VIX Alert: The Traffic Light Just Changed Colors

VIX Traffic Light

It’s the moment you’ve all been waiting for – my VIX traffic light has officially changed colors.

For the first time since the end of May, the VIX jumped above 20 on Friday, turning my VIX light from red to yellow.

Remember, a yellow light means volatility is set to make some wild swings. And those could be in either direction.

Why didn’t the VIX jump turn my light green? Well, I don’t just look at the VIX itself when determining my traffic light. I also look at VIX futures contracts. And the VIX futures curve has remained in a nice contango through this sell-off and the choppiness from last week.

This is a good sign. If the curve were to flatten, then my light would turn green. But for now, we’re sticking with yellow. And my trader’s gut tells me that we’re going to go back down soon.

Here’s the big question – how do you trade a yellow light if you don’t know where the VIX is headed?

Well, high volatility increases the price of an option contract. So, I like to use opportunities like this to sell cash-secured puts in names I want to own. That way, I’m collecting the high premium for myself. And if these puts are exercised, then I’ll simply own a stock I’m already interested in anyways.

I’m still positioning myself short on volatility and the VIX. But with last week’s jump, I’m going to put some hedges and protections in place.

Mark’s Watchlist

Today, I’m looking at a variety of sectors – bonds, railroads, healthcare, and more. Want to see how I’m playing these names?

1. General Electric Co. (NYSE:GE)

The big money flow into GE is more like dumb money flow based on what I’m seeing today.

Someone set up a short strangle on the stock, selling 30,000 contracts of both the July $16 call and the July $11 put. This is a neutral strategy – a short strangle means that the trader is betting that GE will trade in a narrow range between $11 and $16:

Click To EnlargeThis is a risky trade – and it’s one that only yielded a measly $0.08.

That’s exactly why I’m calling this a dumb money trade. See, you don’t need a lot of money to be smart in the markets. You can have a ton of money and make some pretty dumb decisions as well!

There’s a better way to trade this name. IV is low in GE right now. Low IV = low options prices. Meaning you don’t want to be a seller – you want to be a buyer.

The GE July $14 calls are only $0.13. With GE above $14 less than one month ago, this is a great low-cost way to bet on GE making a bounce. And based on what I’m seeing in this stock, it’s more likely to pop than drop.

2. iShares 20 Plus Year Treasury Bond ETF (Nasdaq:TLT)

The bond market rallies on fear – and last week’s Fed meeting sent it – and the dollar – exploding higher.

This ETF is up more than 2% over the past five days, and almost 5% over the past month. And I’m looking for a way to fade this move, as I think it’s extremely overbought.

With the next Fed meeting coming up on July 30, I’m looking at a bear put spread to fade this move.

To put together a bear put spread, you’ll buy one put and sell another with the same expiration date but a different strike price, with the price of the put you sell cutting down your entry price.

It’s just like a bull call spread, except you’re using puts – and it’s a bearish trade, not a bullish one.

Want to know more about playing the pop in the dollar? Then stay tuned. On Thursday at 12:00 p.m., I’m going live to reveal a cheap option trade that’ll yield an asymmetrical return… exclusively for Profit Takeover members.

Stay tuned for more information on how to join.

3. CSX Corp. (Nasdaq:CSX)

I like the rail stocks this week, and CSX is one of the biggest and most well-known within the group.

Despite stocks’ poor performance on Friday, CSX actually outperformed its competitors, shedding just 1.56%.

But after three days in a row of losses, CSX is ready to pop higher. It’s up almost 10% year-to-date and is already climbing higher today, up 1.6% as I type.

4. CVS Health Corp. (NYSE:CVS)

Healthcare is another sector on my list this week. The widespread vaccine rollout helped companies like CVS, which distributed a vast percentage to the U.S. population.

YTD, this stock is up almost 20%. And I believe companies like CVS will become the future of medicine, giving CVS a long-term spot on my Watchlist.

5. Walgreens Boots Alliance Inc. (Nasdaq:WBA)

WBA was one of my most lucrative trades of the year in early 2021. I made a 400% asymmetrical profit on this name in the first three months of the year – and I plan to do the same in the future. Similar to CVS, WBA has benefited from the COVID-19 pandemic, currently up over 23% YTD.

Today’s Impact Money Trade

Oil prices are popping again today, with Brent crude at $72.55 a barrel as I type.

We’ve been following oil for a while now, as I’ve kept a close eye on stocks like Energy Transfer LP Unit (NYSE:ET), Transocean LTD (NYSE:RIG), and Marathon Oil Corp. (NYSE:MRO).

And today, I’ve spotted some unusual options volume in two of these names, proving we aren’t the only ones paying attention to the opportunity in oil.

As I type, the number one options trade by size among all stocks today is on none other than RIG:

Click To EnlargeSomeone bought 25,000 November $6 calls on RIG, betting on an almost 50% jump in the oil name over the next five months as it sits at just above $4.00 today.

But big money isn’t only flowing into RIG today. Check out this call spread on MRO:

Click To EnlargeWith 6,795 contracts on the January 2022 $13-$17 call spread, it’s clear that impact money is long-term bullish on oil.

And as oil prices rise, so will stocks like RIG and MRO – giving these names the two-factor authentication we seek out here at Profit Takeover.

That’s all for now – but get ready, because we have a new trade recommendation coming this Thursday, June 24…

Live.

I’ll send you all the details on how to join Thursday’s 12:00 p.m. webinar soon. For now, keep an eye on your inbox…

Mark Sebastian

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