The “Crown Jewel” of Market Catalysts

76 total views

From the Desk of Chief Income Strategist Marc Lichtenfeld: Hey, Marc here. I’d like to make sure you’re aware of an exciting new development from my colleagues Bryan Bottarelli and Karim Rahemtulla over at Monument Traders Alliance.

I’ve known these two for a long time. I’ve played several games of poker with Bryan over the years, and Karim was actually one of the people who hired me here at The Oxford Club more than a decade ago.

I can tell you firsthand that they’re two of the best in the business at recognizing where money is flowing and using that information to make winning trades. That’s why I think you’d be wise to check out their brand-new service, which aims to generate substantial potential profits from the release of major government economic data.

Be sure to read Bryan’s summary of the service below.

– Marc

I’ve been fascinated by the markets ever since I started my career as a trader in the live trading pits at the Chicago Board Options Exchange (CBOE).

The energy, the excitement, the potential to make mind-blowing profits – it was like nothing else.

But there was one trading scenario in particular that really caught my attention early on.

I noticed that whenever a company was about to release its latest earnings report, activity in the trading pit for that stock would suddenly explode. It was like someone had set off a stick of dynamite.

Traders would be shouting, shoving, frantically trying to get their orders in as everyone scrambled to take a position before the big announcement.

This gave me an idea… Was there a way to profit from this predictable surge in volatility around earnings?

I knew the direction the stock would move after the report was impossible to predict – an earnings “beat” could still send it down, while a “miss” could still send it up. The market’s reaction was a coin flip. But if I could create a trade that profited from a big move in either direction, that would be incredibly powerful.

That’s when I discovered the beauty of options strangles. By buying both an out-of-the-money call and put option on the stock – which was surprisingly affordable to do before earnings – I could create a position that didn’t care which direction the stock went afterwards. As long as it made a big enough move either up or down, I would profit.

For example, when Clorox released earnings last year, I recommended an overnight strangle trade on it.

The earnings release was positive and we made a quick 80% gain.

Chart: Clorox, February 2023

On the other hand, we also recommended a play on Advance Auto Parts when earnings came out in May of 2023. And those earnings were terrible – they missed Wall Street’s expectations and shares plummeted 35%.

But because these strangle trades win in both directions, we still made a top-performing 293% overnight gain on that one too.

Chart: Advance Auto Parts, May 2023

This is the power of earnings strangles (which I will detail for you with examples below). And you can see why they are a core part of my trading arsenal.

While other traders argued over whether a stock would go up or down after reporting earnings, I just sat back and waited for the fireworks, knowing I could profit either way.

When I discovered this strategy decades ago, it felt almost unfair, like I had found a “loophole” in the market that few knew about.

Flash forward to today. After years of trading my own account, I’m now focused on helping regular investors achieve the same kinds of extraordinary gains that I did.

I’m still as obsessed with hunting down profitable opportunities as ever. But now, my mission is to share those ideas so that others can benefit.

Which brings me to the power of government economic reports.

The Market-Moving Power of Government Economic Reports

See, while earnings reports can cause big moves in individual stocks, government reports can cause huge swings in the entire market. These reports – things like the jobs numbers, inflation data, GDP – have the power to drastically shift investor sentiment almost instantly.

Just like with earnings, the direction is impossible to predict ahead of time. A “good” GDP reading could be seen as bearish if it means more rate hikes are coming, while a “bad” jobs report could be bullish if it takes pressure off the Fed. The market’s reaction is always a wild card.

Sound familiar?

I realized this was the exact same setup that had worked so well for me with earnings strangles. If I could position myself to profit from a big move in the overall market, regardless of direction, that would be an incredibly attractive trade to make.

And thanks to the proliferation of zero-day options, it’s easier than ever for regular traders to put on these strangles overnight.

So I started hunting through all the government economic reports that come out each month, looking for the ones that had the greatest impact. The more a report could move markets, the better it would be as a candidate for an options strangle trade.

JOLTS: The Crown Jewel

The Jobs Openings and Labor Turnover Survey, or JOLTS, immediately stood out. Labor market data is one of the most important indicators for the economy, and the JOLTS report tends to cause some of the biggest market reactions each time it’s released. It was the perfect report to build my trading strategy around.

I put together a full calendar of all the scheduled economic releases, but the JOLTS quickly emerged as the crown jewel. Just look at this backtested data my research team compiled on our JOLTS trades’ performance in 2023…

  • Win rate: 83%
  • Average return: 114% per trade

Chart: JOLTS Trades Track Record

That means that on average, we would have been able to more than double our money overnight 83% of the time… just by placing options strangles the day before the JOLTS report came out each month.

