The core CPI numbers fell 0.1% in December, the busiest month of the year so the market took it as a good news and didn't tank.
In fact, the volatility closed below 19 indicating that the market is calm.
But we have to ask ourselves: is this the calm before the storm?
I personally think so, therefore I am extra careful with my trade selections.
For those, who are new to my daily market comments, I place and document one trade a day with the objective of helping everyone learn how to trade options.
What's my trade for today?
#GME (#GameStop). This stock is very well known even amongst non-traders due to its infamous short squeeze caused by a large number of retail gamblers who drove the price up from $15 to 120 at the end of January in 2021. It was an insane spectacle and large hedge funds lost huge amounts of money as they were shorting the stock.
Shorting a stock means that you borrow stocks and sell them at the current price. What you are betting on is that the price will drop, which would allow you to buy the stocks at a lower price and settle your account with the entity you borrowed it from. So in short, you sell high and then buy low instead of the other way around.
So going back to my today's trade the high volatility allowed me to sell a very wide strangle against this stock and still collect fine premium.
GME Daily Chart
Trade Type: Short Strangle
Strike: $12.50 / 45
Expiry: 17 Feb
IV Rank: 75.6
Cap Req: $1194
Annualised Prof at Expiration: 83%
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.