The Arena
The markets seem to be in a state of denial right now. Last week we endured another gut wrenching leg lower to the 20% “recession” level only to have E-Mini futures up over 70 points to start this week. To most of us, it seems likely the US will enter a recession (has already entered a recession) as the Federal Reserve attempts to unwind some of their blunders from the last, oh I don’t know, 50+ years! Soft landing they said, pfft!
Having said that, the market just doesn’t seem to want to go down with out a fight. However, the general tone I’m sensing is that any rally will quickly be sold for at least the remainder of 2022. I should point out though, I’m doing exactly the opposite and loading up on plenty of dividend players when I can. You can check out my portfolio in the OptionBoxer Investment Locker.
I’m riding on a hope and a prayer that this isn’t going to end up the financial apocalypse we all seem to really feel is just around the corner. If that does happen, I’m thinking I’ll be more worried about foraging for berries or collecting morning dew for drinking water than the state of any economy. Let’s pray God doesn’t have that one in his plan.
Chevron Corporation (CVX) witnessed a major decline last week as the entire energy sector took up base jumping.
Chevron Corporation (CVX) witnessed a major decline last week as the entire energy sector took up base jumping. I hope they remembered checklist item number 1 from that riveting base jumping for dummies book, the parachute! If they didn’t then this week is going to be particularly painful for investors. However, my assumption is this just opened the door for new buyers to step in as energy cost around the world remain elevated. Who knows, the sector may be remembering their skydiving excursions from 2015 when energy stocks everywhere were in free fall. Only time will tell…
The Coach
With Chevron Corporation getting a dose of reality last week and falling about 20% off its high volatility has ramped up dramatically in a very short period of time. Now, be warned, market makers and traders are still catching their balance from the plunge last week so options prices could swing wildly this week as participants try to understand the current state of Chevron moving forward. I wanted to get involved here before price stabilizes and volatility returns to “normal” but getting directional seems a little to much like playing poker with my brothers kids. I’m going to lose. Therefore, I’ve zoomed out to the weekly chart and will be considering an intermediate term Iron condor with plenty of room to play.
Is Chevron’s fall just getting started or will we see the sector safely deploy that parachute into a grassy meadow? I’m playing the later so its almost certain to be face melting decline. We shall see…
To continue, here is an article discussing what happened last week and what could be ahead. The Motley Fool: Why Exxon, Chevron, and Phillips 66 Shares Plunged on Friday.
The Attack
If knife juggling is your thing then buying here would be an excellent choice. Alternatively, last week was down right ugly so staying bearish here wouldn’t catch any slack from me. However, if you’re just not sure (like me), then a neutral strategy may fit the bill. Implied volatility is at a really nice level here and market participants are still trying to price in the stocks current state. When that does happen, I think we’ll see volatility decline quickly. What happens next?
Bullish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 125 Put | 16 SEP 22 130 Put | $117.00 | $383.00 | 83% |
Neutral assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 110 Put | 16 SEP 22 115 Put | $132.00 | $368.00 | 81% |
| 16 SEP 22 180 Call | 16 SEP 22 175 Call |
Bearish assumption
| Buy To Open | Sell To Open | Entry Order | Total Risk | Prob. of 50% Profit |
| 16 SEP 22 170 Call | 16 SEP 22 165 Call | $124.00 | $376.00 | 84% |
God Bless,
Jeff
