussion suggests that traders should be cautious and monitor these movements closely.
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Applicable when- Market volatility
- Intraday price movements
Limitations- The transcript does not provide specific market conditions or future outlooks beyond the mentioned price movements.
Insight
Market Volatility and Short-Term Trading
The speaker discusses the volatility of the market, particularly in the context of short-term trading strategies. They mention selling futures at specific prices and the impact of market movements on their trades. The speaker also highlights the importance of understanding market dynamics and the potential for rapid price changes, especially around events like IPOs and political developments.
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Applicable when- Short-term trading
- Market events like IPOs and political developments
Limitations- The insights are based on a specific market context and may not apply universally.
- The speaker's personal trading experience is not a guaranteed strategy for others.
Insight
Volatility and Trade Strategy
The speaker emphasizes the importance of volatility in trading decisions, suggesting that traders should consider their bullish sentiment when choosing between different strategies. The use of call spreads and naked puts is highlighted as a way to manage risk while capitalizing on potential upward movements. The trade idea involves a call spread with a specific strike price and a put for a credit, indicating a strategy that balances risk and reward based on the trader's confidence level.
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Applicable when- bullish sentiment
- specific strike prices
- credit strategies
Limitations- Subjective strike selection
- Dependent on market movement
- Requires risk management
Insight
Market Volatility and Its Impact on Trading Strategies
The transcript highlights the importance of monitoring market volatility, particularly through the VIX index, as a key factor in trading decisions. The speaker discusses how the VIX's movements, such as a 75-point move and a 5-cent increase, can signal market sentiment and influence trading strategies. The discussion also emphasizes the need to consider the impact of upcoming holidays on volatility, as the absence of trading activity can affect market dynamics. The speaker notes that the lack of volatility in the current environment may lead to opportunities for traders who are short volatility, but it also poses risks if the market unexpectedly shifts.
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Applicable when- Market volatility changes
- Holiday periods
- VIX index movements
Limitations- The analysis is based on short-term observations and may not account for long-term market trends.
- The speaker's personal trading experience may not be universally applicable.
Insight
Market Volatility and Implied Volatility Rank
The Q's ETF has the highest implied volatility rank (IVR) at 72%, indicating higher volatility compared to other ETFs. This higher volatility translates to a 78% chance of making 50% of maximum profit, making it an interesting option for slightly bearish traders. The implied volatility rank is a measure of volatility relative to itself, highlighting the ETF's potential for significant price movements.
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Applicable when- High implied volatility
- Bearish market outlook
Limitations- Higher volatility can lead to larger losses if the market moves against the trade
- Not suitable for all risk profiles
Insight
Market Volatility and Trading Opportunities
The speaker discusses the current market conditions, noting that volatility has been under 18, with the forward VX hovering around the 20 level. This indicates a relatively calm market environment, which can present opportunities for traders looking for low-volatility strategies. The speaker also mentions that the market is 'dull' and 'churning,' suggesting that traders should be cautious and look for subtle movements or rotations in sectors like technology stocks.
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Applicable when- low volatility environment
- calm market conditions
Limitations- Market conditions can change rapidly
- Volatility levels can fluctuate unexpectedly
Insight
Market Volatility and Position Management
The speaker discusses the importance of managing positions in volatile markets, emphasizing the need to reduce losses rather than aiming for profit. They highlight the use of stop-loss strategies, such as covering a position at a specific price level to limit potential losses. This approach is particularly relevant in situations where the market is moving against a short position, as demonstrated by the example of oil put premiums.
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Applicable when- volatile markets
- short positions
- loss management
Limitations- This strategy is not universally applicable and depends on market conditions and individual risk tolerance.
Insight
Volatility Trading Strategy
The speaker emphasizes that volatility (IVR) levels are crucial in trading decisions. Buying volatility is risky as it has a 90% chance of losing, while selling volatility in a lull state offers better odds. The key insight is to remain consistent in trading approach, either as a buyer or seller of volatility, and avoid flipping between strategies. This is analogous to staying consistent in a casino game, such as always betting on the bank in blackjack or roulette.
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Applicable when- lull state of volatility
- contraction state of volatility
Limitations- The strategy assumes consistent market conditions
- It may not work in all market regimes
Insight
Market Volatility and Trading Opportunities
The speaker notes that media mergers and pushback create volatility, which is beneficial for trading. This insight highlights that market volatility can present opportunities for traders, especially when there are significant catalysts like mergers or regulatory decisions. The practical implication is that traders should be attentive to such volatility and consider it as a potential setup for trading.
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Applicable when- Media mergers
- Regulatory decisions
- Market pushback
Limitations- Volatility may not always lead to profitable trades
- Market conditions can change rapidly
- Not all volatility is created equal and may not be suitable for all trading strategies
Insight
Market Volatility and Trends
The market has shown a pattern of minor corrections, with the Nasdaq experiencing several small down days over the past 30 trading days. These corrections, though minor, indicate a degree of volatility. The S&P and Nasdaq have shown mixed performance, with the S&P slightly up and the Nasdaq at a high of the morning, despite being soft all night. The market's behavior suggests a cautious approach, with traders needing to be aware of potential corrections and the overall trend of the market.
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Applicable when- Minor corrections in Nasdaq
- Mixed performance in S&P and Nasdaq
Limitations- The data is limited to the morning session and does not cover the entire trading day
- The analysis is based on a short period of 30 trading days
Insight
Market Volatility and Historical Context
The speaker compares current market volatility to historical events, noting that while the Dow moved 40 points in the past, it now moves 400 points, highlighting the increased scale of market movements over time. This suggests that traders must adapt to changing volatility levels and recognize that what was once a significant move is now routine. The comparison also underscores the importance of understanding historical context to avoid misjudging current market conditions.
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Applicable when- historical_market_data
- volatility_comparison
Limitations- The comparison is anecdotal and not based on quantitative analysis.
- The speaker's personal experience may not reflect broader market trends.
Q&A
What's actually happening in a stocks option markets in the 24 hours before earnings? Who's doing what and why does implied volatility behave the way it does?
In the 24 hours before earnings, there is uncertainty leading to people buying cheaper options to protect their positions, which holds volatility up. It's rare for volatility to implode before earnings. Market makers and risk teams manage their positions, and there's a tug-of-war between those selling premium and those buying premium. The outcome depends on market forces and no one knows if volatility will expand or contract.
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Actionable takeawayVolatility tends to stay elevated before earnings due to uncertainty and positioning by market participants, with no clear prediction on whether it will expand or contract.
Q&A
Can I watch it with just the sound on and not have to have the picture?
