This Newly-Discovered Signal Identifies the Stocks Wall Street Wants to Own…
BEFORE They Buy Them!!
Hey everyone, JD here with your Rational Trader Market Analysis Daily.
In today’s video… another great example of why mean reversion trading is a thinking person’s game. The calendar is packed, and we’re working several live trades with more setups on deck.
Monday’s Trades Are Being Tested
Let’s start with the updates.
We’re still in the two trades I flagged yesterday — LMT and PM — and while they’re both under some pressure, the setups still make sense.
Lockheed Martin (LMT): Dipped but Still in Play
Lockheed was holding steady for most of the session, but in the last half hour, it dipped below the $420 put level.
Yes, that puts us in the money on the short put, but I’m not panicking. Lockheed is a highly rated stock, and it’s now trading well beyond two standard deviations (aka “two sigma”) from its mean.
That kind of extreme is statistically rare, which is exactly why I like these trades.
We still have three full trading days until expiration, so I’m staying patient here.
(Reminder: “two standard deviations” is a statistical boundary — around 95% of price movement stays within it. When a stock breaks outside that range, it tends to snap back, which is why I’m not panicking.)
Philip Morris (PM): Still Within Range — Barely
Philip Morris is showing a similar pattern. We’re currently holding the $165 put, and the stock’s right around that level.
Again, it’s a stock I wouldn’t mind owning. And the move has pushed it far beyond what two-sigma normally allows.
The call side of this trade is going to expire worthless, so we’ll pocket that premium. The put side still needs some time decay (aka time premium burn-off), but we’ve got time.
New Setup: Capital One (COF)
Now let’s talk about what I’m eyeing today.
Capital One reports earnings after the close, and I’m setting up another mean reversion strangle. Here’s what I’m targeting:
- $235 calls
- $200 puts
Both are well outside the two-sigma boundary — which means the stock would need to move 8% or more in either direction to threaten this trade. The premiums aren’t massive, but they’re solid:
- ~$0.30 for the calls
- ~$0.35 for the puts
That’s cash I’m happy to collect for staying outside the chaos.
New Setup: GE Vernova (GEV)
Now here’s the one with richer premiums.
GE Vernova is a red-hot name that was trading close to +2SD above its mean — until today. We’ve seen a sharp move lower, right back toward the average.
This is the power of mean reversion at work. I’m positioning with:
- A $640 call, which is well above 2 standard deviations, for about $1.25
- A $470 put, well below 2 standard deviations, for around $1.65
These are thick premiums, and they reflect the expectation of fireworks — which I’m happy to sell into, especially when the math says it’s stretched.
As always, prices may have changed slightly from when I checked — but the trade logic remains.
Wrapping It All Up
We’ve got two trades being tested, two more going on the books, and more setups coming as earnings season marches on.
This is prime territory for mean reversion premium harvesting, and I’ll be back tomorrow with more.
Talk soon,
JD
The Rational Trader
Good luck out there, and stay sharp. I’ll be back tomorrow to recap how these trades played out and to tee up two more.
Talk soon,
JD
The Rational Trader
