Why We Watch the Prints and Not the News Hello, Savio, Did you all see the headlines this week… that Warren Buffett is buying up shares of Bank of America Corp. (BAC)? According to the news, he spent $1.7 billion to up his stake to 11.8%. 
Well, that was “old news.” We saw all that 10 days prior… when I spotted Buffett’s prints in the Dark Pool. I didn’t know it was him at the time, but I knew it was somebody with a lot of money. We’ll see if Buffett’s billions can move Bank of America up. If not, we will see further downside. Either way, we’re covered, as I recommended a strangle on Bank of America, on July 21, as soon as I saw this unusual Dark Pool activity, not knowing at the time whether those prints were “Buys” or “Sells.” The trick to strangles is adding to the right side. Many times, I will add with shorter term expirations closer to the money. This is where our day trading skills come into play. Knowing how stocks move minute to minute, hour to hour, allows us to aggressively trade these stocks using options. Check out the weekly chart of Bank of America below. I put “DP,” where the heaviest Dark Pool prints have come in at $23.97. If BoA can stay above that Dark Pool level and rally above $25, we may get aggressive on the long side. 
If Bank of America goes below the Dark Pool prints and breaks below $23, we may get aggressive on the short side. One big question I get asked often is this: “How do I know what strike price and expiration date to use when adding to the ‘right’ side of a strangle?” The answer has to do with “average true range” (ATR). How much does this stock move a day? Bank of America usually moves about $0.50 a day. In other words, if over the course of a few months you measured the low of the day to the high of the day, you’d find that BoA’s ATR is around $0.50. We need to know this information in order to pick a good strike for our options in the short-term trade. The best return on investment (ROI) is when your options go from out of the money to at the money. This is what we want to achieve when picking our strike price. Knowing that Bank of America moves about $0.50 a day helps us to pick $0.50–$1 out-of-the-money options. When it comes to the second part of that question – the expiration date – that depends on the daily chart and what day of the week it is. If it’s Monday and there are no major moving averages or trend lines in front of the stock price, you could probably enter that week’s options. For example, take a look at the daily chart of Bank of America below. 
You can see on this daily chart that there is room to go up from $25.01 to $25.50. Over the past month, Bank of America got close to that upper trend line of resistance twice… and hit a wall both times. Maybe the third time will be the charm. Either way, we have a good shot at a short-term options play from $25 up to $25.50. Here is this week’s options chain for Bank of America. You can see that the BAC August 7 $25.50 Calls are only $0.21. 
Options have options, so you could buy more time by going one more week out to August 14. 
For August 14, you have a choice: the $26 calls for $0.28 or the $26.50 calls for $0.18. I personally would buy the BAC August 14 $26 Calls, unless the bank’s stock can break above that upper resistance channel trend line at $25.50. If that happens, you have a much better shot at trading those $26.50 or $27 calls. This is how you can maximize your strangle trades. I know many of you do not have the time to sit at your desk at your desk and trade level to level, but I am sure that some of you do. That’s why I’m sharing tips here on how you can maximize strangles and trading in general. Now, let’s take a look at some of our current trades… MRO Strangle Last Monday, July 27, we started up a strangle on Marathon Oil Corp. (MRO). Oil has been getting a tremendous amount of Dark Pool activity, which is why we could see a big move from Marathon into earnings on August 15. If it starts to move after earnings, this is where I would recommend rolling into shorter dated options, closer to the money. Marathon usually moves $0.20 a day, so I would recommend $0.50 out of the money, giving it at least two weeks expiration. I will keep a close eye on that position once the company announces earnings. If we see profits before earnings, we’ll probably take some profits off the table. XLP Calls Our Consumer Staples Select Sector SPDR Fund (XLP) September 18 $67 Call Options (XLP200918C00067000) trade still looks great! XLP just broke above a major resistance trend line. If it can break above $63, it could really soar. We have a lot of time left on these September 18 calls. 
PBR Strangle Petróleo Brasileiro SA (PBR) released earnings this week, and the stock did not react well at all. We got massive Dark Pool activity on Petrobras this week at $9.05.That would be the key level to watch. Below is the daily chart of Petrobras. If the stock price breaks below the bottom support channel trend line, it could go to $7 pretty quickly. 
If it dumps below $8.40, that would be a great reason to add onto the put side more aggressively (which we did earlier this afternoon). Petrobras has an ATR of around $0.30. Picking strikes that are just out of the money would be perfect here. That’s why, in our trade on PBR August 21 $7.50 Put Options (PBR200821P00007500) earlier today, we went out two weeks. This past week we got a lot of new Dark Pool activity, but instead of strangling, I want to go directional on some of what I’m seeing. So I need to give them time to splash a little bit. I’m looking to find some good swings for you to take right now. Until then… Good trading,
Stefanie Kammerman,
Editor, Dark Pool Trader
P.S. If you haven’t yet read The Dark Pool Trading Primer or The Dark Pool Trader’s Complete Options Guide, I encourage you to do so. They’ll help you get started here if you’re having any trouble. You can always find them here. But if you do have further questions, you can always contact our Customer Service representatives here. Finally, if you haven’t already, I recommend signing up for my text alerts here. That way you’ll always receive my trades as early as possible. | 
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