Weekend Review – 9/29/2023

Apologies ahead of time as the weekend review is fairly brief today as I’m racing the clock before boarding a plane to Europe for the CBOE Risk Management Conference that kicks off Monday.

Options Action –

The traders discussed a big trade done in the Russell 2000 Exchange Traded Fund (IWM – 106.58).  It was a bearish trade using standard October options on IWM.  The Russell 2000 has dramatically outperformed the S&P 500 in 2013.  To replicate the trade using IWM options you would purchase 1 IWM Oct 105 Put at 1.10, sell 2 IWM Oct 100 Puts at 0.30 each (0.60 total), and buy 1 of the IWM Oct 95 Puts at 0.10 for a net cost of 0.40.  The trade has a maximum profit of 4.40 if IWM settles right at 100.00 at October expiration.

IWM PO

Another trade mentioned on the show was on Northrop Grumman (NOC – 96.25) in the form as a bear put spread  buying a NOC Jan 95 Put for 3.75 and selling a NOC Jan 85 Put for a 1.00 and a net cost of 2.75 and a maximum potential profit of 7.25 if the stock is 85.00 or lower in January.  It was noted that the scaling down of military activity abroad may have a negative impact on defense stocks.

NOC PO

Barron’s –

Steven Sears discussed the pending doom that is a potential government shutdown.  In the event of a shutdown the government may not be able to pay their bills by mid-October.  The feeling is recent VIX action, where VIX has been moving higher even when stocks are moving up may be a reflection of concern entering the market.