You have to have clothes on because if you don't have clothes on it'll be disturbing for you to watch it without clothes on.
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Actionable takeawayThe speaker mentions a video on volatility and advises viewers to have clothes on while watching it.
Q&A
Do you take into consideration the VIX spiking to 40 and the lack of historic back-to-back spikes as a contrarian's view for a bullish outlook for 2026?
The speaker acknowledges the VIX spiking to 40 as an extended move but does not view it as a bullish signal for 2026. Instead, they suggest a bearish outlook with a potential 3-4% decline, citing the market's extended upward trend and the impact of geopolitical issues on earnings.
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Actionable takeawayThe speaker suggests a bearish outlook for 2026, with a potential 3-4% decline, due to the market's extended upward trend and geopolitical risks.
Q&A
Why does Tom scalp futures mostly during the first hour of trading?
Tom scalps futures during the first hour of trading because he believes it is the most volatile and uncertain period, creating opportunities for countertrend trades. He identifies the weakest and strongest futures and takes opposite positions based on this analysis.
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Actionable takeawayThe first hour of trading is considered a high-volatility period, making it an ideal time for scalping strategies that exploit countertrend movements.
Q&A
What causes a large discrepancy between delta and probability in the money?
A discrepancy between delta and probability in the money can be caused by factors such as individual strike volatility, skew, and market conditions like upcoming earnings or events. The delta is generally more accurate as it is calculated per strike, while the probability in the money is a simplified measure based on distance from the strike. The difference is usually small, but large discrepancies can occur due to high volatility or unusual market conditions.
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Actionable takeawayUnderstanding the factors that influence delta and probability in the money can help traders make more informed decisions when evaluating options strategies.
Q&A
Why is volatility considered a better measure than price?
Volatility is a math equation and is mean-reverting, unlike price, which is not mean-reverting. This makes volatility a more reliable measure for trading strategies.
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Actionable takeawayVolatility is a more reliable measure for trading strategies due to its mean-reverting nature.
Q&A
Why wouldn't traders buy VIX puts three months out?
Traders typically buy VIX puts for the front month because they get paid more if they are correct, and it offers a faster return. Buying puts three months out is less attractive due to the higher cost and the reduced likelihood of being correct over a longer period. The speaker explains that the VIX has a floor built in, making long-dated puts less valuable and less effective for hedging.
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Actionable takeawayShort-dated options are more attractive for traders due to their higher payoff potential and lower cost, even though they carry higher risk.
Q&A
Do you think that oil's not going to keep going up because this is going to be resolved or regardless of what happens, there's a pseudo-cap on oil to say it's not going to go over 120, 125, whatever?
The speaker believes that the price of oil will not continue to rise beyond the 125-130 range, as the current volatility is already priced in. The speaker also mentions that the rumor is over and the news is out, so there is no more upside for oil.
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Actionable takeawayThe speaker suggests that the price of oil will not continue to rise beyond the 125-130 range, as the current volatility is already priced in.
Q&A
Does your trading strategy change in these market conditions? If so, how?
The speaker states that their trading strategy does not change in these market conditions. However, they suggest adjusting position sizes and risk management practices when volatility is high, as the market has already priced in the potential for volatility. This approach helps mitigate risk while maintaining exposure to potential market movements.
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Actionable takeawayAdjust position sizes and risk parameters in high volatility environments to account for increased market risk.
Q&A
Any experience trading Bloom Energy BE?
The speaker mentions having traded Bloom Energy (BE) once in the last two years, but does not recall the specifics of the trade. They note that the stock has experienced significant volatility with +5% daily moves and that the options market is wide. The speaker suggests that the volatility is around 120 and that spreads may not move significantly, so the strategy involves trading around mid-price. The speaker also notes that they would not trade anything naked in this environment due to the high volatility and risk.
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Actionable takeawayThe speaker suggests that trading Bloom Energy (BE) with a strangles strategy may be possible, but the high volatility and wide options market make it a risky proposition. The speaker also notes that they would not trade anything naked in this environment due to the high volatility and risk.
Q&A
How should active options traders adapt when the traditional edge in premium selling is compressed?
Active options traders should adapt by trading smaller, wider, and longer-dated positions. They can selectively reintroduce directional risk while taking less of it. This approach helps mitigate the risk of complacency and outlier losses in low volatility environments.
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Actionable takeawayAdapt by trading smaller, wider, and longer-dated positions to replicate higher volatility and reduce directional risk exposure.
Q&A
What is the expected move in Coinbase?
The expected move in Coinbase is $36, with the speaker noting that the stock is down $6 today, so the actual profit may be lower than the $200 credit. The speaker advises waiting to see if Coinbase rallies before entering the trade.
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Actionable takeawayThe expected move in Coinbase is $36, but the actual profit may be lower due to the current market conditions. The speaker suggests waiting for a potential rally before entering the trade.
Q&A
How do you stay positive in volatile market scenarios?
The speaker suggests that traders should accept short-term losses as part of the process and focus on long-term success. They emphasize that having a proven track record helps reduce the pressure of proving oneself in volatile markets.
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Actionable takeawayAccept short-term losses as part of the process and focus on long-term success.
Q&A
What is the current performance of Google and other stocks?
Google's stock is up nine bucks, making it the strongest stock of the day. AMD is up 42, Nvidia is up almost six bucks, and Apple is up almost two bucks. These gains indicate strong performance in specific stocks, though the overall market volatility is subdued.
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Actionable takeawayCertain stocks are performing well, but the overall market is showing reduced volatility.
Q&A
What is the expected move for the July 34 puts on IBIT?
The expected move for the July 34 puts on IBIT is $3.70.
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Actionable takeawayTraders should consider the expected move of $3.70 when evaluating the trade's potential.
Q&A
How do you avoid getting whipsawed on days with extreme market moves?
On days with extreme market moves, traders should reduce position size, roll out in time to reduce delta exposure, and consider underhedging or underadjusting positions. Mental stops and a 2% rule can also be used to manage risk.
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Actionable takeawayReduce position size and adjust hedging strategies on volatile days to avoid being whipsawed.
Q&A
How did you make your money back after your large loss in GME?
The trader made money back by shorting volatility during the GME meme stock explosion in 2021. The strategy was based on the expectation of a reversion to the mean in both volatility and price. The trader noted that the market's reversion to the mean in volatility and price was a key factor in the success of the trade.
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Actionable takeawayShorting volatility can be a profitable strategy during periods of extreme market volatility, especially when expecting a reversion to the mean.
Q&A
What's the difference between selling a put on a stock you want to own versus just buying the stock outright?
