Having an Edge Is the Key Dear Savio, The whole premise behind our strategy is catching the option chain off guard. By following the unusually large Dark Pool prints that are coming in on the stock, we know a big move is coming, but the options are not aware of it yet. However, four times a year, we lose this edge due to earnings season. When a company is due to release its earnings report, that creates an air of uncertainty that is reflected in the stock’s option prices. The implied volatility will increase for that week due to an expected move in both directions of the stock price. Unfortunately, this decreases our edge. The option prices are padded because they are expecting a move. This makes it difficult for us to profit with our trading system during earnings season. That’s why I didn’t make any new recommendations last week. Over the last 26 years, I have learned when to trade and when not to trade. Trading is not like any other career. You have days or weeks when you do not put on any trades… and you have weeks where you put on three or four trades a day. Last week, most of the big financial institutions reported earnings, including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), and JPMorgan Chase & Co. (JPM). In the past few years, I have noticed that these financial stocks initially rally off their earnings reports, but those rallies are brief. By the end of the day, they fall and close the day out in negative territory. That’s precisely what happened last week. I will be watching these stocks very carefully this week and may recommend a trade for you once the earnings-related volatility drops. Technology stocks are set to report over the next two weeks, so we will stay away from that sector until they are finished reporting. XLP Calls During earnings season, it’s safer to trade exchange-traded funds. That’s why, on October 5, I recommended a bullish trade on the Consumer Staples Select Sector SPDR Fund (XLP). Last week here, I showed you XLP’s bullish seasonality chart, and, of course, we saw some massive Dark Pool activity come in on it. By last Monday, October 12, those XLP November 20 $70 Call Options had doubled, so I recommended you sell half for 113% profits. We have more than a month to go until our XLP calls expire, so we’ll wait and see where the second half goes. The Election Countdown We have 10 trading days left before Election Day. Things will likely get quite volatile. Let me show you some very strong Dark Pool levels to watch for the major index ETF’s. We hit two very large Dark Pool levels recently on the SPDR S&P 500 ETF Trust (SPY) at $346 and $352.46 Below is my chart of how to trade it this week. I would be bullish above $353 and bearish below $345. 
The Invesco QQQ Trust (QQQ), the Nasdaq Composite ETF, also had very heavy Dark Pool activity on a few price levels over the past week or so: $285.73 and $294.56. This week I would be bullish above $295 and bearish below $285. 
The iShares Russell 2000 ETF (IWM) has been leading the market up over the past few weeks. I spotted heavier Dark Pool activity coming into that ETF at $160, $161.07 and $161.74. This week I would be bullish above $165 and bearish below $160. Below is the weekly chart. 
As far as our gold and silver plays go – Yamana Gold Inc. (AUY) November 20 $7 Calls and iShares Silver Trust (SLV) November 20 $30 Calls – all we need is one solid tweet that there will be stimulus checks coming out before the election. (Both of those trades are below their buy limits, so if you're not in them yet, you still have time.) If not, we have to wait until after the election. Some things are just beyond our control. Until next time, stay safe… Happy trading!
Stefanie Kammerman,
Editor, Dark Pool Trader
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