Escalating tensions in the Middle East shaking global markets with US stocks sliding as investors lose their appetite for riskier assets, at least for now. So how does this translate into the options market and volatility here to discuss all star charts. Chief options trader, Sean McLaughlin, as well as Yahoo finances, Josh Shafer back with me. And Sean is here with us in the studio, which is a nice treat.

It's great to be here for the first time. This is a beautiful place you guys have.

Yeah. Thank you so much. Appreciate it. So let us talk about the VIX and volatility because we are not surprisingly seeing it spike today on these headlines coming out of the Middle East. It's at about 21. Is that pretty typical now for what we see around these sort of geopolitical conflicts flaring up?

Honestly, last night when I saw the way the S&P Futures were trading, I expected a bigger move in VIX. So seeing a VIX in the low 20s right now, I don't know. That doesn't raise the alarm bells for me yet. Now, this is how VIX spikes start, right? I mean they got to start somewhere and the next few weeks, we have a weekend coming up, but Monday we could wake up to a VIX in the high 20s, maybe higher. I'm not saying that's going to happen, but I'm not convinced yet that the market is spooked, really spooked yet.

How does it translate to options trading specifically, right? To have a big volatility spike. Obviously I think you're probably not planning for that necessarily depending on where you're you're placing those positions, right? So like the past month and a half and we've had several of these events. How does that sort of impact the strategy?

Well, it impacts how I will trade going forward, right? So when volatility is high as an options trader, I want to start putting positions on that that where I'm selling premium. I want to be short premium generally speaking when volatility is high. Now, I don't want to sell high, I don't want to be selling premium as volatility is rising. I want to wait for volatility to roll over a little bit because as we've seen a VIX can go from 25 to to 30 to 35 to 50 really quickly. And if you're on the wrong side of that, that could be painful. Now, as an options trader, we have the ability to define our risks and put ourselves in position not to get burned if we're wrong, but I still like to wait for, you know, see a day or two of VIX closing lower and then start positioning against uh the volatility.

So so you're not chasing on say like you said, maybe Sunday night, Monday we come in, the VIX is significantly higher. You wouldn't prefer to chase on Monday when the VIX is still spiking.

No, because as we've seen when VIX spikes, it spikes fast, right? And then when it rolls over, it rolls over equally fast. So I'm kind of waiting for the roll over and then I'll start making trades betting on a volatility contraction, maybe selling put spreads in the SPY or the QQQ uh indexes like that.

What? Okay. I'm going to ask a dumb question. What does selling premium mean?

So selling premium means I want to be uh uh I want to be collecting money for selling options. So instead of buying options where you it costs you a dollar a contract or two dollars for a contract, instead you're taking the other side. You're selling it, you're going short and you're getting paid first and you're betting on the value of that contract, whether it's a call or put, going down in price and you're buying it back at a cheaper price.

Okay. So I'm interested in one trade that you told us that you were putting on right now which has to it's on the SPY and it's a call calendar spread that effectively says you think that the SPYs are going to get back to all time highs over the summer, right?

I do think so. I I've been talking with my analyst team over the last couple of weeks and I feel like we've come back so far to not get there. I mean, what are we? We're a whisper away from all time highs now. We're a good afternoon away from it to not get there from here seems would be, I just can't even imagine that. So, yes, it doesn't surprise me if we chop around here at these levels for a little bit, especially with the geopolitical stuff going on, but uh for me, I mean I got to believe that by Fourth of July, we can make a new all-time high. Now, when we get to a new all time high, anything could happen from there. We could just have a runaway gap that everyone's just chasing and they can't get in or it could be a big rug pull and then who knows?

Well, cause right after July 4th is July 9th, which is the the next tariff deadline.

Right. Exactly, exactly. So it wouldn't surprise me at all to see the S&P and the Nasdaq get to new all-time highs in the week or so before that and then then the real fireworks happen.

Yeah. I I actually want to bring up something that Binky Chada of Deutsche Bank talked to us about the other day with how he thinks about the tariff back and forth and the trade back and forth. He said basically what we saw is what we saw during the last Trump presidency. When stocks go down enough, the administration reacts by sort of backing off on trade. So if we do, and then the the uh the opposite happens. So in other words, if we get to record highs again, and Trump is feeling good going into July 9th, maybe then we could see something that the markets are not going to like as much and things go back down.

It's funny you say that. I had the same thought this past weekend. It's interesting how um when we're at the lows, we got the administration trying to pump everybody up and give good news. If there's any news at all, it's good news, right? But they're going to stay away from the bad stuff. And yes, it totally makes sense that we're right back at all time highs, people are feeling good about their finances. They're feeling okay, we're back off the brink. Okay, now we can start trickling out some some tough stuff, some tough love, right? It makes sense to me. Uh I don't, it's not the way I grew up uh following politics, but that's the way it seems to be these days.

Well one of the other interesting things that's been going on over the last months too that I've been following is just the correlation between how stocks are moving, right? In early April, the market was all kind of moving together, right? All the stocks were moving together and I guess I sort of wonder if we approach July 9 and get back to that sort of scenario because stocks have kind of that split now, right? We haven't had a correlated market.

Right.

What if that happens again in July 9 and then how does that sort of impact whether you're putting options on certain individual stocks? Like how does that impact how you individually trade stocks if there's concerned that we would get back to a market where, you know, Trump tweets and everything moves?

Yeah, I mean markets tend to get to a correlation of one when people are scared, right? Everything trades together. Everything trades down together and everything bounces together. So uh for me, if that happens, if we're in a high correlation market, it's because market scared and we're going to be selling off, the VIX will be spiking, we'll be looking at high premiums again. Um you know, when when we have uh volatility spiking what I tend to look for and I looked for this in April and it worked out really well uh knock on wood, but uh soon as we soon as the S&P started bouncing and the VIX rolled over pretty good, then I started selling uh QQQ put spreads uh Nasdaq put spreads. I'm selling uh you know, selling a put spread meaning I'm selling a just slightly out of the money put and then protecting it with a uh further out of the money put. So it's defined risk, okay? So I know the most I can lose and I'll size my position accordingly and I'm betting on two things and I can I'm betting on two things and I can win if one or both happen. And that is I'm betting on volatility contracting or I'm betting on the lows holding. No lows, not breaking. If I get one of those two, I probably make money. Certainly if I get both, I make money. Uh but my risk is defined and that's the most important thing.

Um I want to ask you about a single stock trade that you are looking at also. And it has to with Take-Two Interactive, the the video game company. You know, Josh talking about things not correlating as much probably gives you more opportunity too on a single stock option basis. So what are you looking at with uh Take-Two?

Absolutely. So with Take-Two uh that that's a software company that if you look at the chart over the last year, it has been one of the outperforming names. It has been riding its 50-period moving average almost without fail and it's recently come back and tested that a little bit and it's moving its way back up and it's one of those names that it can move 20 $30 in you know, once it breaks uh once it breaks through new highs, it could get there again in a month or two. And I'm looking at a September call spread. I want to buy the I think it was the 250 calls and sell the 270 calls. I could get it for around, I think I looked at 550, maybe six bucks. I could triple my money if I get it right and defined risk.

Sean, I'm not a technical analyst, but even I can look at the Take-Two chart and understand sort of what you're looking at. Right? It's higher highs.

Number go up. Those things to buy. Yeah.

Yeah. Sean, thanks so much. It's good to see you. Thanks for coming in.

Thanks for having me.