Selling a put on a stock you want to own involves writing a put option and buying a further out-of-the-money put, which gives the seller the right to sell the stock at the strike price. This strategy is used when the seller is bullish on the stock and wants to own it at a predetermined price. In contrast, buying the stock outright involves purchasing shares directly, which is a straightforward approach. The transcript suggests that buying shares can be a better trade in certain scenarios, particularly when the market is volatile or when the investor is uncertain about the stock's future performance.
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Actionable takeawayBuying shares outright is a straightforward approach, while selling a put on a stock you want to own involves writing a put option and buying a further out-of-the-money put. The choice between the two strategies depends on the investor's outlook on the stock and the market conditions.
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
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
Is it better to sell puts or wait for volatility to settle down?
The speaker suggests selling puts when volatility is high, as this allows the trader to capture higher premiums. Waiting for volatility to settle down is not recommended, as it may result in lower premiums.
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Actionable takeawaySell puts when volatility is high to capture higher premiums.
Q&A
What is the significance of the VIX index in market analysis?
The VIX index is used to gauge market volatility. When the VIX is under 19, the market is considered bullish, and when it's over 19, it's neutral. This helps traders assess market conditions and make informed decisions.
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Actionable takeawayTraders can use the VIX index as a tool to determine market sentiment and adjust their strategies accordingly.
Q&A
How many more body blows could the market take?
The speaker states that it's uncertain how many more body blows the market could take, and that the guess is as good as anyone else's.
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Actionable takeawayMarket resilience is unpredictable and should be monitored closely.
Q&A
Is an eight-legged spread a viable alternative for an additional weekly volatility trade?
An eight-legged spread is not recommended due to its complexity and difficulty in management. Scaling the original four-legged trade by increasing the size or widening the strikes is a more effective approach.
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Actionable takeawayAvoid complex spreads and focus on scaling existing positions for better risk management.
Q&A
Is emotional neutrality an advantage, or do you still need a thesis on volatility, liquidity, or the underlying to manage the trade well?
Emotional neutrality is an advantage when selling premium on both sides with no directional bias. It allows for a more balanced approach to managing the trade.
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Actionable takeawayEmotional neutrality is beneficial when selling premium on both sides without a directional bias, as it allows for a balanced approach to trade management.
Q&A
At what point does a stock that has been beat down for so long become a reason to sell puts rather than just trying to catch a falling knife?
The speaker suggests selling puts on stocks like Nike, Uber, Micron, and others, arguing that selling puts is a better strategy than trying to catch a falling knife. They emphasize that selling puts can be a way to profit from volatility and avoid the risk of buying a stock that might continue to decline.
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Actionable takeawaySell puts on beaten-down stocks to profit from volatility rather than trying to catch a falling knife.
Q&A
What are the profit targets for scalping on highly volatile days?
The speaker suggests that on highly volatile days, profit targets for scalping on the S&P could range from 10 to 20 points. For commodities like crude oil, the target might be $1, while for gold, it could be $5.
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Actionable takeawayProfit targets for scalping vary based on market conditions and the asset being traded. On highly volatile days, the speaker suggests aiming for 10 to 20 points on the S&P.
Q&A
Is it better to sell covered calls when an underlying stock is currently up or down for the day? Is it better to sell a cash secured put when the underlying stock is currently up or down for the day?
It's better to sell covered calls when the stock is down for the day, as it allows for higher volatility and better pricing. Selling puts into weakness is also preferred.
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Actionable takeawaySell covered calls and cash secured puts when the stock is down for the day to capitalize on higher volatility and better pricing.
Q&A
Have you ever been short an option and a three standard deviation move happens overnight?
The speaker acknowledges that this is a common scenario and that it can lead to significant losses.
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Actionable takeawayShorting options can lead to significant losses if a three standard deviation move occurs overnight.
Q&A
Have you ever been short an option and a three standard deviation move happens overnight?
Yes, the speaker has experienced this multiple times, including in silver and Micron this year. They mention that such events happen roughly 1% of the time and have occurred more frequently than they would like.
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Actionable takeawayThree-standard deviation moves are rare but can occur, and traders should be prepared for such events, especially when shorting options.
Q&A
Is buying options a fair bet?
Buying options is not a fair bet as implied volatility can crush returns before the stock even moves. It does not pay, and the outlier move where it pays is rare and hard to achieve.
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Actionable takeawayAvoid buying options due to the risk of implied volatility crushing returns before any stock movement.
Q&A
Is there ever a time to trade the VIX?
The speaker states that they personally do not like the VIX from a trading standpoint, calling it a 'terrible retail product.' However, they suggest that if one is bullish on volatility, they can sell puts in VXX or buy VXM, the micro VIX future, as an alternative. They also mention that trading S&P options is a cleaner and better market alternative.
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Actionable takeawayThe speaker advises against trading the VIX directly but suggests alternatives like VXM or S&P options for volatility exposure.
Q&A
What is the market movement in the VIX future?
The VIX future moved up by $28 to $1790, indicating a significant increase in market volatility expectations. The speaker notes that this is almost a 6% move, highlighting the magnitude of the change.
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Actionable takeawayThe VIX future's significant upward movement suggests heightened market uncertainty or fear, which traders should consider when assessing risk exposure or positioning in volatile assets.
Q&A
Is using the VIX as a main gauge for whether conditions are attractive enough to put trades on actually a useful framework or am I oversimplifying something that depends more on a single volatility number?
The speaker suggests that using the VIX as a gauge is useful, but prefers forward/VX for daily volatility movement. They note that the VIX predicts future closing values, while forward/VX reflects daily changes. The speaker emphasizes consistency in using a single metric.
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Actionable takeawayUse forward/VX for daily volatility movement rather than the VIX, which predicts future closing values.
Q&A
What types of metrics do you guys look at to make the decision of should I put something on with 30 days or should I put something on at 60 days?
The decision is subjective and depends on volatility. In high volatility, shorter-term options (30 days) are preferred. In low volatility, longer-term options (60 days) are preferred to synthetically increase volatility exposure.
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Actionable takeawayIn low volatility environments, extend duration to longer-term options to synthetically increase volatility exposure.
Q&A
When do you decide when it's a good time to sell a strangle and how to manage a strangle?
The best time to put on a delta neutral strangle is when implied volatility is really high. Adjust the strangle whenever you get a little bit uncomfortable. If one delta gets to two times the other delta, adjust the position to neutralize it.
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Actionable takeawayAdjust strangles when uncomfortable or when deltas become imbalanced.
Q&A
What is the current state of the market?
