Options Trading Newsletter - Inside Out - Issue #170 [Options Today -Iron Condor on XOP]
Inside Out...
Inside Out
Over the weekend, we decided to catch a movie with the kids. It had been almost four years since I last stepped into a cinema, after COVID-19. What struck me the most was the cost of a movie ticket, it had nearly doubled in those four years. It made me realize that many everyday expenses have likely surged by the same margin. If we were to indulge in the same activities we did four years ago, we’d find ourselves broke, considering our paychecks haven’t seen much of an increase. It’s no surprise that many live paycheck to paycheck, with some even facing a deficit before the month’s end. Life is tough, and if your country’s Federal Reserve or Central Bank claims that inflation is under control and the economy is booming, it’s worth examining your personal reality to see if that holds true.
Reflecting on our movie day, we watched “Inside Out 2,” a film about characters controlling our emotions from inside our heads with a control panel. Does this happen in reality? Of course, but we are the ones in control of our emotions and how we express them. There are times when we feel down but choose to project happiness to avoid bringing down those around us. Conversely, when we’re happy, we might want to spread that joy. Ultimately, it’s best to foster fantastic emotions both inside and out. Dwelling on sadness, especially when the cause is beyond our control or requires time to resolve, is futile. Working towards a solution positively might just make the problem disappear one day. And if it’s something that can’t be resolved, why not channel your energy into finding other fulfilling pursuits that bring you joy? Live life the way you should, savoring every moment. What comes next is always a test of which path you choose: (a) Happy or (b) Sad. The choice is yours.
“Life is a matter of choices, and every choice you make makes you.” - John C. Maxwell
SPX (5432)
New highs created almost everyday into CPI and FOMC. Inflation came in all lower than expected this round which gave the market a boost last Wednesday and made a new all time high of 5447. The lower the inflation, the higher possibility of a rate cut as the Fed is always fearing a too early cut could result in inflation coming back up.
However, if it cuts after the inflation target is achieved and it goes back up thereafter they are not to be blamed right? My take, inflation is really difficult to get to 2% dot unless it’s engineered. It could probably go down in the next months to allow the Fed to cut something before elections perhaps, as there is still 2 possible cuts on hand till year end. In any case, market is still bullish as far as it can go now. So continue to ride it with stops below to protect your profits.
Not much economic data this week, with retail sales on Tuesday, Unemployment claims on Thursday and Manufacturing/Services PMI on Friday. Wednesday being a market holiday.
Watch this week for possibility for SPX to retrace back to 5350-5400 level.
Trading range for the week is 5350 to 5550.
NDX (19659)
New highs, 19,664 last Friday and this was reached at the last 5 minutes before close last Friday, sudden spike of over 30 points, as if someone is getting squeezed to square off position before the weekend. I am personally on the short side still holding on and its not too nice of a position right now. Anyway, NDX is up more than 20% so far and the next Fed meeting is end of next Month. As all time high is reach almost every other day now. there could be bound to be some heavy volume selloffs on a bad news days every now and then, opportunity to unload in bigger volume silently by the market.
NDX Futures crossed the 20,000 mark today, reaching a high of 20012. Last week, it was again driven by the Magnificent 7, NVDA gained about 9%, AAPL gained initially 12% before ended up 8% after the Apple Intelligence POP, MSFT up 4,4%, GOOGL 1.3%, AMZN down 0.3%, TSLA up 0.3% and MUSK got his $48 billion pay package ratified again, perhaps requiring him to pump TSLA back in shape in view of fierce competition from the Chinese EVs and battery innovations and lastly META up 2.2%.
Of the lot, AMZN seem to be struggling more nowdays failing to break and stay above the $190 mark. If any of the lot, we would choose to take some put spreads on this one going back below $180. Best time is to place one on an upday closer back up to resistance level to be safe.
The 10 year Treasury Note Yield has gone down last week, fueling the rally up but watch if it ticks back higher this week. It it does show some green bars, expect the market to show some reds…
Trading range for the week is between 19150 to 20100.
HANG SENG INDEX (17941)
HSI was down last week by 425 points and now sitting on the lower band. HSI has been relatively down for almost a month now and if it closes back above the lower channel, we could see some upside in the next days. So far HSI could not keep the momentum up on green days where it spike up more than 200 points. Ending the day losing most of the gains. It needs more interest and possibly the US market is more interesting still with new highs created every other day. But lets be a little patient on this side for now.
OPTIONS TODAY - IRON CONDOR ON XOP
XOP the oil explorer ETF has has gone down for over the past 2 months in line with the crude oil prices. It is now trading at the middle of the last swing high of $161 and Swing low of $126. It could possibly go down further and find support at $126 for a bounce back or price recovery on oversold position. As we trade Iron Condor within a price band and get into a trade duration of at least 30-45 days, we could absorb short term price movement into any direction. In fact, it would be better if it goes into one direction within the first 15-20 days of the trade to get into a reversal to the other side in the remaining 15-20 days of the trade.
The IV Rank of XOP is now at 39 which makes a good candidate for premium selling. Expected move for July 26 expiry is $7.44. XOP is trading at $142.69 which makes the range between $142.25-$150.13
Trade Entry (DTE July 26)
Iron Condor = Bear Call Spread + Bull Put Spread.
Bear Call Spread - Sell a Call at $149 and Buy a Call at $152 (slightly below resistance)
Bull Put Spread - Sell a Put at $135 and Buy a Put at $132
Total credit for the Trade is $1.05 with a Max Loss of $195.
Trade Management
As the Max loss is 2x the trade credit, I do not expect to do much or any management on this trade. I could exit the trade around 2 weeks to expiry if I achieve 50-75% profit level.
OPTIONS TODAY - POSITION UPDATE IRON CONDOR ON MSFT
MSFT closed at $442 up $18.72 from last week. MSFT broke above previous high last week and our trade is taking a loss for now. It is still below our short trade range of $445-$395. We will continue to monitor the trade without any adjustments for now.
OPTIONS TODAY - POSITION UPDATE ON BEAR CALL SPREAD ON SMH
SMH is up another $15.68 last week and I do not think there is any chance to salvage the trade. We will see it we can roll the trade in time with with a small debit, but it’s a long shot as NVDA is still pulling the semiconductor pack up. AVGO POP last week also helped push it higher.
OPTIONS TODAY - WINNER IRON CONDOR ON MICRO CRUDE OIL FUTURES - JUNE24
We closed off the trade last week with over 80% profit.
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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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