I play poker and trade options, seeking edges from study, reflection and analytics.

#011 SQQQ Calls

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Trade Details: Bought to open 7 Nov 19th ProShares UltraPro Short QQQ ETF (NASDAQ:SQQQ) 14 calls for $0.50, $358.73 total cost (15.9% of account), 11 days to go. The trade executed at 13:33:00 when the ETF was approximately $13.70.

Potential: Essentially unlimited, however I will reevaluate the position when markets react to the election tomorrow morning. I sized the position such that an adverse move won't do too much damage to my account, however a positive move has the potential to multiply the trade value.

Thesis: The market is setting up for a big Clinton victory. Last week the market was telling a different story. I have been tracking several setups but stayed out of the fray. I decided to make a bet today (see trade flag on the chart below).

 30-minute ProShares UltraPro Short QQQ ETF showing my entry point.

30-minute ProShares UltraPro Short QQQ ETF showing my entry point.

I say "bet" because the trade is sized smaller than usual and based on event risk. I usually trade much more deliberate setups and avoid event risk.

The elements of this trade that could yield a profitable result include:

  • Positioning as a contrarian in the face of a consensus outcome
  • Viewing the most crowded trades (e.g. FANG) as a pocket of potential weakness based on recent experience trading GOOGL
  • Thinking the recent VIX top was just too easy/orderly (see chart below)
  • The combination of the SQQQ's leverage, weakness in the crowded tech trade and a move higher in the VIX could ignite these options
  • Versus an open interest of 2,121 in this specific contract, over 7,230 contracts have traded by 2:40 p.m.
  • Trump supporters have become less silent over the last couple of weeks, but I think there remains a pocket of very enthusiastic, silent voters that are ready to act today (i.e. casting doubt on the polls that have favored Clinton by an increasingly narrow margin)
  • Speaking again about the polls, I encountered a few Trump supporters in a heavily Democratic precinct today that challenged the media's demographic assumptions
  • At 2:03 p.m. CNBC reported on a Trump lawsuit vs a polling station in Nevada that "isn't following proper procedures" -> contested election uncertainty would inject volatility into markets
 Despite encountering resistance, VIX weekly technicals remain bullish.

Despite encountering resistance, VIX weekly technicals remain bullish.

I have been thinking about ways to trade the election, but finding good ideas (other than sitting out) has been difficult. Currency and commodity plays could go either way. Partisan/directional bets on sectors like defense and biotech could go either way. I chose to hone in on "source of cash" stocks and long volatility to play the Trump and contested election scenarios (or an unexpected Clinton sell off) over the remainder of this week and next.

Keep calm and carry on.

#011 SQQQ Calls Closed Loss

#010 GOOGL Puts Closed Profit