Hey there Profit Takeover reader,
Your man, Andrew Giovinazzi here.
How's it going?
I've gotta tell ya... it's definitely an interesting time in the markets right now. In fact, it's possibly THE best time to be an options trader.
But, it's also the time when you must trade smarter than you ever have.
Do you wanna know why?
Because, as an options buyer, you want explosive possibilities. As an options seller, you want a quick collapse in option premiums.
Only, right now, traders are watching from the fence... waiting to pounce in the right direction if option premiums implode or explode.
They already jumped a bunch from Thursday to Monday, as the whole SVB collapse debacle hit the mainstream. As of yet, though, commitment, either way, is thin.
The impetus is as old as recorded time. As a matter of fact, it's as old as a Bristlecone Pine Tree.
These 4,000-year-old trees are bent and bowed by the extreme weather in the mountain range just East of the Sierra Nevada in California. I know them well. I spent some of my youth wandering around the White Mountains and these gnarled trees.
The thing is, most of the tree is dead, but not all of it. It contains a living part that seems to defy possibility.
A broken bank is similar.
The Fed, FDIC, and Janet Yellen blinked big time after some tough talk on Friday following the bank's stunning collapse. Until now, policy direction was clear. Interest rates would continue to rise. But Silicon Valley Bank had a lot of heavy donors that stand to lose hundreds of billions of dollars. Thanks to something that rhymes with "shmolitics," the future policy direction is unclear.
As a person with money saved in the bank, it's natural to worry about how this banking crisis will ultimately affect your and your family. As an investor and trader, it's natural to fret over what this will do to the markets.
But as my and Mark Sebastian's friend, you need not worry about either of those things. We've got your back - always - and will guide you through.
Know this: I started my options trading career in 1989 during the S&L Crisis. Way back then, 32% of the country's savings and loan associations went bust. All the assets went to a special purpose vehicle (SPV) that the FDIC ran. There, all the broken properties and securities were sold. Ultimately, depositors got back what was insured.
As of this writing, the big announcement following the SVC collapse was to make depositors whole far and above the FDIC rate of $250,000. The Fed will take securities as collateral and provide cash for instant liquidity. That should control some fallout in the short term.
Rest assured that your money in the banking system is safe.
The most important thing to focus on right now is this...
The VIX Curve Is Crazy Flat
SVB had a huge interest rate liability. Frankly, it's hard to believe they left that unhedged. Regardless of the ethics, that resulted in a huge SPX selloff and VIX rally over the last few days.
Banks failing is nothing new, financial crises are as old as recorded time.
However, now we have tools to measure the depth of the crisis. As of right now, that flat VIX curve says volatility can move hard and fast three or four points in either direction. For example, it was up four points from the closing price alone at one point yesterday.
So what does this mean for you and me, as option traders looking to profit from the opportunities this event presents?
Firstly, if the VIX curve has straight backwardation, we'd be much more bullish VIX. Remember, "backwardation" is when the curve trends downwards ... the expectations are that future prices will be lower than they are today.
If the VIX curve was in contango, I would be much more bearish VIX. "Contango" is when the curve trends upwards... the expectations being that prices will be higher in the future than they are now.
When it's flat, like now, traders are much more undecided about the future outlook.
Up, down, or flat, we're making steady gains in my new Weekly Profit Cycles services. In fact, I will be giving subscribers details of the next trade to make, tomorrow, at 2:30 p.m. ET LIVE. If you're not in that VIP room, you can fix that mistake here.
It defies imagination that the Fed could add liquidity today and then take it away next Wednesday with a 50 basis point rate move. But it's not beyond the realm of possibility. Thus the indecision.
If I were a betting man, I reckon the Fed will "pause" hikes for a while so they can see what they broke in the banking sector. Broken banks are a surefire way to slow down the economy, and the Fed now has two notches in its belt.
If it does hold on rate hikes, I can see SPX back to 4,000 - easily - by March 22nd. VIX would work the opposite way to the low 20s.
Regardless, Weekly Profit Cycles members will be trading safely using a unique strategy Mark Sebastian and I created, to bank gains every step of the way, and in every direction.
Pick your profits, folks.
Andrew Giovinazzi
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