 What's up trade hackers welcome to today's update today is Wednesday, March 25th Starting off with the trade hacker question of the day. I have several inverted positions What is the optimal way to manage? Inverted trades. All right, so let's talk about this I'm gonna pull up the platform to kind of give an example of this and For those of you who don't know what an inverted position is Let's start with that. So I've got a chart of the S&P up here So typically when we sell premium, let's just say we sell a strangle So we're gonna sell a call above the current price So let's say we sold a call up here at about 2,800 and we sold a put down here below price Let's just call it 2,100 So we're we're strangling the current price right and our calls are higher than our puts Well, let's say the the S&P just continued to rip higher Well, one thing that we do as an adjustment technique is we roll the untested side closer to price So as price kind of goes up and starts to test our Call in this case we would roll the untested side up So we take our puts and we'd roll those closer to the current price and by doing that we're collecting a credit We're not using any more capital and we're reducing our overall Delta or directional exposure So that's that's why we do it now Let's say that we that price just continued to go up It tested our call and then we rolled our puts up and then it continued to go higher So we needed to roll our puts up again And so what we're gonna do is if we have to continue to roll up those puts if we have a very long extended move Then what happens is we become inverted so if our initial calls are right here We leave those alone, but we keep rolling up the puts rolling up the puts rolling up the puts So then let's say our puts are at 3,000 and our calls are at 2,800 So the the puts are higher than the calls or the calls are lower than the puts and that's what we call inverted So the question is what's the optimal way to manage that? Couple things what we'd like to do is as we get down to around a few weeks left to expiration Then we like to roll that entire spread out to the next cycle So let's say we are in April right now and at the end of this week. We'll be down to about 21 days to expiration So if we have an inverted position, we would roll that from April out to May and by doing that again We're collecting a credit. We're reducing our overall Delta We're reducing our gamma, which is the the P&L swings that we might see in that trade and we would do that And we would if we were inverted at that point, we would roll that trade as an inverted strangle Okay, so that's what we do and we'll continue to collect credit that way now That's how we do it and and that's our preference and based on our account size and managing the trades and we stay small Enough so that we can do that and manage through positions back to a point where we collect enough credits so that when we buy the trade back We end up booking a profit on the trade. So that's what we like to do now If you have a smaller account You may not want to go that far, you know We will roll positions for an extended period of time to get back to profitability But if you have a smaller account, you may want to exit before you have to go inverted You know, you may roll up a couple times until you get into like a straddle situation But then you might say, okay, I'm not gonna roll out to the next expiration. I'm not gonna try to keep this dream alive I'm just going to take the loss and then be able to redeploy that capital into other trades. That's fine, too but to answer the question about inversions that the optimal way to do it and what we've found over time is that Continuing to roll up or down the untested side and then even if you get inverted We can roll that inverted strangle out to the next cycle continue to collect credits Until we get to a point where you know, the market kind of stops trending in one direction and starts You know kind of going going sideways and that's when we can we can start to collect those profits back very quickly Remember, I know in a situation where a market's going in one direction for a long time I mean, it's only been a few weeks But you know, this thing seems like it's just been going down forever You can almost feel like it's going to go down forever, but that's not the case eventually things will settle down They'll start to trade sideways or reverse and that's why you're just playing the cyclicality of the market So hopefully that helps let's jump into the markets today and check out what's happening first of all Early early this morning got news that the stimulus package had been agreed upon by Congress and We'll be signed by the president today. So what does that mean? Well, they were pretty vague and I couldn't find any real details about what's actually in this stimulus bill I'm sure it'll come out after it's signed and kind of goes through but Essentially all they're saying is, you know, there's $1,200 for for individuals who make under $75,000 a year $500 per child and then there's billions and billions of dollars going to different industries One main one being the airlines another chunk of some billions of dollars being available made available to the SBA The Small Business Association for Loans and so that's the I guess the high-level overview of what that stimulus package was So yesterday the S&P was up about 11 percent. It was the largest one-day move in the Dow Anyway, it was the largest one-day move in the Dow since 1933 so had to go back a ways to find that one and that was an anticipation of them passing that stimulus package now today when it came out Overnight the futures were pretty back and forth I mean they that there definitely wasn't a decision of oh the market really loves this thing or the market hates it And they're just kind of bouncing around and then throughout the day the market has grinded higher So S&P's up four percent nasdaq up five a nasdaq kind of trailing the pack only up about a percent and a half And the Russell up two and a half percent so that would say okay, you know from that basis it would say okay Yeah, the market like this obviously a lot of money coming in a lot of help to companies a lot of help to Individuals and so the market likes that now. Do I think we are out of the woods yet? No, I do not do I think we're in the clear. No, I do not I think that we are still going to see future lows in the market And I look at this as a shorting opportunity and so, you know, we did a little bit yesterday We did not add any new short positions today However, and I hope I'm not too late here But tomorrow if we're up again, we'll definitely be adding some shorts to