The market is experiencing significant volatility, with the S&P 500 down 30 points at the opening, rallying to a 15-point decline, and then falling further to a 65-point decline. Other assets like gold, silver, and Bitcoin are also down, while the VIX is up.
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Actionable takeawayThe market is showing signs of fear and uncertainty, with multiple assets declining and the VIX indicating increased volatility.
Q&A
Do you think I'm missing out on not looking for volatility opportunities?
The speaker suggests that if the trader is making money with their current strategy, they should continue it. They also mention that trying a small portion of capital in a different approach could be beneficial, but caution against abandoning a winning strategy.
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Actionable takeawayContinue a winning strategy and consider small-scale experimentation with volatility opportunities without abandoning the current approach.
Q&A
How did you find the trade in Meta with high volatility?
The trade was found on the high IVR list, not the high option volume list. The user might have been looking at the wrong index (e.g., Nasdaq or S&P 100) or sorted the list incorrectly.
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Actionable takeawayUse the high IVR list and ensure the correct index is selected when searching for high volatility trades.
Q&A
Is it more profitable to trade by selling volatility with short puts and short calls in a leveraged bull ETF like TQQQ rather than QQQ?
It can be more profitable to trade by selling volatility with short puts and short calls in TQQQ due to higher liquidity in the underlying stock. However, the options in TQQQ are less liquid, which may affect the edge and risk profile. The underlying stock and options markets are influenced by the same models, but liquidity differences can impact trade execution and edge.
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Actionable takeawayConsider trading in TQQQ for higher liquidity in the underlying stock, but be cautious about the liquidity of options and the potential for wider spreads.
Q&A
Could you tell the sell Every strike story?
The speaker and their friend Jules attempted to sell a strangle in every strike of the S&P, which resulted in a significant loss. The trade was based on a lack of attention to volatility levels and market conditions. The trade idea highlights the importance of understanding volatility and market dynamics before entering complex options strategies. The failure of the trade serves as a cautionary tale about the risks of overleveraging and not considering market conditions.
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Actionable takeawayAvoid overleveraging and ensure proper consideration of market conditions before entering complex options strategies.
Q&A
How long will the ceasefire last?
The speaker estimates the ceasefire will last less than 48 hours, with the possibility of it ending by the weekend. The speaker suggests that someone will blink and the situation will escalate.
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Actionable takeawayThe speaker's analysis suggests a short-lived ceasefire, indicating potential for increased market volatility and risk.
Q&A
How do I know whether to adjust and defend or close and take a loss?
If IVR remains elevated, defend and adjust the position. For defined risk trades, there's a 60% chance the stock could reach the strike price. If volatility collapses, close the position as it may be exposed to significant risk. For undefined risk trades, more aggressive actions like rolling down the untested side are recommended.
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Actionable takeawayAdjust or defend positions when IVR is high, and close positions if volatility collapses.
Q&A
What is the realistic plus or minus on the mechanics of the Unlucky Investor's Guide strategy?
The speaker suggests that the realistic plus or minus on the mechanics of the Unlucky Investor's Guide strategy is around 50%, with a preference for taking profits quicker at 25% to 50%. The speaker also notes that the environment's volatility levels influence the optimal profit-taking point, with lower volatility favoring quicker profit-taking and higher volatility allowing for longer holding periods.
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Actionable takeawayThe strategy involves selling strangles with a 45 DTE and 21 DTE, with a target of taking profits at 50% max P. The speaker also notes that the environment's volatility levels influence the optimal profit-taking point, with lower volatility favoring quicker profit-taking (25% to 50%) and higher volatility allowing for longer holding periods.
Q&A
What is the expected move for the Apple strangle trade?
The expected move is $21.
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Actionable takeawayThe expected move for the Apple strangle trade is $21.
Q&A
Is the expected move on the weekly options for XYZ stock based on calculating all open interest in that stock's options?
No, the expected move is based on the options implied volatility, not open interest.
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Actionable takeawayThe expected move for options is calculated using implied volatility, not open interest.
Q&A
today's option models whether they're black shows or whatever you guys are calculating what happens if the liquidity like an 87 becomes so or the volatility and the liquidity becomes so skewed that everybody kind of walks away and the bids
The speaker suggests that even if liquidity or volatility becomes skewed, markets won't get too wide during the day. High-frequency firms have handled such situations, and models are based on normal liquidity. If spreads do widen, a contrarian approach could be taken, but it's unlikely. The speaker advises not to trade with the idea of 'monsters under the bed' and to focus on liquid products where you can trade both sides.
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Actionable takeawayModels are based on normal liquidity, and while spreads can widen, it's unlikely during the day. A contrarian approach could be considered if spreads get too wide, but it's not recommended to trade with the idea of extreme market events.
Q&A
What percentage of a portfolio is it safe to take margin on?
The speaker suggests using between 25 and 50% of a portfolio for margin, adjusting based on volatility. When volatility is higher, they recommend closer to 50-60%, and lower when volatility is lower. They also mention that for larger accounts, the percentage should be lower, such as between 15 and 25%.
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Actionable takeawayAdjust margin usage based on volatility levels, using 25-50% of the portfolio, with higher percentages during higher volatility.
Q&A
What is your recommendation for managing risk in a low volatility environment?
The recommendation is to wait for high IVR (Implied Volatility Ratio) to sell premium or buy spreads. This approach is believed to increase the chances of success by taking advantage of the market's volatility characteristics.
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Actionable takeawayWait for high IVR to sell premium or buy spreads in low volatility environments to increase the chances of success.
Q&A
What is the expected move for the stock?
The speaker mentions an expected move of 10-12% for the stock, based on market conditions and prior performance.
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Actionable takeawayTraders should be aware of potential large price swings and consider the timing of such events when making trading decisions.
Q&A
What is the expected move for Micron (MU) based on the earnings trade?
The speaker expects a move of around 10 to 12%, with the strike prices adjusted to reflect this. The expected move is based on the current volatility and the potential for a positive earnings report.
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Actionable takeawayThe expected move for Micron (MU) is around 10 to 12%, with the strike prices adjusted to reflect this. The trade is based on the expectation that the stock will move up by the expected amount.
Q&A
What do you think about SpaceX's butterfly spread being cheap?
The speaker believes that the butterfly spread on SpaceX is not cheap, and in fact, has become more expensive compared to previous periods. The speaker challenges the listener to review past trades and notes that the volatility in SpaceX is still relatively high, which could affect the cost of the butterfly spread.
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Actionable takeawayThe speaker suggests that the butterfly spread on SpaceX is more expensive now due to higher volatility, and recommends reviewing past trades for insights.
