Closing out the Week with Two More Solid Trades

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Definition of closeout

Definition of close out (Entry 2 of 2)

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Synonyms & Antonyms for closeout

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First Known Use of closeout

1925, in the meaning defined at sense 1

14th century, in the meaning defined at transitive sense 1a

3 of This Week’s Best Trades on the Street

Two breakouts and one pullback are waiting for you in the options trading pits

With stocks continuing to skirt the stratosphere, finding lucrative opportunities is as easy as falling out of bed. Particularly for those engaged in options trading. If anything, earnings season provides more chances to discover actionable setups due to the elevated volatility.

Companies pleasing the street with their quarterly numbers are often gifted with monster overnight gains. Just look at the tech titans that rallied on Friday.

My weekend market perusal revealed two such recent earnings winners that appear poised for more upside. Today’s other selection recently broke out of a four-year base and is providing an attractive pullback setup.

Behold three of the best trades on the street.

Options Trading: Cabot Oil & Gas Corporation (COG)

Cabot Oil & Gas Corporation (NYSE: COG ) shares certainly haven’t established the cleanest trend, but an attractive breakout is looming nonetheless. As is so often the case, its recent strength was born of a solid earnings announcement that delivered a monster rally on Friday.

Heading into the event, COG stock was 11% off its recent highs as profit-takers decided to head for the hills before earnings.

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It turns out their exit was premature. With last week’s surge, COG has returned to overhead resistance and looks primed to pop. The significance of the $27 level can’t be overstated. It’s kept a lid on the stock for two years now, so a break above it will spell a sea change. Those with a penchant for options trading should consider the following trade.

Buy the Jan 26 calls for around $1.80. You could pull the trigger now in anticipation of the breakout or wait for COG stock to rise above $27.30 first.

Options Trading: First Solar (FSLR)

We continue our look at quality post-earnings plays with First Solar, Inc. (NASDAQ: FSLR ). The popular solar stock scored a ridiculous breakout candle on Friday amid monster volume.

The one-day pop carried FSLR shares 20% higher by the closing bell. Aside from the fact that the rally was “ginormous,” it also completed a three-month base that had the stock digesting the gains from earlier in the year.

Traders waiting for a breakout from the base were buying with both hands and feet on Friday. While we may see some giveback in the days ahead, any and all dips are a buy here. The positive earnings momentum should continue to propel the stock higher during the coming quarter.

Due to its elevated volatility, option contracts are offering satisfying premiums for those willing to sell them. If you’re ready to bet FSLR sits above $47.50 for the next six weeks then sell the Dec $47.50 puts for 85 cents or better.

3 of the Best Trades on the Street: General Motors (GM)

General Motors Company (NYSE: GM ) rounds out today’s trio with a solid setup for options trading. The auto giant recently broke out of a four-year base amid heavy accumulation.

The groundswell in participation suggests the range departure is the real deal and the new uptrend will go the distance. And that has us interested in buying any and all dips.

And what do you know — GM stock is gapping lower this morning to provide just such an opportunity. With its implied volatility remaining elevated this strikes me as a perfect opportunity to sell puts.

If you’re willing to wager GM sits above $40 at December expiration, then sell the Dec $40 puts for 47 cents or better.

As of this writing, Tyler Craig held bullish positions in GM and FSLR. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

Two high probability trades for next week

The stock market has been on absolute fire— shattering even the most bullish of bulls’ expectations.

Of course, the Monday morning quarterbacks will say they all saw this coming…

Let them take the credit… I just want to keep the profits.

And trying to pick tops (or bottoms) is not how I’ve been able to score more than seven figures in trading profits in 2020.

That’s why I stick with plays that pay…and pay well.

Don’t get me wrong…

I’m not trading the same way up here as I did when the SPY was 10% cheaper just a few months ago.

I’ve switched things up, looking for short-term lottos (high risk/high profit potential setups) and bearish trades (yes, I will play the short side, although I prefer bullish breakouts best.

Friday members of Weekly Money Multiplier got a taste of these lottos paying off.

Right now, there are tons of opportunities in the market, despite trading volumes drying up and the VIX collapsing— you just have to know where to look.

And I see two exceptional trades for the picking that I want to share with you.

SPDR Gold Shares (GLD)

Technically this isn’t a stock. GLD is an ETF that tracks gold bullion less any expenses (currently at 0.40%).

Investors often stash money in gold to hide for safety. Gold was a store of wealth long before official currencies existed. It’s history dates back thousands of years across many cultures.

In fact, the U.S. dollar-pegged its value to gold until the 1970s. Some economists advocate for returning to this mechanism known as the ‘gold standard.’

Traders move to gold for two main reasons. First, it acts as a hedge against inflation. Gold’s price in U.S. dollars is variable. This means that as the dollar loses value, the price of gold goes up.

Interestingly, the dollar has been extremely bullish alongside gold.

Second, and more prominent, investors move to gold when they fear equities. This often causes it to trade similar to bonds. As equities fall, the price of gold moves up along with bonds.

More recently gold benefited from global flows. International equities entered a bear market many months ago. Investors moved their money to U.S. equities and gold to get better returns from quality assets.

Recently, we got a pullback off a multi-week bull run.

GLD weekly chart

Believe it or not, this chart contains the elements of my TPS setup. There’s a clear trend upwards, and a consolidation pattern forming. The only piece missing here is the squeeze.

However, I might have a consolation prize for that one. Down on the hourly chart we have Jeff Bishop’s money pattern crossover of the 13-period moving average moving above the 30-period moving average.

GLD hourly chart

I also like having a clear swing low at $136.19. That makes an ideal spot to stop out if it starts closing below that level. With the gravitational line up at the big $140 that coincides with a gap window, it looks like a quality setup.

VIX (Volatility Index)

I know, this isn’t a stock either, but hear me out on this one. The VIX tracks annualized trader expectations for volatility in the S&P 500. The current $12 level means traders only expect a 12% move in either direction over the next year.

Low volatility tends to come with rises in the market, while high volatility accompanies drops. The key to this trade is mean-reversion.

The VIX doesn’t work exactly like a stock. Over time, the VIX always comes back to its average. Let me show you what I mean.

This is a chart for the VIX going back several decades.

VIX quarterly chart

You can see that it always reverts back to its average around $15, give or take a couple dollars.

Notice that the extremes occur down around $10-$11. Those occurrences are extremely rare. That’s why a level of $12 sets up for a high probability move higher.

Let’s look at more recent price action.

VIX weekly chart

Youll notice that even during historically low volatility in 2020, you’d get a spike above $15 at least once every couple of months.

Now, look at how long it’s been since we’ve traded above $15. Consider that we’re also at unprecedented highs on low volume, without solid economic data to back it up.

This creates a high probability the VIX will jump back to $15 within 30-60 days if not higher.

There are two main vehicles to trade this. First, you can buy options on the VIX itself. Since traders often price in mean-reversion into the extrinsic value, buying in-the-money calls gives you a synthetic long – creates a trade that acts like you bought stock. This can cost a good chunk of money upfront. But, it gives you excellent probabilities of achieving 10%-20% profit on the trade at minimum, though not guaranteed.

The second option works with ETFs. Traders can use the VXX or the UVXY ETFs to go long volatility. The VXX tracks the short-term VIX unleveraged, while the UVXY is leveraged 1.5x. Options work great here because they limit your risk, but pay off huge if volatility spikes.

I plan to grab some more lottos early next week that would pay out over 100%. You still have time to catch these trades before the market opens.

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