Breaking Bulletin Bids Buyers Beware! (GWW,TYL,AOBC,FB,TSLA)

Executive Lounge, Options Trader Elite / Thursday, July 20th, 2017

Breaking Bulletin Bids Buyers Beware! (GWW,TYL,AOBC,FB,TSLA)


This just in – earlier this week, one of our key indicators flashed a supernova warning.  It was our own ‘Volatility Compression’ marker, which we discussed at length only six weeks back in our Buy Everything Now! missive, a letter we’re sure you’ll agree both enthralled and captivated.

In any event, the VIX (along with two other, equally important market readings) offered us what might best be described as a high probability pullback signal.


No, we’re not headed for the woodshed, and we’re not placing calls to next of kin.  But we are issuing a fitting warning that we could experience a short, sharp pullback (at least) in the weeks ahead in light of the compressed VIX reads over the last few days.


Wait!  Did you say READS, Plural?


That’s right.  On Monday, the VIX compression reading came in at 0.37.  Then, again, yesterday, we saw a second squished reading at just 0.46!  Two this close is something we’ve yet to see in nearly a quarter century of experience in this game, and we’re not taking it lightly.


Have a gander –

The red arrows show two days with almost no movement on the VIX, a phenomenon we’ve shown to be statistically consistent with topping action.


This morning’s read is even more compressed, but it’s still early going, so we’ll have to see what the rest of the day brings.


That being said, what are the chances we’ll get a drop in the indexes?


We can’t put a number on it, but because we’ve yet to see two such compressed reads in succession, we’ll hazard that the chances of a coming spike in volatility have expanded greatly, and we’ll throw the dice on a better than 60/40 chance that VIX will triple in the coming month.


You heard it here first, friends!


As to how to trade it, we’ll return in a moment.


First, we have several open trades to run down, and some immediate action to be taken.  So take out your pencils, and jot this down.


First up is a trade that was initiated back on the 30th of June, 2016.  The letter was called July Rant, and in it we urged you to sell the TYL July 170 CALL for $1.70 and buy the TYL September 170 CALL for $8.70.  Total debit on the trade was $7.00.


And whaddaya know, the trade went sour.  We got stuck buying a lot of TYL stock at $170 with a breakeven at $177 (including the original debit).


Since then, TYL fell and has made a round trip higher, coming to rest yesterday at $177.52.


Our advice?


Sell it.  Put this puppy to rest after a year of mindless meandering and let’s put our funds to use elsewhere.


Call it a $52 gain, a buck for every week of torture endured.

Our next on the block was sent in a June 15th letter called Saltpeter Rising.  The trade recommended you take several separate actions, namely – sell four (4) AOBC July 21st 22.50 PUTs for $0.40 each, two (2) AOBC September 15th 22.50 PUTs for $0.90 each, and one AOBC December 15th 22.50 PUT for $1.45.  Total credit on the trade was $4.85.


And today, we find our quartet of July 21st 22.50 PUTs in danger.  With AOBC trading at $21.25, it’s likely they’ll end up in-the-money if we leave things be.  So we’re rolling the options out to the September 15th expiration.

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Trade number three was opened just last week, but has produced a tail-slapping profit as hearty as the time Wendy Ogress kicked Uncle Henry out the back door of the Shane’s Billiard Bar in the summer of ’63!


The letter was called Confusion, Lies, and the Trades They Inspire, and it paired a mighty Facebook against a rather flaccid Tesla, in a bet that saw the former outperforming over the near term.


And boy has it ever!


Look! –

We recommended you buy the FB December 15th 170 CALLs for $5.70 and sell the TSLA September 15th 385 CALLs for $6.15.  Total credit per pair was $0.45.


A week later, the FB options go for $8.00 and the TSLAs for $5.15.  Sell the former and buy back the latter, and you walk away with $3.30 on nothing expended.  Adjusted for minimal commissions, makes for a remarkable profit of 2100%!


In just seven days!


Go tell it on the mountain…!




The question of how to play an impending pullback in a manner that’s both safe and potentially profitable is what we’re faced with.


With two incredibly smushed VIX days in the same week (and a potential third on the way), we’d be remiss if we didn’t bet on the downside.


Our goal in determining how to play it resides in selecting a stock that’s already exhibiting a measure of weakness, as the selling therein is likely to be more powerful than an index-based ETF.


It’s for that reason that we’re going with industrial supply giant WW Grainger Inc. (NYSE:GWW), a stock that’s now teetering on the edge, as the following chart indicates.

At 52 week lows and looking bad.


We should warn that we’ll have to wait for a trigger moment, an event or prospect upon which the market can hang its excuse for selling.


And that event may not arise for another two or three weeks or more.  We’ll just have to be patient and wait for it.  We’ll also have to give the trade enough time to unfold for that reason.


And here’s the way it looks –

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Many happy returns,


Matt McAbby

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