Q&A
Is there any way to lock in some call pricing edge because of the high skew normally seen on individual speculative stocks?
The speaker explains that there is no free money in high skew scenarios. While high skew may make options appear more expensive, it does not provide a theoretical edge. The speaker advises that traders should not assume that high skew will lead to free money, as options are priced based on their intrinsic value and market conditions.
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Actionable takeawayHigh skew does not provide a pricing edge, and traders should not assume that options are mispriced due to skew.
Q&A
Have you seen the lows for the day in the S&P 500X?
The S&P 500X lows were seen earlier, and the market was up 20. The speaker thought the lows were seen five handles ago.
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Actionable takeawayMarket levels and volatility were discussed, with the speaker indicating that lows were seen earlier in the day.
Q&A
How does the VIX reflect expected S&P 500 volatility?
The VIX reflects expected S&P 500 volatility over the next 30 days, and the futures curve shows traders' expectations for future volatility at different dates.
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Actionable takeawayThe VIX is a measure of expected volatility, and its futures curve indicates traders' expectations for future volatility at different time horizons.
Q&A
What is the significance of the VIX as a product for retail traders?
The VIX is considered the most misunderstood and misused product for retail traders. The speaker notes that the VIX futures roll up by almost a dollar each month due to the leverage involved, which is not widely discussed.
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Actionable takeawayThe VIX is a complex product with significant leverage that can lead to unexpected outcomes, making it challenging for retail traders to use effectively.
Q&A
Are the winds changing?
The speaker acknowledges that the winds may be changing, but expresses uncertainty about the direction and impact of this change.
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Actionable takeawayThe speaker suggests that traders should adjust their expectations and reduce position sizes due to the uncertainty in market conditions.
Q&A
Why did you choose to go outside the expected move for the SPY call spread?
To maximize the probability of a pop profit by positioning outside the expected move.
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Actionable takeawayPositioning outside the expected move can increase the probability of a pop profit in call spreads.
Q&A
What is the expected move for the stock?
The expected move is around $28.
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Actionable takeawayThe expected move is a key factor in determining the trade's potential profitability.
Q&A
You think about buying a little volatility besides instead of selling the market?
Never. I sell volatility.
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Actionable takeawayThe speaker does not recommend buying volatility, instead advocating for selling it.
Q&A
Can you talk about the VIX like in relation to the VIX cash?
The VIX future is the actual spot market, representing the current level of expected volatility. It is a derivative that reflects the market's expectation of future volatility. Traders can look at the VIX future to gauge the market's sentiment about future volatility.
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Actionable takeawayThe VIX future is a useful tool for gauging the market's expectation of future volatility, which can inform trading decisions.
Q&A
What are your thoughts on the idea of IV being bigger than realized volatility, but fat tail events happen more often than they should statistically? Do you guys ever hedge?
Implied volatility is always priced higher than realized volatility because it reflects the market's expectation of future price movements, which includes a margin for uncertainty and potential fat tail events. Fat tail events occur more frequently than statistical models predict, which is why traders often sell options at a premium to fair value. However, these events can lead to significant losses if not properly hedged. While hedging is important, it is not a major part of the strategy for many traders.
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Actionable takeawayTraders should be aware of the difference between implied and realized volatility and consider hedging strategies to mitigate the risk of fat tail events.
Q&A
Will the change in earnings announcements from quarterly to semi-annual affect trading volatility?
The change in earnings announcements from quarterly to semi-annual may reduce volatility in stocks, as companies will have fewer earnings reports. However, it may also affect the profits of trading firms, particularly those reliant on high-frequency trading. The speaker suggests that this change could lead to more passive investing and potentially give some companies an opportunity to hide deficiencies.
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Actionable takeawayThe change in earnings frequency may reduce volatility but could impact trading firms' profits, especially those using high-frequency strategies.
Q&A
What is the average true range and how is it used?
The average true range (ATR) is a measure of market volatility. It is used to estimate the expected price movement of a stock. The speaker suggests that while ATR is a traditional method, it can be replaced with option delta analysis for more flexibility and precision.
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Actionable takeawayTraders can use ATR or option delta analysis to estimate expected price movement, with the latter offering more flexibility.
Q&A
Is there any evidence that zero-day trading has increased market volatility?
There is no evidence that zero-day trading has increased market volatility. In fact, volatility has decreased, and zero-day trading has supplied more positive gamma to the market.
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Actionable takeawayZero-day trading does not appear to increase market volatility and may contribute positively to market dynamics.
Q&A
What are the current market conditions?
The markets are showing minimal movement, with the S&P and NASDAQ unchanged. Gold and silver have shown upward movement, with gold up almost five dollars and silver up 89,000. Bitcoin and Ethereum have also seen some movement, with Bitcoin catching a bid and Ethereum rising above $3,000. Bonds are stuck in a range, with the 114s at 11521. The implied volatility (IV) in the bond market is very low.
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Actionable takeawayTraders should be aware of the low volatility in the bond market and the higher volatility in commodities like gold and silver.
Q&A
What markets have you been trading recently?
The speaker has been trading silver and natural gas, with a focus on strangles. They mention experiencing significant daily moves in natural gas and are considering rolling positions or taking a loss.
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Actionable takeawayThe speaker is actively trading volatile markets with strangle strategies, indicating a focus on volatility and market moves.
Q&A
How big is the natural gas contract?
The natural gas contract is described as a monster with high volatility. It is the most volatile futures options contract, with the highest volatility over the last 10 years. The contract size is not explicitly stated, but it is noted to be highly liquid and risky.
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Actionable takeawayNatural gas is a high-risk, high-volatility contract that requires careful position sizing and management.
Q&A
Do you have a metric for days to trade or not trade zero DTE options?
The speaker explains that zero DTE options are not affected by overnight volatility, so the focus should be on intraday volatility. They emphasize that overnight volatility is the main driver of large market moves, which is not relevant for zero DTE options.
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Actionable takeawayTraders should focus on intraday volatility when dealing with zero DTE options, as overnight volatility has minimal impact.
Q&A
What size account would you recommend for volatility trading?
The speaker recommends a minimum account size of $25,000 and suggests a range of $50,000 to $100,000 for a more robust position. This is due to the high risk associated with volatility, where a single adverse event could severely impact the account.
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Actionable takeawayVolatility trading requires a minimum account size to mitigate the risk of significant losses from a single trade.
Q&A
Why is the VIX approaching 30 significant?
