Thesis: The Energy ETF is well overbought on a short-term basis – practically maxed out at 99.98, and the implied volatility relative to its historical volatility over the past 21 sessions is also giving a sell signal.
Trade: Buy buy buy lots of naked puts! Just kidding. The XLE April 80/82 call vertical is selling for about $0.60. There are only 8 days left until April expiration if things don’t turn out right, but there should be some significant resistance around 80, which was the high from late December 2007.
Thesis: This signal might be a day early, but XLF looks ready for positive action soon, on basically the reverse basis of the energy trade above – short-term oversold, good signal from implied volatility relative to historical volatility. We actually want to avoid any longer term commitment here, as people seem to be overstating the extent to which the credit crisis is “so over, like whatever.”
Trade: The XLF May 22/24 put vertical will get you about $0.39. Subscribers seemed to like that call condor idea yesterday – you could do a similar thing here with the May 27/28/30/33 call condor for a $0.19 debit and a sweet spot between 27.16 and 30.82. Kind of overkill, maybe.
Disclaimer: Should you place these trades? No. Should you even think about it? No. If you’re in the New York metro area, should you spend today outside instead, enjoying the not unpleasant 55 degree weather? Most definitely.