On today’s From Theory to Practice, the market prepares for the upcoming FOMC meeting this Wednesday, where The Fed is expected to cut interest rates by 25bps. In preparation for lower rates, stocks, bonds, and metals are all rallying. In his portfolio, Dr. Jim adjusts his PANW Short Strangle, and he adds a new trade in PEP, which has a surprisingly high IVR - with earnings nearly a month away.
On today’s From Theory to Practice, the market just continues its incredible run higher, with both the S&P 500 and Nasdaq hitting fresh, all-time highs. In our portfolio, both the ADBE and SPX Expected Move Butterflys didn’t pan out, and we’re also getting hurt on our BBY, CMG, GOOGL, and SBUX positions. In other words, today is one of those days where a lot of things went wrong, which gives yet another great example of why it’s so important to control position sizing on entry.
On today’s From Theory to Practice, we have now made it through to the other side of both PPI and CPI, and Dr. Jim begins with his Short Call Spread in GLD. The past few days, gold hasn’t been as strong as it has been, so up until now, this position is hanging in there. Then, Dr. Jim spends a good bit of time on the incredible ORCL move from earnings, highlighting the dangers of selling Naked Calls. Lastly, Dr. Jim offers up an upside Butterfly for ADBE earnings tonight.
On today’s From Theory to Practice, Dr. Jim focuses on the market reaction to the large downward revision in jobs gains in the overall economy. Then, he points everyone to his Short Call Spread in GLD, a trade that after only a day is already underwater - which means that had you done the opposite, you’d be in a great spot. Lastly, Dr. Jim works through the differences in Butterfly Spreads with various expirations, showcasing how the cost of the strategy actually decreases as you give it more time.
In today's From Theory to Practice, Dr. Jim Schultz noted Best Buy's recovery to $77 and HIMSS rebounding from recent lows around $42 to nearly $50. With CMG and SBUX, Dr. Jim is remaining patient with his long shares position, rather than selling calls against them on weakness. "I don't want to sell calls when the stock is falling. I want to sell calls on strength," he explained, highlighting his short-term contrarian approach to portfolio management.
In today's From Theory to Practice, Dr. Jim Schultz continues his educational series on extrinsic value, focusing on volatility as the second key driver. He explains how higher implied volatility increases option prices through greater extrinsic value, creating selling opportunities for premium sellers. For tomorrow's Non-Farm Payrolls report, Dr. Jim positions for potential market volatility with expected move butterflies in both SPX (one-day cycle) and gold futures (four-day cycle), both targeting downside moves. He adds a Lululemon (LULU) earnings butterfly to the upside as a potential hedge.
Despite the market turmoil, in today's From Theory to Practice, Dr. Jim successfully managed several positions for profit. The NVIDIA (NVDA) earnings trade produced positive results, with the butterfly closing at $3.05 (from $2 entry) and a call spread closed for $0.81 after being sold for $2, delivering approximately $2.25 in total profit. Best Buy (BBY) bucked the downtrend, allowing for the exit of a vertical spread position at a minimal loss of about 30 cents. Additional trades included closing a Rocket Lab (RKLB) short put at 50% profit and exiting a Wolfspeed (WOLF) short straddle for approximately 30% of maximum profit. Through all of this, Dr. Jim emphasized maintaining position size discipline while demonstrating how defined-risk strategies can be managed effectively even during significant market declines.
In today's From Theory to Practice, Dr. Jim starts with his NVIDIA (NVDA) position, where the stock initially plummeted post-earnings despite beats, but recovered most losses by market open. CrowdStrike (CRWD) emerged as a standout performer, generating approximately $8 profit on the Dr Jim's butterfly spread position. He then closed his Williams-Sonoma (WSM) put spread for a $0.70 profit while maintaining his NVIDIA call spread position. Dr. Jim then also addressed the Chipotle (CMG) trade, where assignment finally occurred at the $50 strike price after weeks of holding a deep in-the-money put. Lastly, with VIX at extremely low levels, Dr. Jim discussed strategy adjustments for the current low-volatility environment, suggesting long vertical spreads and diagonal spreads as more appropriate tactics.