The VIX approaching 30 is significant because it indicates increased market volatility. The speaker notes that this level is rare, occurring only 5-6% of the time, and that it could lead to wild swings in the market. The speaker also mentions that the VIX is currently at a 50% level over the mean, which is considered rare and could signal a potential shift in market sentiment.
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Actionable takeawayTraders should be cautious and prepared for increased volatility if the VIX reaches 30.
Q&A
Please share your thoughts on theta decay over the weekend. How much of the weekend decay is typically priced in during the week, particularly on Friday versus how much actually occurs at the Monday open? And is Friday to Monday morning decay different when there's a major uncertainty event that could happen over the weekend such as negotiations involving the straight of four moves which we have seen I don't know 10 times already 10 times 10 but sure here the fa
Theta decay over the weekend is unpredictable and varies depending on market conditions. It is not possible to predict exactly when the decay will occur, but it is known that it will happen by expiration. Liquidity providers may adjust volatility to account for potential news or events over the weekend. The decay can occur on Friday, stay bid, or come out on Monday, depending on market sentiment and events. There is no exact guide for when to sell premium, and it is an art rather than a science.
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Actionable takeawayTheta decay over the weekend is unpredictable and influenced by market conditions and potential news events. It is best to approach it with an understanding that it is an art, not a science, and that the decay will occur by expiration, but the timing is uncertain.
Q&A
Does it help predict direction or does it simply tell you volatility, the risk of exaggerated moves are elevated?
It helps predict direction or simply tells you about volatility and the risk of exaggerated moves.
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Actionable takeawayThe discussion highlights the importance of understanding whether a tool or indicator predicts market direction or merely indicates volatility and risk of exaggerated moves.
Q&A
Is a rise in both the market and VIX a tradable red flag?
A rise in both the market and VIX can be seen as a red flag, indicating potential uncertainty or lack of confidence in the market's upward move. However, it does not necessarily mean a short-term reversal, as the market may continue to move higher despite the increased volatility.
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Actionable takeawayMonitor the market for signs of continued strength or weakness, and consider the implications of increased volatility on trading strategies.
Q&A
Are you saying the VIX is part of the Black Scholes equation?
Yes, volatility is a key component of the Black Scholes equation. It is considered the most significant input when it comes to pricing assets, and it is notoriously difficult to calculate accurately.
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Actionable takeawayUnderstanding volatility is crucial for accurate pricing in options and derivatives.
Q&A
What is the speaker's opinion on buying VIX calls?
The speaker expresses skepticism about buying VIX calls, noting that it hasn't worked in the past. They suggest that the market could experience a sharp sell-off, which might push the VIX to 25-30 or even 50, indicating the potential for significant volatility.
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Actionable takeawayThe speaker advises caution when considering VIX calls due to the potential for significant volatility and the historical performance of such strategies.
Q&A
Will AI kill selling strangles?
AI will not kill selling strangles because they have no theoretical edge and are based on random market movements, which AI cannot predict or control.
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Actionable takeawaySelling strangles remains a viable strategy regardless of AI advancements due to its reliance on market volatility rather than predictive analytics.
Q&A
What is the significance of a 1,600 handle decline in the NASDAQ?
A 1,600 handle decline in the NASDAQ is seen as a signal that the bullish trend may be ending. This creates opportunities for traders to take short positions or sell premium due to the high implied volatility and potential for price changes in stocks.
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Actionable takeawayA significant market decline can indicate a potential reversal, creating opportunities for short positions or selling premium.
Q&A
Do you focus on trading differently now or is the focus on opportunity caution?
The speaker suggests that traders should adjust their approach based on the current market conditions, which include higher volatility and larger expected moves. They recommend reducing position size when nervous and setting wider profit and loss targets to accommodate the increased volatility.
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Actionable takeawayTraders should adjust their position sizes and profit/loss targets in response to increased volatility and larger expected price moves.
Q&A
What is the role of a trader in high volatility markets?
In high volatility markets, the role of a trader is to stress test positions at 2x the expected move, particularly during earnings seasons. This involves preparing for extreme scenarios and leveraging amplified market movements to capture larger returns.
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Actionable takeawayTraders should stress test their positions at 2x the expected move in high volatility environments, especially during earnings seasons.
Q&A
Do actual earnings matter to traders?
Earnings results matter to traders if they have a position, but traders often care more about the event itself and the volatility it brings. Earnings results are not always directly correlated with stock price movements due to market expectations and pricing.
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Actionable takeawayTraders should focus on the event and volatility rather than the actual earnings results, as market reactions can be unpredictable.
Q&A
What do you think the VIX one-day volatility is right now?
The VIX one-day volatility is reported as 564, indicating extremely low volatility and a market halt.
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Actionable takeawayThe VIX at 564 suggests a market in a state of near-zero volatility, which is unusual and may indicate a lack of market activity or uncertainty.
Q&A
What is the current state of the market and how does it relate to gamma risk?
The market is experiencing high volatility despite rising interest rates, and there's a discussion about gamma risk. The speaker mentions that most retail investors don't understand the buying power requirements to cover gamma risk, and that volatility is currently cheap, which can lead to gamma risk. However, the speaker also notes that when volatility is low, it usually doesn't get killed, and the VIX futures are up today.
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Actionable takeawayGamma risk is a concern in the current market environment, but it's not a factor for most retail investors due to their buying power requirements. Volatility is cheap, which can lead to unexpected market movements, but the speaker suggests that it's more about the environment than specific gamma risk.
Q&A
Under what conditions would you buy options in the future?
The speaker mentions that buying options could be considered in certain conditions, such as when volatility is low and the trader has a specific directional hunch. However, the speaker emphasizes that this is not a preferred strategy and is only considered under rare conditions.
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Actionable takeawayBuy options only in specific conditions with a clear directional hunch and low volatility.
Q&A
Do you think we get a sell-off today where we're unchanged or up 20 on the E mini S&P's?
Yes, a sell-off is expected today due to the size of the move yesterday, and it's considered unprecedented.
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Actionable takeawayExpect a sell-off today due to the significant move yesterday.
Q&A
Is this the most important framing shift for how traders should think about the markets going forward?
The speaker agrees with the framing shift, suggesting that the moderation era has become the new operating environment. However, they express uncertainty about whether this is a permanent change or a temporary phase, emphasizing the need for time to determine its validity.
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Actionable takeawayThe speaker acknowledges the shift in market dynamics but remains cautious, suggesting that traders should monitor the situation over time to determine if it represents a lasting change.
Q&A
Is standard deviation the basis for everything to do with trading?
Standard deviation is not the basis for everything in trading, but it is a fundamental metric used for mechanical measurements and optimization. It helps determine expected market moves and buying power, with one standard deviation representing the expected move and two standard deviations used for buying power calculations.
