Posted on July 20, 2020
War’s been declared and we’ve chosen our weapons.
In this environment, where neither a steep rise nor a precipitous drop in the markets can be dismissed, the wisest move for all option warriors is to strategize for both contingencies.
And so we have, with our patent-pending, long-short straddle strategy, the brainchild of our college pal, Knut, who suffered terribly for his parents’ naming aptitude (sister was ‘Omnibus’) until he struck it rich as a juggler.
When the Covid mania took hold and circuses were shuttered, he was forced to seek fresh employ as a butter churn.
And that’s not easy work, brothers and sisters.
It takes a endurant musculature and a unique appreciation of dairy.
And who can boast of those two rare traits these days?
In any event, Knut recently joined the team here at A Jew and His Money, and we all appreciate the healthy fats he’s contributed to the office since then.
But before we get to the trade, we have partial profits to take on two open bets.
The first was launched on July 6th in Market Neutral in High Gear: Our Phantom Trade Strategy Kicks in BIG!
You’ll recall that we urged you there to sell the IGV August 21st 290 straddle for $23.60 and buy the TQQQ August 21st 103 straddle for $23.20. Total credit on the trade was $0.40.
Today, on the CALL side, the IGV 290 trades for $9.10 and the TQQQ 103 is at $15.85. Buy back the former and sell off the latter, and you take in $6.75 on the FIRST side of this trade.
One more –
On June 24th we sent you Two Way Straddle in the Precious Metals – A New Angle, in which we recommended you sell the GLD August 21st 166 straddle for $9.95 and buy the WPM September 18th 41/44 strangle for $10.00. Total debit on the affair was $0.05.
Now, on the CALL side, the WPM 41 sells for $7.45, and the GLD 166 goes for $5.40. Sell the first, buy back the second, and you net $2.05, again, on the FIRST side of the trade.
There’s no rest for the wealthy. We thank the good Lord, the G-d of Israel, for His assistance in all our endeavors to date.
Today’s trade pairs a Dow stalwart against an insanely leveraged offering from the Direxion criminals.
Again, our formula allows the pairing to work because of the unique pricing of the underlying stocks.
So, on the one hand, we have faux-healthcare giant Johnson & Johnson (NYSE:JNJ) whose shares, at $149.35, have barely budged during the entire Wuhan brouhaha. And on the other, the Direxion Daily S&P 500 Bull 3X Shares (NYSE:SPXL), whose swings far outpace those of the Johnsons.
Have a look –
With the expectation that SPXL will swing wider in both directions than fuddy-duddy JNJ, we’re loading up another straddle pairing.
And it looks like this –
A Jew and His Money recommends you consider selling the JNJ October 16th 150 straddle for $12.80 (CALL – $5.60; PUT – $7.20) and buying the SPXL October 16th 47 straddle for $12.75 (CALL – $6.30; PUT – $6.45). Total credit on the trade is a nickel.
Rationale: again, the market either goes higher or lower from here. And when it does, SPXL – the 3x leveraged ETF – should outperform mainstay JNJ by a longshot.
We could take a loss if both ETFs expire close to their strikes – but it should be nominal, if it, indeed, occurs.
With kind regards,
Hugh L. O’Haynew