Happy Tuesday, traders…

Jeff here.

Yesterday, we saw the overall market breaking out a bit…

Everybody was going wild as Nvidia Corporation (NASDAQ: NVDA) cracked $130 and Advanced Micro Devices, Inc. (NASDAQ: AMD) traded over $175. 

The rotation is back into technology, causing a lot of excitement among traders, especially those who focus on tech stocks.

But for me, this is just more of the “slow bleed-up” we’ve seen all year…

It’s not a sudden surge, but a steady increase that’s been happening over time. 

If you look at the major indexes underneath the hood, they’re moving less than half a % a day due to The Short-Dated Straddle Problem, which is extremely concerning.

And all of this is coalescing into a unique environment for options trading. 

You must know exactly how to approach this market backdrop … or else.

With that in mind, let’s get to my Tuesday Market Outlook for this week…

A Difficult Time to Trade Options

I’m not gonna sugarcoat it … this is a difficult time to trade options. It’s easier to trade stocks in this kind of market. 

If you buy a stock at $160 and it goes to $170 very slowly, that’s a great swing trade for stocks. 

But it’s much harder to time these moves with options. Timing is everything in options trading because the value of options contracts can change rapidly.

All these market makers have been selling calls for the last three months, watching them expire on zero. 

This means they’ve been selling options betting that the stock prices will stay the same or go down, and they’ve been right so far. 

This is bad for options traders because we need volatility to make money. When stock prices don’t move much, the options don’t gain much value, making it harder to profit.

Options trading is like cooking, and great options traders are like world-class chefs. A perfect options trade requires certain ingredients — not least, unpredictability. 

You need a little bit of a volatility factor to get some meat on the bone of your options trades. And this is the part I’m having a difficult time with right now. 

The market has been too steady and predictable, making it tough to find juicy setups with a solid risk/reward ratio. 

It may seem counterintuitive, but this is an amazing time to own stocks long-term … and a pretty bad time for options trading. 

Stocks can slowly gain value over time, making them a safer investment in a stable market, while options rely on quick and significant changes in stock prices, which we aren’t seeing much of right now.

That said, this week, I’m expecting to see a little more volatility due to some upcoming catalysts…

The CPI Report and Earnings Season

The consumer price index (CPI) report is a monthly report that measures the average change in prices over time that consumers pay for a basket of goods and services. 

It’s a key indicator of inflation and can significantly impact the market. 

When the CPI report shows higher-than-expected (or lower-than-expected) inflation, it can cause stock prices to fluctuate more, creating juicy opportunities for options traders.

When inflation is high, it means the cost of goods and services is rising, which can eat into corporate profits and consumer spending. This often leads to stock prices falling. 

Conversely, if the CPI report shows lower-than-expected inflation, it can boost investor confidence, pushing stock prices up.

Regardless of which direction the market goes, the CPI report is an opportunity to see some more dramatic swings in share prices.

Additionally, earnings season is coming up — another time when we can expect increased market volatility. 

Earnings reports provide insights into a company’s financial health and can lead to significant price swings. 

If a company reports better-than-expected earnings, its stock price can soar. But if the earnings are disappointing, the stock price can plummet. 

For options traders, these big price swings are opportunities to make significant profits.

The key to navigating this period is to stay informed and be prepared to act quickly. Keep an eye on the dates when major companies are reporting and pay attention to analysts’ predictions.

Being well-informed can help you make better trading decisions and capitalize on the upcoming volatility.

And when all else fails, don’t sleep on my favorite setup during earnings season — The Earnings Sympathy Play…

The Ace Up My Sleeve: The ‘Earnings Sympathy Play’

Instead of direct bets on the company reporting earnings, I hunt for deals in correlated names.

This means grabbing more affordable options while still riding sector moves.

For instance:

If I see a big earnings setup in, let’s say, a chipmaker like NVDA … but the contracts are too expensive, I might look to trade one of NVDA’s sector peers as a sympathy play.

I may buy contracts in Intel Corporation (NASDAQ: INTC) or AMD to piggyback off the momentum from NVDA.

No guarantees, but this strategy often hits the mark…

A surge or drop from a sector heavyweight can trigger big moves in related stocks, without the premium price tag.

So, while this has been a tough period for options traders, there’s hope that the upcoming CPI report and earnings season will bring much-needed volatility to the market. 

In the meantime, it’s wise to strategize and prepare. Be ready to jump on options trades when the market starts to move more unpredictably. 

Stay informed, be patient, and be prepared to act decisively when opportunities arise. 

Happy trading,

Jeff Zananiri

P.S.Claim your 50% off GAMMA CODE membership before it’s too late!