Despite all four major indices remaining positive for the week, market sentiment has shifted as trade war tensions between the world's largest economies build. The World Trade Organization expressed concern about potential escalation. Oil prices slumped below $57, approaching yearly lows amid weak demand, with futures contracts showing contango. Bitcoin retreated to three-month lows just one week after reaching all-time highs, maintaining its correlation with broader markets. Regional banks raised red flags as Zion and Western Alliance warned about credit quality issues. Meanwhile, gold continues its historic run, currently in its ninth consecutive positive week and ranking as the fourth largest bull market in gold's history, with potential to reach third place with just a 2% move. VIX posted gains for the third consecutive week while VVIX is at a six-month high, signaling elevated market volatility may persist.
AMD surged with a six-standard deviation move following its OpenAI deal, prompting traders to enter strangles after the initial price jump. Meanwhile, multiple asset classes are making historic moves simultaneously, with the S&P 500 and NASDAQ hitting all-time highs. Gold touched $4,000 and silver reached $50, both up for eight consecutive weeks. Bitcoin also reached record highs, while the U.S. dollar experienced its biggest surge since November 2023, pressuring global currencies including the euro and yen. Rare earth metals stocks like MP, LAC, and TMQ have gained momentum as the U.S. government takes stakes to counter China's dominance in the sector. Jamal noted he's using put diagonals in SPY and SMH for portfolio protection, though bearish positions have generally been "donations to the options gods" in this relentless bull market.
Tesla reported strong global deliveries amid the expiration of the $7,500 EV tax credit, yet shares fell 4% in a classic "buy the rumor, sell the news" scenario. The stock bounced off its 10-day moving average at $438.10, potentially creating an opportunity for short-term call options. Warren Buffett, already a major Occidental Petroleum (OXY) shareholder, purchased the company's petrochemical unit. Surprisingly, OXY shares declined despite the asset sale, which management intends to use for share buybacks. Fair Isaac (FICO) is disrupting credit reporting by providing scores directly to lenders, bypassing traditional agencies like Equifax and TransUnion, whose shares weakened on the news.
In this educational session of From Theory to Practice, Jim Schultz continues his deep dive into Delta by explaining how traders can use it as a probability gauge - the second most common application beyond the textbook definition of measuring option price movement. Delta serves as an excellent probability approximator in two key ways: 1. **Probability of expiring in-the-money**: This explains why traders typically select 30-35 delta strikes for short options strategies. The inverse (1 minus delta) indicates the probability of expiring out-of-the-money - crucial for premium sellers. 2. **Probability of touch**: Calculated as two times the delta, this measures the likelihood that a price level will be reached at some point before expiration, helping traders assess potential market movements.
XLV, the healthcare ETF, surged from $134 to $144 in just two days, exceeding its implied volatility projections. This movement reflects significant gains across several healthcare stocks, creating potential opportunity in the sector. With implied volatility under 20%, traders are eyeing directional trades with defined risk parameters. Meanwhile, Lululemon (LULU) appears to be finding support around $170 after significant losses, prompting interest in bullish strategies like put spreads. Costco (COST) and UnitedHealth (UNH) continue to attract attention, with traders implementing diagonal spreads to capitalize on potential recoveries with defined risk. Oil futures also present opportunity at multi-month lows, with traders entering long positions around $60 using micro contracts (MCL).
In Thursday's Red Shirt edition, hosts Jenny Andrews and Liz Di erking managed a range of positions as markets pulled back. S&P futures reversed early gains to trade down 11 points, giving the hosts opportunity for tactical adjustments. The duo sold a micro crude oil (MCL) put for $137, using $886 in buying power. They also executed a JaJune SPX strategy with a $5-wide put spread for $1.90, which they later closed for a quick $40 profit when markets moved favorably. In cryptocurrency positions, they closed and reopened an IBIT Jade Lizard, moving from a 15-day to 22-day expiration following Ryan Grace's comments about October being historically bullish for crypto assets. They maintained a long Ethereum position, expressing bullish sentiment. The show highlight came with an Intel (INTC) ratchet, where they closed their profitable ZEBRA position and reopened at higher strikes, effectively eliminating their original capital risk while maintaining unlimited upside exposure.
The tastylive research team shared several options trading strategies during their segment. Sahil recommended a Shopify strangle with 50 days to expiration, offering a $752 credit for $1,500 in buying power reduction, with strikes at $125 and $185 and an IVR of 40. Kai suggested selling an Intel strangle, highlighting the significant call skew in the stock. He proposed using 16 delta puts and 25 delta calls, providing more upside protection. Dr. Data presented a silver strangle strategy capitalizing on high call skew, with strikes at $40.50 for puts and $47 for calls, available for approximately $1.60 with silver trading around $42.91. Additional ideas included an Adobe trade as the stock approached 52-week lows with relatively high volatility.