The White Whale

Calendar closes can be tricky. I don't always blow them, though. The RUT calendar shown had a perfect finish at the target strike today; I took it off @ $6 net, about 90% of it's maxP.....

Pullback could be severe if the debt ceiling deal falls apart - no guarantee Congress will pass anything after all....

Implied volatility is a key input used in options pricing models, such as the Black-Scholes model, to determine option prices. Here's how implied volatility is used in the process:

1. Market Price of an Option: The first step is to observe the market price at which an option is currently trading. This market price is determined by the supply and demand dynamics in the options market.
2. Backward Calculation: Once the market price is known, the options pricing model is used in reverse to calculate the implied volatility that would be required to produce the observed market price.
3. Iterative Process: Calculating implied volatility involves an iterative process because the pricing models are not solvable for volatility in a closed-form solution. Instead, numerical methods, such as the Newton-Raphson method or the bisection method, are used to find the implied volatility that matches the market price.
4. Market Expectations: Implied volatility represents the market's expectation of future volatility. Traders and investors analyze implied volatility to gain insights into market sentiment and expectations about potential price movements in the underlying asset. Higher implied volatility indicates a greater expected range of price fluctuations.
5. Option Pricing: Once the implied volatility is determined, it is used as an input in the options pricing model, along with other factors like the current underlying asset price, strike price, time to expiration, and risk-free interest rate. The model then calculates the theoretical price of the option based on these inputs.

By incorporating implied volatility into the options pricing model, traders can assess the fair value of an option based on the market's expectations of future volatility. It allows for the comparison of the theoretical price to the market price, helping traders identify potential mispricings and make informed trading decisions.

...Thanks, ChatGPT!

."..helping traders identify potential mispricings and make informed trading decisions."

The 'mispricing' you want to look for shows up around known events in time that may represent heightened uncertainty. What I look for is front month (or week) iv skew, where the iv of a front option is higher than that of the back option. This skew will give you an advantage in trading time spreads - the front option will sell (in calendars & diagonals, backspreads, etc) at an advantage to the purchase price of the back option.

I am looking for this scenario around the end of May, when the debt ceiling "crisis" may come to a head. Typically, these things drag out to the last minute and then there's a fix. Maybe so this time, too - maybe not.

Anyway, I see a bit of what I'm looking for in the May 26 vs May 30 13000 whale puts: note 24.15% vs 21.09%, front to back. This may widen in the coming days and I'll be watching other dates also.


It's tough to bet against the white whale, he basically owns the stock market, but a threat of US sovereign debt default, a rating downgrade, these will drive him under, ...for a time....

Anyway, what I've told you in the two posts above is a nugget of wisdom that will allow you to make $$$$$$$$ trading options. Not the only nugget you need, but a big one. Note: you don't have to know anything about Numerical Analysis. You don't need to use Black-Sholes. Ever. The options prices are what they are. The mispricing part, though, that's what you need to understand - what to look for and where/when. It's not rocket science.....

https://en.wikipedia.org/wiki/Black%...3Scholes_model

Interesting to know (I know you already did) Black, Sholes & Merton won a Nobel prize in Econ (1997) for their work....

NDX has not had a significant red week since early March, and not had two consecutive red weeks since December '22. A 1-3 week slide of 1500 pts or so would be welcome, easier said than done. But we can dream.....

6/16 - 6/20 12000 put calendar, hits the first weekend after the Jun FOMC, including 6/19, Federal Holiday Juneteenth. It pays I think to give some time to these spreads generally, and the one above I might take off well b4 the FOMC, at least partially, anyway. As shown @ expiry, it has BE at about 13000, but a week or more earlier, that is further out, past 13300. To make good money though, I need a slide off the FOMC way below 13000. Perfect finish would net $100k on a 10 lot $2.5k risk....

ALL I got in today....missed good entries on NDX bear spreads


tbh reluctant to try anything short on the whale; he has been a relentless bull, maybe better to wait for a btfd opp to try bullish trades.....

using more of these SPX/XSP combos....only drawback is the XSP volume is thin. But tradeable. In the combo shown, the 10x XSP single call would be a 1x SPX. XSP is exactly 1/10 the size of SPX. Lots of $0 debit diagonals to be had now as the skew is holding up. The SPX long call on the outside of the XSP diagonal guards the tail risk there, can be spread itself if the opp arises.

don't want to neglect bullish trades as the bulls will not be denied for long, unless there is some true financial calamity. Relief rally waiting to break out on debt ceiling deal, Fed pause, FOMO, take your pick.....

NDX diagonal tail risk can be hedged well with QQQ....be careful....

Qs easier on the margin wallet....

blink & miss it with bearish opps on this mofo. The debt ceiling bs will be wrapped up and then the squeeze will be on....hell maybe it already started...

I went on a vacay and missed the breakout week entirely. C'est la guerre...idk if there could be a decent pullback in June. The trade below is a lotto ticket, to be sure. 1-lot shown risks a couple $100 to make max $5k, set and forget until end of month. Only downside (probly a deal breaker) is the $10k bp hit.....

(1-lot NDX vert would be a 10-lot correlated QQQ bear put vert for similar debit)

been a while (early Mar) since there was a decent NDX red weekly. Wondering if there might be some misses in upcoming earnings to take it down a peg....

Look sharp for a good pullback in Sept, see that gap @ 13,700? If we get all that I will be on it with the btfd harpoon.

Not in a hurry to burn up much bp waiting on a trip south, but maybe....btfd probly more to my liking, if that chance comes. BWfly puts shown burns $10k per unit, the 3-lot shown risks a little over $1.5k to net max $30k. The bear put vert would be correlated multiple @QQQ puts.

is it too late to get on some AI fomo bull action?

I mainly trade fx but i trade options exclusively QQQ , I don’t get a lot of signals but when I do i’ll let you know