So my wife comes running to me a little over a week ago with that determined look on her face which immediately tells me that I’m in big trouble. “Mole, drop everything you do. We’ve got to buy silver! A LOT of silver!” No she doesn’t call me Mole but it’s my story and I’m sticking with it. Anyway, I immediately realize that I better tread carefully now. “Why is that again, my dear?” I ask innocently. She puts her hands on her hips, rolls her eyes, and retorts: “Well duuhhh, EVERYONE is talking about it right now – it’s going to explode higher!”
Now forgive me for stating this so bluntly. But my wife, God bless her tortured soul, unfortunately suffers from the same chronic condition that most retail traders seem to be unable to shake. Which is the deep seated belief that investing advice dished out in the financial MSM or on social media is nothing short of manna plucked from the heavens and handed down to us mere mortals with the altruistic aim of spreading infinite wealth to the masses.
Of course nothing could be further fro the truth. My guiding principle over the past two decades has been that whatever everyone knows is not worth knowing. Case in point: The two charts above. And if you fell for the GME 2.0 scam that was trial ballooned at the end of January then I have a bridge in Brooklyn to sell you.
Of course you know me well enough to know that I would not bore you to death with my vapid tales without following up with something tangible and productive. Which brings me to exhibit A, the IWM – as you all know an ETF tracking the Russell 2000.
While it has been in an uptrend over the past two months it recently decided to up the ante a little and shift into 5th gear. For all intents and purposes it’s crashing to the upside, which of course opens up the door to all kinds of fun shenanigans if you know where to look.
Fortunately we do. And as you may have guessed it involves a healthy helping of implied volatility as evidenced by the option chain shown above.
If you are a sub then you probably recall my Monday post in which I introduced the concept of gamma iron condors combined with the selling of select far OTM puts and calls. But why would you do such a thing again?
To demonstrate what all the hoopla is about I’ve taken one of my graphs from my world renowned Options 101 course (not really but it’s still awesome) and adjusted it a little for our purposes.
If you bought the course (and if you not I advise you to rectify your moral failings and buy it now) then you probably recall how a standard deviation ties into the weekly expected move I’ve been harping about for the past year or two.
Now what’s been happening over the past few weeks in particular is what you see on the IWM chart above, meaning we keep seeing risk being improperly handycapped in the options market. And that cracks open the door to what we’ve been doing as of late:
- Buy a vertical OTM call spread.
- Buy a vertical OTM put spread.
Voilà – you just bought yourself an iron condor. A really big one that is but technically that’s what you call it. But the fun doesn’t end here as there is more juice to be squeezed from this insane marketplace.
What we’re also doing at the same time is to sell far far OTM calls which currently carry massive premium. Why would we do such a thing?
To learn more step into my lair:
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Because it would be stupid not to given that premium on the 200 put still goes for almost $2! Also remember that we are placing vertical spreads ahead of them, which means that we banked some nice coin in the case of a big move.
It would be highly unusual for the IWM to fall from 230 to 200 in one or two days. Possible of course but highly unusual. Still there is that possibility and thus you want to make sure that you don’t get over exposed as selling options (especially calls) carries unlimited risk.
Of course the plan here is to never let things devolve anywhere near that and buy that put back if the IWM drops as much as to 210. Better safe than sorry.
PLTR is another fun symbol I grabbed from my scanner today. It’s currently in HV mode and after GME everyone seems to think it’ll go to 100.
Maybe and if it makes it to 50 then I’ll be dumping those 65 calls in a jiffy. Also know that my position sizing here is tiny to boot. Recall the old expression: bulls make money, bears make money, pigs get slaughtered.
Well, I showed you TSLA already but just in case. I mean how could I say no to selling a 400 put for a whopping $2 with the stock trading at $850. Insane…
BNGO – we have another live one!
Possible candidates highlighted on the chain. Take your pick, what will we see first – a drop to $8 or a drive to $20? I know, nothing is impossible in this crazy market, so a gamma iron condor buffer in between is probably good medicine if you pick this one up.
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