The market moved down big in the overnight session, and opened with a crazy gap down. All due to the fear of a government shutdown. Volatility spiked, so it was an opportunity to sell into the weakness and take advantage of the temporarily inflated premium. This was a no-brainer move, as the Europeans are obviously clueless, actually thinking there’s a chance that US senators would allow a default.
There’s just no frigin way. To be honest, I had no idea the market would rally the way it did, I was just being mechanical by selling into the weakness.
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So We picked up Netflix (NFLX), Baidu (BIDU), Tesla (TSLA), and Yelp (YELP), all before lunchtime by selling Iron Condors and a Put spreads, and buying a PUT Butterfly. Those premium rich puts will pay handsomely by October expiration at the end of this week.
We also shed our Facebook (FB) short shares while they were down, leaving the matching put without any cover. The premium we’ll collect will more than cover that position. But more importantly, it brought us to delta neutral and theta primed.
In an attempt to squeeze an earnings play in we looked at a Citi (C) strangle, but the cost and downside potential made us a little leery, so instead we opted for a Straddle-Strangle Swap, which provided the same profit potential, excellent downside protection at about one third the cost.
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