Thursday Shopping List

UVXY is not in this week.

The market survived the CPI report but experienced significant choppiness throughout yesterday. The bulls couldn't break through the resistance—just kidding.

At Sharpe Two, we don't concern ourselves with such matters. We won't change our market approach despite being mocked multiple times by much bigger "influencers" than us. We've been navigating the markets this way for a while now, and that is sufficient to deal with all the mockery.

More importantly, over the past four months, we've found a community of like-minded retail traders, and to be honest, this is even better than a perfect day of trading, where the PnL is so green that you feel like a genius. We all have these moments. It's okay—what's important is to remember that we aren't. Besides, the market is pretty good at keeping us in check.

So, thank you to each and every one of you for your support and for helping us provide quality research each week.

That said, it's Thursday, and it's time for our little fun trades of the week. As a reminder, we try to capture instances where super short-dated options are grossly mispriced in some markets, often for a good reason. For example, when the market overpays for anything shorter than 7 DTE in EWZ, it's because things can go south fairly quickly in Brazil despite its status as the leading economy in Latin America.

The same goes for VXX—the VIX can spike at any moment if something significant hits the newswire. Fund managers would rather be safe than sorry and won't hesitate to overpay for protection, often because they have to due to regulations or internal compliance. This creates little wrinkles in the efficient market hypothesis we are here to capitalize on. We wrote extensively about this approach here; do not hesitate to refer to that article for a deeper understanding.

Let's get started!

The rules

Before we start, let’s do a quick round-up about the rules.

• Short an ATM straddle in the 1DTE contract 01/03 as close as possible to the close on Thursday night. In all our metrics and charts, we assumed an execution at 3.50 pm, but the entry timing doesn’t matter too much: avoid getting in too early, but getting in too late gets you less premium.

• Exit the position as close as possible to Friday's expiration. Again, we assume an execution at 3:50 p.m., but it can be useful to manage the position earlier, depending on your risk tolerance and satisfaction with the returns.

• One word of caution: if you get assigned, leave the trade altogether and eliminate the underlying. If you decide to keep it and “sell premium against it,” it is at your own discretion and outside this strategy's scope. It’s okay to keep the other leg expiring out of the money; there is no reason to pay an extra dime to your broker. Ensure it is far enough from any post-market move — the settlement happens at 4.15 pm, not 4 pm.

One last thing—we still have a few spots left in our Discord community, where we monitor this strategy, and many others mentioned in this newsletter. If that resonates with you, the early bird offer is still available. Contact us if you're interested!

The list

Let's start by examining how last week's picks performed.

Last Friday was NFP day, so we decided to analyze an extended list to capitalize on that. VXX and UVXY were not profitable for a change, and neither was IYR, but the rest delivered some decent profits as the market experienced a bit of a reversal overall.

This week is expiration week—we don't have extensive research to identify whether there is a more pronounced effect during this period. However, considering the amount of hedging and positioning happening this week, it is not unlikely, and we will conduct more extensive research in the next few editions of Sharpe Two.