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Actionable takeawayStandard deviation is a key metric for understanding market volatility and risk, but it should be used in conjunction with other tools and strategies.
Q&A
What is the first asset class, sector, or security you expect to recover from a major sell-off?
The speaker suggests that the recovery from a major sell-off depends on how far the sell-off goes. They mention that the market has vulnerabilities and that volatility could lead to significant declines. The speaker advises waiting to see what happens next before making any investment decisions.
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Actionable takeawayThe speaker emphasizes the importance of waiting for market clarity before making investment decisions, as the recovery from a sell-off is uncertain and depends on market conditions.
Q&A
What is the recommended approach for trading during high volatility?
The speaker recommends staying small, avoiding chasing trades, and letting the market come to you. They emphasize the importance of liquidity and caution against overexposure.
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Actionable takeawayTraders should avoid chasing trades and instead let the market come to them, keeping positions small to manage risk.
Q&A
Is there a consistent like 45 BTE strategy you guys could recommend that I could repeat?
The speaker recommends a short put spread strategy with defined risk, suggesting it as a way to lean a little bit long. They also mention the importance of being selective due to low volatility and suggest keeping contracts small.
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Actionable takeawayConsider a short put spread strategy with defined risk, especially in a low volatility environment.
Q&A
What is the expected move in crude oil?
The expected move in crude oil is under $12.
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Actionable takeawayExpected move in crude oil is under $12.
Q&A
Don't you think the SpaceX day one investor knows to sell a little and wait for a rally? Aren't they smarter than that? If you are a SpaceX day one investor, are you unloading everything at 185? What trade would you suggest?
The speaker suggests selling a small amount and waiting for a rally, but acknowledges that the market is volatile and that the trade idea involves selling puts around the earnings trade.
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Actionable takeawayConsider selling puts around the earnings trade for SpaceX.
Q&A
They're going to close higher than here?
I think I'm going to say they're closing lower from here.
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Actionable takeawayThe speaker anticipates a lower closing price than the current level, suggesting a bearish outlook for the market.
Q&A
Will you trade any differently during earnings?
The speaker acknowledges that their trading approach changes during earnings season, particularly in low volatility environments. They note that low volatility makes them nervous, as it reduces the opportunities for selling options like calls and puts. In contrast, high volatility environments offer more opportunities for options trading.
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Actionable takeawayThe speaker's strategy changes based on volatility levels during earnings season, with a focus on options trading in high volatility environments.
Q&A
Are earnings trades more risky or less risky when volatility drops?
Earnings trades are less risky when volatility drops because the expected move is smaller. However, they can be more risky if there is a market shock, as the risk is not adequately priced into the options.
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Actionable takeawayEarnings trades in low volatility environments have lower expected moves but can be riskier if there is a market shock.
Q&A
Would it make sense to buy a straddle if selling premium doesn't make sense?
No, it never makes sense to buy the straddle. Don't you know, I mean, if you're ever going to buy a straddle, then buy it for earnings because it is a binary play if that's really what you want. But, no, we don't flip the cards over. This isn't like, 'Hey, if I don't want to sell it, then should I buy it?' That's not the same thing. Just because I don't want to sell it does not mean I should buy it.
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Actionable takeawayBuying a straddle is not a viable alternative to selling premium if the latter is not profitable. It is only recommended for earnings events as a binary play.
Q&A
What is meant by skew?
Skew points out the velocity, the expected velocity of the stock's movement. It represents how the market interprets velocity of risk. Call skew indicates expected upside velocity, while put skew indicates expected downside velocity.
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Actionable takeawaySkew is a measure of market expectations about the velocity of stock movement, indicating whether the market anticipates upward or downward movement.
Q&A
What is the expected market behavior before a Friday expiration?
The speaker expects a muted market behavior before a Friday expiration, with a potential for slight buying late in the day due to concerns about a markup. However, they note that this particular expiration has been very flat over the last 28 years, suggesting little to no significant movement.
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Actionable takeawayMarket behavior before a Friday expiration is typically muted, with potential for slight buying late in the day due to markup concerns, but historical data suggests minimal movement.
Q&A
Does trading ever get old and stale?
Trading does not get old or stale because each day presents unique market movements and opportunities. The speaker emphasizes that the markets are unpredictable and exciting, with daily variations that keep the experience fresh.
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Actionable takeawayMaintain a mindset of adaptability and excitement towards daily market changes.
Q&A
Will you trade Apple's earnings?
The speaker is considering trading Apple's earnings but is not certain. They mention leaning towards selling puts but are cautious due to the high VIX and the need to avoid market shocks.
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Actionable takeawayThe speaker is evaluating a trade strategy for Apple's earnings but is not yet committed to an action.
Q&A
You would look to do a trade like this then? Um, I'd rather sell puts in there
Sell puts at 10, 105 volatility, 110 volatility
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Actionable takeawaySell puts in high volatility stocks
Q&A
Why is the VIX not coming in despite record highs in the market?
The speaker suggests that the VIX is not decreasing because there is no selling of volatility, indicating a lack of market participants willing to take on the risk of volatility. This divergence between market performance and volatility expectations may signal underlying uncertainty or anticipation of future volatility.
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Actionable takeawayThe speaker implies that the current VIX levels may not reflect the actual market conditions, suggesting a potential for a shift in market sentiment or volatility expectations.
Q&A
Does higher implied volatility always mean lower basis?
Higher implied volatility does not always mean lower basis. The speaker explains that when volatility is high, it often indicates a lower stock price, which can result in a lower basis for a purchase. However, in certain markets like commodities, higher volatility can occur when prices are rising, which is the opposite of the stock market pattern. The speaker also notes that the basis is influenced by the timing of the purchase, with buying at a higher volatility period resulting in a higher basis.
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Actionable takeawayHigher implied volatility can indicate a lower basis in stocks, but this relationship may not hold in commodities where volatility and price movements can be inversely related.
Q&A
What is the expected move for Amazon over 52 days?
The expected move for Amazon over 52 days is approximately 10%, or about $26.
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Actionable takeawayTraders should consider the expected move when deciding between buying shares outright or selling a put.
Q&A
What is the current state of the S&P and Nasdaq?
The S&P is down 17, and the Nasdaq is down 118. The speaker notes that these are significant declines, but the market has been volatile, with the S&P fluctuating between being up and down throughout the day.
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Actionable takeawayThe speaker suggests that the market is experiencing significant volatility, with the S&P and Nasdaq fluctuating throughout the day. This volatility may present opportunities for traders who are short volatility.
