G20 trades on China or QQQ?

[Crazy ayzo]

@Kim, @akito, @Paul, @NJ_KenRob

I did pretty well on trading the midterms... 87% for a one day trade, 187% for an 8 day trade by buying VXX puts.

I'm going to try some trades on the G20.  Would love to have some more experienced company to discuss it with.

My thesis...

* The China Trade war is one of the most influential effects on the current market... especially the Chinese, but even QQQ.

* As an example, look at what the market did last friday (Nov 2nd) when Trump tweeted that he wanted his staff to put a China trade deal on paper to consider... many of the china stocks jumped 10%.  A couple hour later the white house clarified that the tweet was optimistic.  All gains plus some were immediately given up.

* Expectations for the Trump/XI meeting at the G20 (Nov 30-Dec 1) are all over the place.

* I think the G20 will meeting will function like an earnings call as if all of china were reporting in the same 3 days... volatility and options related to QQQ, BABA, BIDU will go up substantially in the days leading up to the meeting.

* I'm planning to do small straddles, strangles and a couple long call positions on BIDU, BABA, QQQ 7 days out and 3 days out  (Nov 23rd and 27th).  All of these are extremely efficient in terms of bid/ask as well as volume.  I'll also likely try a VXX trade.

* I haven't decided if I will sell on Thurs Nov 29th, Friday Nov 30th, or hold through the weekend.

* I really don't have much of an opinion on whether to use expiration dates of Dec 7, 14 or 21.  I may try small trades in all three just to watch.

* While no one can predict the direction of Trump, the market reaction should be pretty extreme.  If there great progress, the market will soar.  If there's no progress or a step back, the market is going to take a big hit... especially China.

* If you have ideas, I'd greatly appreciate you sharing them.  Even if you don't want to do the trade or have an opinion, let me know if you'd like to see the results.

[Kim]

Sounds reasonable. And yes, please share the results.

[Noah Katz]

@Crazy ayzo

 

Sounds interesting.

 

I'm tempted to follow along.

 

If you don't mind me asking, roughly what's your success rate on speculative trades similar to the midterms one?

[Crazy ayzo]

No, I don't mind you asking.  I'm a beginner.  I've had a handful of speculative trades on QQQ in the last few weeks where I legged out as each was profitable based on the expectation of the market being volatile that were very profitable.  I'm up about $40K on pure play options for the last 6 weeks... call it beginners luck.  I joined SO in mid September.

The midterms trade was really the first one that was based on a good thesis.  I'll back test it for the last few elections before our next big election in 2020, share the trade, and go big if it fits as well as I think it does.

I think the G20 is a good thesis as well, but I don't have the experience to back it up.  There's also no real data set to backtest since we've never been in this position before.

I think we're likely to see Trump and China send out discouraging signals between now and the meeting... there's little reason to tip their hand in the negotiations.  Trump's encouraging tweet last Friday was I believe an attempt to rescue the markets for the election.  

What makes this trade a little more unpredictable is that there's not a certain date/time for their meeting like there is for a major earnings call.  Also, a public company would never intentionally send out an incorrect pre-earnings communication.  This is just the opposite, I would expect that both parties want a deal, neither party wants the other party to know how badly they want it.

[Azov]

This is an interesting idea, but if I were going to do it, I’d be tempted to use an ETF like FXI instead of BABA or BIDU. It has much more liquidity than either of those two names (in terms of open interest and bid-ask spread), and its straddle price is a much lower percentage of the stock price, so it’s easier to get into with a smaller account. 

 

Granted, the absolute dollar moves are likely to much less, but the percentage move could be higher. It’s currently at a higher IV rank at the moment, which is something to keep in mind, but I think the other factors (especially liquidity) would make this a better choice for personally. 

 

Just a thought. 

[Crazy ayzo]

Thanks @Azov.  I'll definitely take a look at that.  

[Crazy ayzo]

@Azov... you are right about the volume on BABA.  it's very sporadic.  Surprisingly, the bid-ask spreads are tight.  The options are expensive, but the stock is so volatile that I think it's worth the premium.  I'm taking a beginner's guess that BABA is so volatile that the volatility portion of it's option price is somewhat insulated from a decline in VXX.  Long story short, I opened a BABA trade a few minutes ago.  My plan will likely be to leg out if it moves as dramatically as I expect in the coming days.  I was tempted just to go long, but then I thought the same thing @$150 yesterday!

