Dan Passarelli, CEO - Market Taker Mentoring

⇐click the image to view the video 

It was a fairly quiet day in the market in general and in a lot of the names that we referenced in recent videos, and there's good reason for that.

Following Friday's employment figures and everything that went into that. The next big thing is to see where inflation stands when CPI and PPI are released Wednesday and Thursday of this week respectively. There's going to be a lot of wait and see and it's possible that the market can move quite a bit when that information is announced. If inflation is higher than expected, then that's just going to be coupled with Friday's employment figures that the Fed has to get even more aggressive and the market should probably sell off pretty hard.

If inflation comes in cooler than expected, as in a lower inflation number, that would just be fantastic news. We could see the market rallying pretty hard there. So how do you trade going into that? Well, one thing is that if we look, there are some stocks that have implied volatility very low.

For example, let's take a look here at Netflix: NFLX. So if you look at NFLX implied volatility just on the chart here, the implied volatility is under the historical. That means that the options are priced as if the stock is moving less than it is. So this is a really nice example where we had a breakout today. It kind of pulled back just a little bit right down here to the resistance level that it crossed above today.

It ends up being a pretty pinnacle level here, where especially coupled with the inflation figures coming out Wednesday and Thursday, NFLX can make a pretty big move higher or lower to the upside it's got all the way to fill this gap and to the downside it can certainly go and test some of the lows that it was at before. And if it crosses below the 20 day moving average, we can definitely get some follow through.

This is one of the most perfect straddle or strangle plays that we've seen in a while. Just a lot of the stars are lining up. You've got cheap volatility, you got the testing resistance level, you got the gap. So you got all the technical things just mentioned and inflation. It's a nice straddle/strangle play and I hope that helps.