The S&Ps ripped more than 100 points on Monday.
Everybody’s cheering. So let me ask you something. If you own individual stocks, how’d your stocks do?
Walmart didn’t do much. Boeing looked like every other day, and Goldman Sachs almost went up a little bit. Financials are flat on the year, and what carried the whole market Monday was Meta, which was a pile of crap until Monday, and AMD.
So this morning felt like “a hangover after a really good party.” Monday was also a vol up, market up day, and that part bothers me more.
The VXN, which is the VIX for the NASDAQ, went up right along with the market. The only way volatility goes up with the market going up is egregious amounts of call buying, and we got plenty of it.
Go look at the skew.
AMD’s at-the-money calls 24 days out were pricing a 53 vol, and the out-of-the-money calls were at 56, so people are paying a premium to get further out. Intel was 67 at the money and 77 out of the money, which is a huge skew, people. Huge.
I traded through 2000, 2001 and 2002, and if I have one gift in this business, it’s that I remember pretty much every trading session. Almost every vol up, market up day in the NASDAQ came out of that bear market.
I remember one in October of 2000. We got a rip your face off rally, and late in the day everybody rushed in to buy puts, and buying all those puts forced it right back down.
This time it’s call buying, not put buying, so it’s a different animal, and it doesn’t mean we tank.
It means your spidey senses have to be up.
And if you missed Monday, I wouldn’t feel left out, not for a second. Monday took the S&Ps to the upper end of a long range, and that’s well-charted territory.
This morning I bought a QQQ put spread, right around the money and $5 wide. I filled a couple at $1.03 and a couple at 98 cents, so I’m in 4 contracts at about $1.01, and I’m working 2 of them to close at $2, nice round number, which takes the risk off the other 2.
I’m not looking for a big pullback in the NASDAQ. I’m looking for it to float into this spread through the day and turn $100 into $200 or $300.
2 warnings before you copy it. QQQ options settle in shares, so you have to get out if it’s in the money, and if the NASDAQ explodes higher and we’re up 300, this goes to zero and there’s nothing I can do about it.
Which brings me to…
A trader I’ve trusted for years just built new a screen that shows him, before the open, the price that’s going to decide the day. I’m not naming him until Thursday, September 24, at 2pm Eastern, when I bring him on and open it live, and one person on that call leaves with $2,000 in cash.
To your success,
Don Kaufman
