Volatility and an Unusual Options Activity – Recap – March 21st, 2018

Ahh..these markets eh?

For some of the newer traders reading this, this may very well be the first time you’ve experienced moderate volatility.

Yes. I said moderate.

As you can see, volatility after 2009 (well o8 technically, aka Q.E.) has been pretty tightly based around $10.00.

So yes, quite moderate. Yet, while we’ve broken some of the 2000 levels… (think tech bubble)…this time it’s different.

Yeah. most people say that it’s never different…boom-bust…boom-bust…and continued. My fundamental response is, yes, that’s how markets work. Boom-bust. But allow me to introduce a quick clip from a great movie (Margin Call) to speak for me and you in that respect.

So you think we might have put a few people out of business today. That it’s all for naught. You’ve been doing that every day for almost forty years, Sam. And if this is all for naught then so is everything out there [points to the skyline of New York City]. It’s just money; it’s made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 – Jesus, didn’t that fucker fuck me up good – 92, 97, 2000 and whatever we want to call this. It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it or stop it, or even slow it, or even ever-so-slightly alter it. We just react. And we make a lot of money if we get it right. And we get left by the side of the road if we get it wrong. And there have always been and there always will be the same percentage of winners and losers, happy fuckers and sad suckers, fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”

The bolding was my choice. Highlighting of my favorite lines. But one to take note of is… “there may be more us today than there’s ever been. But the percentages-they stay exactly the same.”

I remember needing to place orders over the phone to someone down a particular pit. I still do it but very rarely. The advances in technology and algorithmic trading have been moving at rates people don’t even realize. That’s partially why this time it’s different.

Devil’s Advocate: Yeah but Black Monday (October 19th, 1987), the vicious start to the crash of ’87 has been blamed on programatic trading as well.

True. I’m glad you knew that. But this time, there’s brokers out there who charge NO commissions. We’ve got central banks around the world doing Q.E. programs never even dreamt of in 1987. Add in more retail money and expanding margin debt amongst these new retail traders. If you can’t see why this time is different from that, well, then…that would warrant another post all about that.

And this has been an off-topic rant since I pulled that $VIX chart from earlier.

Well, not totally off-topic. The point of the side rant there was to let you know that if you’ve been burned over the past two weeks…you need to learn more about what you’re doing before you throw your hard-earned money into a furnace.

Trading Rules

My first rule of trading is simple: don’t trade any amount of money you can’t put in front of your face and literally burn without it impacting your day to day well-being. If you do, you’re risking the comfort of your life and keeping the lights on with the dreams of hitting it big on some options trade and then living largely from there.

My second rule is always hedge.

If you’ve only been trading a while, and perhaps are one of the folks who saw some heavy losses these past two weeks…please write those rules down somewhere and repeat them to yourself every day.

I’ve got more rules, that’s for another post as well.

Back to what most of you are here for…Unusual Options Activity.

Here are the trades I posted in my free-trading room and sent out via my free text-alert service for today…

$EMB SEP18 $113 Cs

$DM MAy18 $20 Cs

$GES Apr 17.0 Calls $0.60

$TROX bull flow take it over 20… MAY18 $22 Cs … take it over $20

Other notable trades:

Lots of opening $FB shorter-term Puts and Longer Term Calls. This would imply more downside that will eventually resolve itself.

In-terms of Volume vs Open Interest, not a ton of volume today in the ETFs. Options on equity wise, leaders were$BAC $DAL $TROX $DRI $WYNN $P $RIG $CHRW $GIS $DB $ADP $MSFT $RGS $ULTA $HPE . You can catch this list from barchart.com or my StockTwits page.

Last words: Watch for volatility to spike as we close in on China’s supposed signing of tariffs at 12:30 PM EST. I want to say they go as dovish as Trump did but I have no idea.

As always; good luck and trade safe.

• dros

P.S. – Today in history Alcatraz was closed in 1963. Hence the featured image…reposted below as well.

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