This is the power of being able to profit from volatility in both directions. While most traders try to guess which way the market will go and probably bat .500 over time, these government report strangles tilt the odds heavily in our favor.

A Menu of Opportunities Each Month

The best part is the JOLTS is far from the only game in town. I found several other reports that showed similar potential.

Opportunity No. 1: Consumer Price Index (CPI)

  • Win rate: 58%
  • Average return: 22% per trade

Chart: CPI Track Record

Opportunity No. 2: Producer Price Index (CPI)

  • Win rate: 75%
  • Average return: 75% per trade

Chart: PPI Track Record

Opportunity No. 3: U.S. Import and Export Prices

  • Win rate: 83%
  • Average return: 66% per trade

Chart: U.S. Import and Export Price Indexes Track Record

While the JOLTS remains my favorite, we have a full menu of opportunities to pick from each month. Between all these different reports, there are over 50 tradeable events per year.

That means we can use government-triggered volatility to create 50-plus potential chances to double our money overnight, just by trading options strangles.

In 2024 so far, the strategy is showing no signs of slowing down. Take a look at the performance of “government loophole” trades you could have made this year:

Chart: Government Catalyst Trades in 2024

The Unique Advantages of Zero-Day Options

The key to this strategy’s incredible success lies in the unique characteristics of overnight options – specifically, zero-day-to-expiration (0DTE) options. Unlike traditional monthly options, which only expire on the third Friday of each month, there are 0DTEs expiring every single trading day.

That means we can open and close our strangle positions from one day to the next without taking on any longer-term risk.

Not only that, but 0DTE options are also surprisingly affordable since they have the least amount of time value built into their price.

We can usually put on a full options strangle – both the call and put side – for just a couple hundred dollars per side, sometimes even less. So you don’t need a huge account to start using this strategy.

A Step-by-Step Example Trade

Here’s how it works. Let’s say the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index, is trading at $420 the day before a big JOLTS report is due for release.

To set up our strangle, we’d buy one slightly out-of-the-money call option – let’s say we buy one with a $422 strike price – and one slightly out-of-the-money put option, like one with a $418 strike price, with both expiring the next day.

For simplicity’s sake, let’s assume both the call and the put cost $1. So for a single contract strangle, we’d spend $200 to enter the position – $100 for the call and $100 for the put.

That’s all the risk we’re taking on for the trade. Now we sit back and wait.

Scenario No. 1: The Market Surges

The next morning, the JOLTS data comes out and the market goes haywire. Let’s say it’s an extremely strong labor report, with job openings blowing past expectations.

The SPY rockets higher and is now trading at $430 on the news. Our $422 call option is now $8 in the money and worth at least $800. Even though our $418 put is now worthless, we still walk away with a net profit of $600.

We risked $200 to make $600 overnight – a 300% return on investment.

Now, this is obviously a simplified example with round numbers. In the real world, the options won’t cost exactly $1 each and the profit won’t be an even $600.

But it illustrates the incredible power of the strangle trade and how it thrives on big overnight moves.

Scenario No. 2: The Market Craters

On the flip side, let’s run through a scenario where the JOLTS number misses estimates and the market craters.

The SPY opens at $410 after the data release. In this case, it’s our $418 put that’s now $8 in the money, while our $422 call expires worthless.

But the end result for us is the same – we spent $200 to collect $800, banking a 300% gain yet again.

This is why I love options strangles so much. It literally does not matter which direction the market moves in reaction to these government economic reports… as long as it moves a lot.

We can be dead wrong on our forecast of what the data will show or how investors will respond but still walk away with a big win. It’s like we’ve tipped the scales in our favor.

Chart: Long Strangle

Scenario No. 3: The Market Trades Flat

Of course, like any trading strategy, this one isn’t without risks. We’re still dealing with options, which are inherently leveraged instruments.

The main thing we have to watch out for is if the market doesn’t move enough to overcome the cost of the strangle.

Using the example above, if the SPY only moved to $421 after the JOLTS data, both our call and put would expire worthless and we’d lose our $200 investment.

Placing Overnight Trades with Confidence Thanks to Historical Data

The data doesn’t lie. If we continue to apply this strategy consistently over time and keep our position sizes reasonable, the expected value is incredible.

A strategy with a demonstrable 83% win rate and 114% average return doesn’t come around very often. By harnessing the reliable volatility of government economic reports and the unique characteristics of 0DTE options, we can create a true “edge” over the market.

Less sophisticated traders would view 0DTE options as “gambling.” And if you’re following people off subreddit forums, it might as well be.

But the “JOLTS Loophole” strategy has gone through rigorous backtesting and proven itself time and time again.

Share this Post

About Us

Our mission is to bring retirement news, financial information, and advice to seniors enjoying their golden years.