Options Trading Newsletter - Battery For Life - Issue #173 [Options Today - Bull Call Spread on XLU]
Battery For Life...
Battery For Life…
Is there such a thing as a battery that lasts a lifetime? In reality, there isn’t. However, there are rechargeable batteries that can last for several years. Now, imagine a company that replaces your battery for free for life. This is not a hypothetical scenario. In fact, the watchmaker Swatch does exactly that, it replaces the battery of your Swatch watch for free, lifetime.
While I wouldn’t buy a watch solely for the benefit of free battery replacements, it certainly makes for an intriguing marketing approach. Consider this, you use the watch for about 10 years and probably need around three battery replacements. That’s likely to be about 2-3% of the sales value over the lifetime of the watch. With some strategic price adjustments, the company can cover these costs and keep you as a satisfied customer.
This strategy by Swatch serves as a metaphor for life. There are many aspects of our lives where we can plan ahead, investing resources today for the benefits of tomorrow. For instance, dedicating time to study harder today can ensure good grades, which in turn can lead to a rewarding job or career in the future.
The key takeaway here is that if we take the proper time and effort to do the things necessary now, we can achieve better results in the future. This can lead to personal, financial, or even spiritual happiness.
In conclusion, whether it’s a company offering lifetime battery replacements or an individual investing time and effort for future benefits, the principle remains the same. Planning and investing resources today can yield significant benefits tomorrow. So, let’s take a leaf out of Swatch’s book and start investing in our futures today!
“The best time to plant a tree was 20 years ago. The second best time is now.”
SPX (5567)
SPX closed off the week with yet newer highs at 5570. The market began to retake new highs after Fed Chair spoke positively about the positive direction inflation is going and yet the US economy is staying strong. This week, on Tuesday and Wednesday Fed Chair will come on again and we do expect similar comments which could again spark the market. It could also give some light on what to expect on CPI coming up on Thursday. We will see where this could lead to this week. Support could be seen at 5450 level.
Trading range for the week is 5500 to 5650.
NDX (20391)
709(3.6%) move in a week! Just when we thought we could be looking at a possible retracement, the bulls strike again bringing NDX to record high of 20407. Could this continue to outperform? Possible if CPI data is favourable this week and the start of the earnings continue to be bullish for the corporates. JPM and Citi will be in on Friday before open.
It was a big rally for MAG 7 of around 8% driven by TSLA going up 27% last week. Other MAG 7 also followed suit with AMZN up 3.5%, META up 7%, AAPL up 7.5%, GOOGL up 8.45%, MSFT up 4.6% and the laggard NVDA up only 1.8% for the week.
Apart from NVDA and TSLA, all other MAG 7 created all new highs last week.
The broad market rally last week especially after the appearance of J.Powell in the ECM Economic Forum has increased the probability of the rate cut as early as September as the FedWatch tool is now showing a 70% probability of a cut in September as opposed to below 50% over a month ago. If the CPI and Core PPI reading could come in lower, perhaps September cut could really materialize. Lets keep a watch on this.
Trading range for the week is between 19850 to 21000.
HANG SENG INDEX (17799)
Although HSI went up by 80 points for the week, it failed to follow through on Friday and sold off creating yet another bearish weekly pinbar with a long wick above. Prices could still fall and we need to watch if it forms support at 17200 around the 200 daily MA level.
OPTIONS TODAY - BULL CALL SPREAD ON XLU
With possibility of interest rates coming lower, utilities companies which are sensitive to interest rate may benefit from the expected rate cuts this year and going forward. In the earlier part of the year when we were expecting 6 rate cuts we saw XLU rally from the $60s level. It peaked at $72.90 before retracing. It is currently trading at $68.55.
Trade Entry (20 September DTE)
Buy an ATM Call at strike $68. Sell a Call at strike $72. Cost for trade is $1.62 with a max profit of $238. Max loss is $162. Breakeven price is at $69.62.
Recheck the trade price on market opening as XLU pricing can be a bit wonky especially on market open.
OPTIONS TODAY - POSITION UPDATE IRON CONDOR ON XOP
XOP dropped $150 for the week closing at $143.97. The trade is in healthy position, just slightly above the mid point of the Iron Condor mid range.
OPTIONS TODAY - POSITION UPDATE IRON CONDOR ON MSFT
MSFT has gone past the short strike of the Bear Call Spread and we need a 2 standard deviation move till expiry to get the trade back out of the money. Based on the current bullish momentum of the market, it may unlikely make such a move down in a short time. We will see if we can get a price retracement within this week and will close the trade at a lower loss.
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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
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