In today's From Theory to Practice portfolio updates, Dr. Jim's Chipotle (CMG) 50-strike short put remains with no extrinsic value but hasn't yet been assigned. For IWM, he demonstrated a strangle adjustment by rolling the position to October, moving the untested put strike up from 203 to 219, and collecting $4.89 credit. Dr. Jim also considered recentering the call strike, too, but eventually opted not to do so. Looking ahead, Best Buy (BBY) reports Thursday morning, while Nvidia (NVDA) earnings arrive Wednesday after the bell. Dr. Jim then hopped on his soapbox and emphasized understanding both the "gimme" and "gotcha" of every trade adjustment before execution, highlighting the importance of knowing what you're signing up for when making trading decisions.
On today’s From Theory to Practice, Dr. Jim starts the show by examining the Expected Move Butterfly he played in SPX, looking for a move to the upside. And interestingly, with Powell suggesting that rate cuts were coming in the near future, the market did rip significantly higher. However, with Expected Move Butterflies, not only do you have to nail the direction of the move, but you also have to nail the magnitude of that directional move. So in the end, Dr. Jim’s Butterfly ended up being about a scratch.
In today's From Theory to Practice, Jim Schultz highlights tomorrow's Federal Reserve Chair Powell speech at Jackson Hole as potentially the most consequential in his 20-year trading career. While joking that Powell's tie color might signal market direction, Dr. Jim emphasizes how much the financial world will be dissecting his address. In his portfolio, Dr. Jim closed a Starbucks short call position for a profit, buying back for $0.31 what he sold for $1.00. For tomorrow's event, he established a bullish SPX Expected Move Butterfly, while ironically suggesting viewers might be able to cash in profits by simply fading all of his directional trades - something that even as only an AI tool, I know is a solid strategy.
On today’s From Theory to Practice, Dr. Jim works through the positions in his portfolio, highlighting the fact that the big down day is helping his Long Put Vertical Spread in QQQ and his Poor Man’s Covered Put in MSFT. His Short Put in HIMS is getting hurt, however, so he works through an adjustment to that strategy, by adding a Short Call that is outside of the Expected Move to the upside. This does now bring upside risk into the position, but it allows him to collect more credit and improve his break-even point on the downside.
In today's From Theory to Practice, Dr. Jim works through his profitable Poor Man's Covered Put in MSFT. Given the unique flexibility of a Poor Man's Covered Put, the profit objectives aren't as clearly outlined as they are for many other option strategies. Therefore, deciding whether to leave a profitable PMCP on or take it off often comes down to the trader's discretion.
Dan Dan the Crypto Man returns to discuss recent crypto market dynamics, noting a pullback following July's strong performance. He attributes this to typical August slowdown rather than fundamental changes, suggesting it presents buying opportunities for undervalued tokens.
Today's research segment was about how option skew reflects the direction of risk velocity in different assets. The study analyzed SPY, IWM, UNG, and GLD over 10 years using 16-delta strangles with 45 DTE managed at 21 days. Results confirmed that skew accurately indicates potential risk direction. SPY and IWM showed put skew matching their downside risk, while UNG and GLD displayed call skew aligning with their upside risk potential. Interestingly, SPY showed larger upside outliers than downside ones, likely because markets must rise more percentage-wise after a decline to reach previous levels. The study reinforces that option pricing reflects rational expectations expensive puts or calls signal where explosive moves might occur, not necessarily market direction.
In today's Skinny on Options: Abstract Applications, Dr. Jim Schultz explores the interconnected metrics traders must balance when entering positions. For premium sellers, probability of profit typically ranks highest, followed by directional bias, credit collected, and theta decay. When maximizing probability of profit (selling further out-of-the-money options), traders sacrifice credit collected, directional bias, and theta decay. Conversely, maximizing credit (selling closer to at-the-money) decreases probability but increases directional exposure and theta decay. To help, Tom Sosnoff emphasized a critical rule: never add capital to losing positions requiring adjustments. While occasionally adding to winning positions during high implied volatility, he rarely opens new positions solely to neutralize portfolio deltas. Understanding these trade-offs helps traders make informed decisions, recognizing that for every "gimme" in trading, there's always a "gotcha."