00:00 Speaker A

Amid ongoing volatility, timing the market may be alluring, but it’s not easy. Our next guest lays out an option strategy that uses timing to its advantage. Chris Butcher, Simple simpler trading, Senior Managing Director joining us now to discuss in the options playbook, sponsored by Tasty Trade. So, Chris, walk us through what you’re thinking here on this trade because it takes advantage of some of the changing dynamics in market structure.

00:31 Chris

Yeah, is uh, we’ve been using, we call it the 1550 trade because uh, companies can’t buy back stock the last 10 minutes. So that’s an SEC rule 10b-18. And the way we look at it is of like financial times just had an article about companies are going to go on a $500 billion buyback spree. And they can’t. Usually companies in the S&P don’t buy back stock five weeks prior to earnings. But for the first of the opening print and the last 10 minutes, they can’t ever buy back stock. So a lot of times five weeks prior to earnings when you go in the blackout, the preponderance of stocks, I usually started with JP Morgan, which is usually was this time about April 14th. So you go into early, you know, late March, it means to us, not that the market’s going to automatically go down because that’s what a lot of people think with this kind of thing. Just means bad news and bad charts are more likely to work. And that’s what we saw. I mean, you saw what happened. And once the preponderance of S&P stocks could buy back stock, the markets have held up great. So the whole point is, even if they have some lousy news, they’re Teflon because they can buy back stock. But you can see the end of the day, almost every single day, uh, there’s been great opportunities about shorting the markets the last 10 minutes. So we did like 15 minutes before.

02:59 Speaker B

Uh, Chris, a different question for you now. You know, VIX still above 20 here, Chris. I’m just curious, what do you think it gets gets it back down to sort of pre-tariff levels? Call it low mid-teens.

03:18 Chris

Yeah, that’s a good question. Um, I think it stayed up because the realized volatility stayed up so much. So we like doing the 16 rule. So if you divide the VIX by 16, that’s what market makers are expecting, like over a 1% move, uh, every day. And we’ve seen like a 1% move every day. If I’m right, uh, we’ve been showing a chart from a old stock market pro, uh, Justin Mamis of the sentiment cycle in markets on selloffs. And it’s been adhering perfectly to it, where you get, uh, basically you get the the rally, you get the selloff and the consolidation, then you get the second leg, that’s a panic sell off like you saw in April 2nd, you get the short squeezes, and then you get for weeks that futzes around, where you get a very tight range. And I think that tight range will be their realized volatility going down, and I think you’ll get the uh, the VIX back to like 17. So I think when you get the expected move of the realized move every day of 1%, like today, I mean, if it stayed like this for two weeks, I think you’d see the VIX at 16 or 17.

05:02 Speaker A

And so, and then that what levels are you watching for in the S&P 500 that would sort of go along with that?

05:12 Chris

Um, right now, well, I’ll tell you, I look at it, we we did a Google search, Yahoo search, either either. And of uh, yeah, I got to be careful there. But uh, when they basically threatened the tariffs with China of 10 to 20%, that was March 4th. So the first thing we’re thinking is number one, the S&P on a daily chart, the 200 moving average is around 5,800. The March 4th statement was right around 5,800, and a lot of prior tops have been 5,800, and believe it or not, the prior bottom before the election, let me go to it and be sure I’m telling you the right thing, but I believe was, survey says, yeah, 5,800, the same thing. So that 5,800 is, I think, about it on the upside, because I don’t understand if you say, well, China, uh, lowers tax, uh, the tariffs are going to go to 50, uh, 50%, that’s still higher than March 4th. So it just seems there’s so many reasons for the market to futz around in this area for weeks. And I think it’s going to take a gradual uptrend, a tightening volatility to work off any kind of oversold MACD, because we look at oscillators of a weekly oscillator, but I think it that it’ll take that to work off all the bearish sentiment. And you’ve seen it slowly get worked off, but it’s taken a long time this time.

07:52 Speaker B

Chris, just got a more general question for you. I’m just curious whether, you know, sort of the notable shifts you’ve seen, Chris, in tone, character, volumes, and options trading, give given all all the volatility we’ve been seeing.

08:14 Chris

Um, well, we’ve seen a lot of the zero DTE, uh, stuff, which to me is more premium selling opportunities, but you can’t premium sell the calls because you get these, we call, uh, so many people call them tape bombs, positive news out of nowhere, even when the markets look bad. So we’ve been doing a lot more limited risk like call flies or put flies. So our risk is limited, but if we’re right that the expected move during the day starts to contract, we just try to take some money that way. We did that today, and we’ve done it most days. But I’m seeing a lot more gambler mentality with the zero DTEs, and overall, premium selling is the way I like doing it. So, but at the end of the day, yeah, we’ll buy we’ll buy cheap premium. That will do because of this lack of buybacks.

09:25 Speaker B

Chris, always great to see you and have you on the show. Have a great weekend.

09:31 Chris

Hey, you too. Thanks for having me on.