Interesting markets these days, huh? Worth mentioning right now that, assuming the bottom doesn’t drop out tomorrow, our condors are in good shape this month, and we’ll be looking at the December cycle late this week/early next week. In the mean time, here are some trades you might look at:
1. CitiBounce
Yes, this happens to be the play that every other talking head was suggesting all day on Bubblevision. And for most of the day they were all just cheerleading. But when you look at how it closed today, it seems like a rational bounce isn’t just due, but even likely. That money flow reading is kind of scary - nobody wants to be a bag-holder, especially when there’s a disoriented gorilla in the bag. But that RSI can’t stay put forever, and even if nobody gives Citigroup (C) any love this week, people will want to snap up some of the other financials, which should lift this boat as well.
By the way, don’t forget that financials make up about a fifth of the S&P500, so if we do see a recovery or even a bounce in that sector, it should lift the whole index, which will be nice for our condors as well.
Ways to Play
The obvious choice is buying some calls. But just look at the volatility situation - yikes, Citigroup hasn’t seen 54% volatility since sometime back in 2002. It’s tough to pony up for that kind of premium. But it’s just as tough to be seller in this situation, too.- What to do? With 11 days before expiration, you could sell some 35 puts for $1.02 and cover with the 32.5 puts. But that’s too risky for me. Here, it’s actually not that crazy to roll the dice on the 40 calls for $0.27, or maybe the Nov/Dec 40 call calendar for $0.62.
- It’s always funny when the listed strikes get out of whack - there are Nov 60 calls on offer right now on my screen, but no 30 puts.
2. China. Yes, that China.
Not much to say here - either you think the China story is done, at least for now, or you don’t. FXI, everyone’s favorite China ETF, is definitely in oversold territory (2-day RSI of 1.46) and it looks like a test of the 50DMA at 180 is coming up. You could sell the Nov 179/180 put vertical for about $0.50, that way if the test of the 50DMA fails and things get ugly thereafter, you’ll be effectively stopped out at 179. If you’re a real cowboy or something, or you think that yesterday’s gap down absolutely must be filled, you could pay $5.00 for the Nov 200 calls, or $7.40 for the Nov/Dec call calendar, which makes a little more sense.
Oh, and since it’s inevitable that someone will ask: yes, you could sell an iron condor here. You could - which doesn’t mean that you should. But anyway, you could sell the Dec 165/170/210/215 FXI iron condor for around $2.80, which would be a 127% return on capital risked in just 45 days. Seems like you’d really have to be on your feet to keep a trade like this alive, though, and the inevitable adjustments would probably make it more trouble than it’s worth.
The same disclaimers apply to these as to all of our “bonus trades” - you shouldn’t do jack squat without first asking permission from your spouse, local deities, and professional financial adviser (in that order). Otherwise, these trades will likely eat your firstborn child and curse you to an eternity spent with ousted banking executives, yuck.
P.S. Local deities recommend our charming newsletter service, which has an average return since May of 23% per trade.