Labor Day Lottery Long

As most of you guys most likely have a foot out of the door already let’s just stick with the task at hand. Although seasonal stats continue to point lower for the coming week I cannot ignore a possible break-out surprise move ahead of the NYSE open.

Triple bottoms – in particular within a contained range – look obvious in the aftermath but are actually tricky to trade as timing is everything when it comes to avoiding that last minute stop run.

On the upside probability of outcome is heavily outweighed by the vehemence of an anticipated move once it finally gets going. In other words – markets have a tendency to shake off weak hands before the onset of an extended short squeeze.

Caveat

If this thing turns back lower and actually breaches < ES 2810 then watch out below! Technically speaking this would pretty much seal the deal on a very big move to the downside – we are talking ES 2500 minimum.

So in summary – we are coiled up and finally ready to go places.

How And What?

There are various ways of how to play this move and the most risky would be to buy a futures contract and hold it into Tuesday. A naked long option is always a bad idea, especially ahead of a long weekend full of theta burn plus with IV still jacking up premiums OTM.

With a simple vertical spread my downside risk would be limited to my debit – even if the ES opens at 2000 after the weekend. So I was considering an In/Out call strike but am unable to find something that is within the price range that makes sense statistically speaking.

There is another way to play this and it involves a call ratio spread in combination with a risk twist spread (which is similar to the former but adjusts for more skew). However this is an extensive topic that would most likely go right over everyone’s head.

Plus I have not sensed much interest when it comes to options on this board. If I am mistaken please let me know otherwise in the comment section and I will consider more pertinent topics in the future.

Keeping It Simple Stupid

Now I am not willing to sell a put spread on an index product in this environment so for now I’m holding a few futures contracts with a stop < ES 2875 which I will close out by the EOD.

It sucks but risk always trumps outcome. Remember, there are old traders and there are bold traders. However there are no old bold traders.

Who said that? An old trader 😉