Q&A
Do you think volatility will increase or decrease?
The speaker believes that volatility is likely to remain stable in the short term, with a potential contraction if the market continues to rally. However, there is a risk of a volatility spike if unexpected events cause a market pullback.
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Actionable takeawayVolatility is expected to remain in a range, with potential for contraction or spike based on market direction and unexpected events.
Q&A
Would a Jade Lizard be a good trade with Palunteer up 16% already today?
No, the speaker does not like jade lizards after the move happens. They prefer high volatility.
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Actionable takeawayJade lizards are not recommended after a significant move, especially when volatility is low.
Q&A
What about the VIX being up 40 cents today? That seem kind of weird?
The speaker suggests that the VIX hasn't moved significantly, indicating that the volatility is relatively low.
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Actionable takeawayThe VIX is not showing significant movement, suggesting low volatility.
Q&A
Is theta decay actually constant or is collect theta every day one of the most oversimplified ideas in option trading?
Theta decay is not consistent and does not have to happen every day. Volatility can affect theta decay, and it can even expand against the trader if the stock doesn't move. The speaker suggests that the idea of theta decay being constant is an oversimplification, especially by charlatans on the internet.
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Actionable takeawayTheta decay is not constant and can be influenced by volatility, making it a complex concept rather than a simple daily decay.
Q&A
What are some of the best postearnings lessons and strategies to use?
There is no statistical evidence to suggest that post earnings directional trends are meaningful or tradable. Post earnings trades should focus on strategies like premium selling if IVR remains high, reenter expected move strangles closest to 45 days, and avoid post earnings iron condors if IV has come down. The highest pop trade after earnings is a ratio spread to fade the direction the earnings went.
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Actionable takeawayPost earnings trades should focus on strategies like premium selling if IVR remains high, reenter expected move strangles closest to 45 days, and avoid post earnings iron condors if IV has come down.
Q&A
Why would you use the wheel strategy when volatility is getting pumped up?
The wheel strategy is used to gain experience and take advantage of undervalued stocks. Even with increased volatility, the strategy can be effective if the trader is willing to manage the risks associated with short puts and calls.
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Actionable takeawayThe wheel strategy can be used to generate income through premium collection while holding a long position in stocks, even in a high-volatility environment.
Q&A
Should traders buy or sell volatility directly when trading spreads?
The transcript suggests that traders should consider buying directionally rather than selling volatility directly when trading spreads. The speaker emphasizes that the choice between buying and selling volatility depends on the trader's comfort level and the specific market conditions, such as volatility levels and skew.
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Actionable takeawayTraders should evaluate their comfort level and market conditions when deciding between buying and selling volatility in spread strategies.
Q&A
Is it worth selling premium into that, or should I just keep waiting for a clean setup without an event risk attached?
The speaker suggests that if you're going through their checklist and don't have a directional bias, it's better to wait until after earnings. However, if you're looking to take advantage of the volatility spike before earnings, buying the back month and selling the front month can be a viable strategy. The speaker also recommends avoiding stocks with earnings before the trade.
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Actionable takeawayTraders should consider waiting for earnings to pass if they lack a directional bias, but can capitalize on volatility by selling the front month and buying the back month if they are willing to take on event risk.
Q&A
What is the current state of the market?
The market is described as being slightly heavy, with the NASDAQ showing weakness relative to previous performance. The speaker notes that the market has been volatile, with some stocks like MU showing weakness overnight.
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Actionable takeawayThe market is experiencing volatility, with certain stocks showing weakness and others reversing daily.
Q&A
How do you decide to switch between being a premium seller to a premium buyer?
The speaker states that the decision to switch between being a premium seller and a premium buyer is not solely based on IVR levels but is more driven by opportunity. They mention that there is an IVR level at which they would not sell premium, but they do not buy premium even if IVR is low. The speaker emphasizes that volatility spends most of its life in a lull state, and the decision is more about opportunity than volatility.
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Actionable takeawayThe decision to switch between premium selling and buying is more about opportunity than IVR levels, with the speaker indicating that they do not buy premium even when IVR is low.
Q&A
Why is the VIX at all-time highs?
The VIX is at all-time highs due to increased market risk and uncertainty, as indicated by the speaker's discussion of the market's current state and the potential for further declines in the VIX.
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Actionable takeawayThe VIX's elevated level suggests that the market is currently experiencing heightened risk and uncertainty.
Q&A
When IV is low and I want to buy defined risk spreads, does it make more sense to buy tighter debit spreads such as $1 or $2 wide spreads and increase the number of contracts or to buy wider spreads such as $5 or $10 wide spreads with fewer contracts?
The speaker does not provide a definitive answer but suggests that the decision depends on the trader's risk tolerance and market conditions. Tighter spreads may offer more frequent opportunities due to their lower cost, while wider spreads may offer higher potential rewards but with greater risk.
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Actionable takeawayThe decision to use tighter or wider spreads when IV is low depends on the trader's risk tolerance and market conditions. Tighter spreads may offer more frequent opportunities, while wider spreads may offer higher potential rewards but with greater risk.
Q&A
How would you recommend positioning to potentially capitalize on a dip if it occurs during midterm election years?
The speaker suggests selling out-of-the-money puts as a way to capitalize on increased volatility and premium capture during a market drawdown. This strategy allows for exposure to market movements without the need to own the underlying asset. The speaker emphasizes that this approach is safer than buying long shares and involves taking small, incremental steps to manage risk.
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Actionable takeawaySell out-of-the-money puts during market drawdowns to capitalize on increased volatility and premium capture.
Q&A
What is the difference between daily expected move and average true range?
The daily expected move is a real-time derivative of implied volatility and is considered more accurate for trading decisions. The average true range is a visual tool for some traders, but the speaker prefers the daily expected move. If there is an AR between the two, the daily expected move should be deferred to.
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Actionable takeawayUse daily expected move for more accurate trading decisions, and consider average true range as a visual tool.
Q&A
Why is there no instrument that measures upside skew similar to the VIX?
The absence of an instrument that measures upside skew, similar to the VIX, is attributed to the complexity of creating such a tool. The VIX measures fear and volatility, while an upside skew instrument would need to capture complacency or market confidence. The challenge lies in designing an index that resets monthly, which could affect its reliability. Additionally, the market's efficiency and the diversity of instruments make it difficult to create a standardized measure for upside skew.
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Actionable takeawayThe market lacks a standardized instrument to measure upside skew, which is a complex task due to the need for monthly resets and the difficulty in capturing complacency. This highlights the need for innovative financial instruments that can better reflect market sentiment and risk.