our portfolio After this huge down swing and we were actually pretty not pretty but we were actually had some long Delta in this area So this little bounce has really helped from that perspective Especially with energy and some of the other sectors and trades that we have on But I think we are going to roll over and see some more blood in the streets We've got jobless claims coming out tomorrow morning. That's a 7 30 a.m. Central Yeah, I think the expected jobless claims is right around a million is what I saw Now that's an interesting thing and one of the reasons we don't trade news is because you never know how the market's going to react To data points or news There's a couple ways to look at this one If it comes in with less jobless claims the market could see that as positive and go up But at the same time, I don't know that we've had time to really evaluate how many jobless claims will be coming in Right. So anyway, we'll see what happens But I think that you know We could get another little pop if jobless claims numbers come in lower than expected but I still think there's not enough time to really evaluate the amount of Layoffs and people out of jobs and you know, I've heard of a lot of situations where you know, people aren't necessarily getting laid off or fired yet But they're getting extreme salary reductions in case some cases 50% or more of salary reductions So there's that then the other thing is, you know today is March 25th The end of the quarter is coming up, right March 31st is the end of the quarter. Well, what starts after the end of each quarter That's right earnings announcements And so it'll be very interesting over these next few weeks to see these earnings announcements start to come out And so, you know, I just think there's gonna be some very serious Disappointing things that come out and maybe not serious numbers as far as actual revenues yet but if not just revenue numbers definitely Very leery projections, which is also going to affect the price of those stocks making those earnings announcement So that is my take. We will see what happens Let's see a couple of the things that are going on in the market oil up over three and a half percent Gold down about a percent Bonds down about three quarters of a percent So some interesting interesting movement, you know, we talked about the other day The S&P was up big but volatility was still up the same thing today You know, the S&P is up for almost four and a half percent, but look at Vic's futures Vic's futures are up over three percent You know, so that kind of tells me one of two things either the backwardation is starting to Go a little bit back towards the contango a typical contango situation Which is basically where the shorter term Vic's futures are priced lower than the long term Vic's futures And let me just let me go to that kind of explain It's easier when you can have a little bit of a visual but right now We are in what's called backwardation. So if you see Vic's here, and this is the active month with 21 days You can see that they are Vic's futures are trading in a path. Let's call it 49 and a half, right? And so if we go down the line what you'll see is that these further dated Vic's options are Getting lower. So they're saying okay There's less risk in the future because the Vic's futures are trading lower the further out in time you go Well in a normal quote-unquote normal market, you know Typically what you're going to see is the short term are less and the further dated options on Vic's are trading higher Okay, so that's called contango. We're in contango usually about 80% of the time but right now we're in what's called backwardation and Because there is less fear or less uncertainty out in the future because we assume We're gonna kind of get through this and things are gonna get back to normal eventually, right? So this market up and VIX up could be a situation where we are getting back to normalcy That would be the theory if you think that we're out of the woods My theory is that the VIX is higher because there's still a lot of uncertainty and the VIX the volatility The hedgers the you know the people who are hedging they are not buying this rally Okay, I'm not buying this rally. I don't I just don't I don't think it's gonna continue I think you know, we may see a little bit more of a rally then I think we are going to roll over and die All right, so that's that's that let's look at some of the other stocks Okay, so part of the part of the bailout also included airlines I've been talking about Boeing a little bit now. I booked a massive profit on Boeing today But you know, I nibbled here got out the next day booked a nice profit Got in some here got in some here and then held it for a few days And then boom yesterday big update and then boom big update today and I exited for a massive profit And I was just selling puts buying calls I was buying calls and then financing those by by selling some puts and so it's kind of on a ratio But the bottom line is you know, sometimes you get lucky So, you know, it's not like I knew anything but I did anticipate a bailout and Boeing is one of maybe one of two I don't even know Carriers who manufacture airplanes. So, you know, nobody else is going to do it So they're going to be taken care of, you know, you look at some of these other major airlines like Delta Delta's that big today almost 20% on the news of that bailout. So, you know, this was this was kind of anticipated in my mind Been talking about it for a little while So hopefully some of you all capitalized on that as well If we look at some of the other Sox, I mean a lot of green obviously on the screen with the s and p with the markets up as big as they are But just kind of going down the line But even like, you know, I mean this is one that I this is one that I want to short In fact, I shorted a little bit today and I'm gonna probably send out an alert For our alerts portfolio to shorts more and that's when casinos. I just I don't think a I just don't think I don't think it has legs I think a situation like this people are going to be pretty nervous to be gathering at places like casinos Where a you've got to spend discretionary Dollars that a lot of people aren't going to have anymore and b You know gathering of people where everybody's kind of touching chips and you know spreading viruses and things like that So when is at the top of my list to to look for a another downside? reaction to So I think that is all I got Yeah, look for the jobless claims tomorrow 7 30 a.m central And good luck everybody stay small stay mechanical and Live to trade another day everybody. Have a great evening talk to you tomorrow