[Azov]

4 hours ago, Crazy ayzo said:

@Azov... you are right about the volume on BABA.  it's very sporadic.  Surprisingly, the bid-ask spreads are tight.  The options are expensive, but the stock is so volatile that I think it's worth the premium.  I'm taking a beginner's guess that BABA is so volatile that the volatility portion of it's option price is somewhat insulated from a decline in VXX.  Long story short, I opened a BABA trade a few minutes ago.  My plan will likely be to leg out if it moves as dramatically as I expect in the coming days.  I was tempted just to go long, but then I thought the same thing @$150 yesterday!

Good luck! I’m still considering getting into this, but have a lot of irons in the fire these next couple of weeks. I’ll let you know if I take the plunge. 

[againstallodds]

 

My 2 cents is that the US/China issue will not be solved at the G20. Sure there might be a communique of some sort announced that will dampen volatility temporarily, but this US/China friction is more fundamental than to be solved at the G20. I think it is not as much about trade as it is about countering China policies regarding intellectual property and technology transfer from US companies to China. That is the main focus of the US trade representative Robert Lighthizer and he said that is not going to be easy.

All this is not to discourage you, but the saga of US/China will continue. Seeing as Trump likes to play unpredictable, maybe a good entry spot for your trade would be to capitalise on an uptick in vol pre the G20.

 

[Crazy ayzo]

1 hour ago, againstallodds said:

 

My 2 cents is that the US/China issue will not be solved at the G20. Sure there might be a communique of some sort announced that will dampen volatility temporarily, but this US/China friction is more fundamental than to be solved at the G20. I think it is not as much about trade as it is about countering China policies regarding intellectual property and technology transfer from US companies to China. That is the main focus of the US trade representative Robert Lighthizer and he said that is not going to be easy.

All this is not to discourage you, but the saga of US/China will continue. Seeing as Trump likes to play unpredictable, maybe a good entry spot for your trade would be to capitalise on an uptick in vol pre the G20.

 

@againstallodds

Thanks for your input.  I couldn't agree more!  While I'm bullish on China long-term, for the G20 trades I'm trying to remind myself to be directionally neutral and profit from short term volatility regardless of direction.

[Crazy ayzo]

I closed out the first G20 BABA trade.  I lowered my net credit, should have done it from the beginning.  I was expecting too much of a swing for options 5 weeks out.  6.33% isn't too bad for a 5 day trade.

I opened a new BABA straddle for next Friday.  I have a tentative sell order for 20% profit target.

 

[Crazy ayzo]

@Kim

I closed out my second BABA trade on G20 thesis.  20.6% in one day. 

Edited November 15, 2018 by Crazy ayzo
typos

[Crazy ayzo]

I opened a JD trade on the G20 thesis.  This one also has earnings next week.

... and I opened a 3rd BABA trade

[Crazy ayzo]

Closed out the JD Trade @ 10% profit.  One day trade.  Opening another JD for next week.

Unfortunately my 3rd BABA trade is at a loss.  Does anyone have an option about holding these type of options over the weekend into the final week?

[Crazy ayzo]

@Kim

Closed my second JD G20 Trade.  73% Profit on a 4 day trade!!  $6,451 profit on $8,772 bet.  I'm starting to like politics.

 

** This is the closing trade of the narrow strangle above. The call leg is still open, but counting it as worthless for the calculation. Still an outside chance of a bounce to further increase the profit.

 

Edited November 20, 2018 by Crazy ayzo
clarification of the trade

[Crazy ayzo]

Opened a 3rd JD Trade

[Crazy ayzo]

@Kim

Closed my 3rd BABA trade.  $1,676 profit on $9,420 bet = $17.8% profit in 5 days.  The call leg is still open, counting it as worthless in the calculation.  Still a change of a bounce to further increase the profit.

[Kim]

@Crazy ayzogreat results, thanks for posting!

[Noah Katz]

Darn, forgot to Follow this thread and missed a lot.